Date Of Default In Case Of Personal Guarantor Depends On Terms Of Contract Of Guarantee: NCLAT

Brief Facts

The present appeal has been field under section 61 of the code challenging an order passed by the NCLT by which an application under section 95 of the code was admitted. The account of the corporate debtor was declared as Non-Performing Assets (NPA) on July 31, 2013 and the CIRP was initiated on January 1, 2020. Consequently, a demand notice under Rule 7 the Insolvency and Bankruptcy Rules, 2019 was also issued but no payment was made by the personal guarantor of the corporate debtor.

Subsequently, the SBI filed an application under section 95. The Resolution Professional recommended the admission of the application in his report. In pursuance of which, the section 95 application was admitted. This order of admission has been challenged in the present appeal. Similar appeals were filed by Narayanbhai N. Patel and Jayantibhai Nagarbhai Patel, challenging identical orders for their respective guarantees. All these appeals have been consolidated.

Contentions

The appellant submitted that the application under Section 95 of IBC filed in June 2022 by the Respondent No.1 Bank seeking insolvency resolution of the Appellant was grossly time-barred.

It was further argued that the application under Section 95 was defective as it has been signed and filed by an Assistant General Manager (“AGM” in short) of the Respondent No. 1 Bank and therefore not instituted by any authorised person.

Finally, it was submitted that the stand-alone purported Authority Letter signed by a Deputy General Manager in favour of an AGM without the backing of a resolution by the Central Board of Directors of the Respondent No.1 Bank in favour of the said signatory was not sufficient to meet the criteria of disclosure of authorisation as required under Form-C of the 2019 rules.

On the other hand, the respondents submitted that as the Personal Guarantor did not make the payment as demanded in the Demand Notice dated 04.06.2021, the Respondent No. 1 Bank issued Demand Notice dated 28.09.2021 under Rule 7(1) of the said rules. Since the Appellant-Personal Guarantor did not repay the debt within 14 days from Rule 7(1) Notice, the Respondent No.1 proceeded to file the Section 95 application on 18.06.2022 which was within the limitation period as Personal Guarantee had been invoked by demand notice dated 04.06.2021.

Finally, it was submitted that t the Authority Letter authorising the AGM to file the Section 95 application was signed by the Deputy General Manager in terms of Gazette Notification dated 02.05.1987 issued in pursuance of Regulations 76(1) of the State Bank of India General Regulations, 1955 framed under Section 50 of the State Bank of India Act, 1955.

Observations:

The tribunal at the outset noted that in Pooja Ramesh Singh Vs. State Bank of India in CA(AT) (Insolvency) No.329 of 2023 this tribunal has held that “there can be default by the Principal Borrower and the Guarantor on the same date or date of default for both may be different depending on the terms of contract of guarantee. It is well settled that the loan agreement with the Principal Borrower and the Bank as well as Deed of Guarantee between the Bank and the Guarantor are two different transactions and the Guarantor's liability has to be read from the Deed of Guarantee.”

After perusing the relevant clauses of the deed of guarantee, the tribunal observed that the Deed of Guarantee entered between the Respondent No.1 Bank and Personal Guarantor is an independent, distinct and a special contract which has to be construed on its own terms. It is clear from the reading of the clauses in the Deed of Guarantee that guarantee was given by the Personal Guarantor in unequivocal terms and the guarantee amount was to be paid by the guarantor once the guarantee was invoked.

It further observed that since the guarantee deed specifically mentioned that the guarantee was in the nature of an on-demand guarantee, the default was to arise on the part of the Guarantor only when the Demand Notice was issued as contemplated in the Deed of Guarantee. Thus, the period of limitation of the Personal Guarantor was to commence once the demand was made on the Guarantor by the Respondent No.1 Bank.

“Hence, the Notice dated 04.06.2021 issued by the Respondent No.1 Bank to the Personal Guarantor has to be treated to be Notice on Demand as contemplated in the Deed of Guarantee. The Rule 7(1) Notice dated 28.06.2021 had therefore rightly recorded that the debt was due on 04.06.2021 being the date of Demand Notice under Section 13(2) of the SARFAESI Act and that the date of default occurred on 04.08.2021 on the expiry of 60 days from 04.06.2021” the tribunal noted.

While answering the first issue, the tribunal observed that the Section 95 petition which was filed on 18.06.2022 was very much within the limitation period since the Personal Guarantee had been invoked on 04.06.2021 and demand qua the Personal Guarantor arose on the expiry of the period specified in the Demand Notice.

It further added that it is an admitted fact that the Authority Letter authorising the AGM to file the Section 95 application was signed by the Deputy General Manager and the AGM of the Respondent No1 Bank being SMGS-V was statutorily competent to sign any petition by virtue of The Gazette of India Notification dated 02.05.1987.

In light of the above discussion, the tribunal concluded that “Since the Gazette of India Notification lies in the public domain and is subsisting, we are not impressed by the plea raised by the Appellant that the Section 95 application signed by an AGM level Officer of the Respondent No.1 Bank to be unauthorized.”

Case Title: Mavjibhai Nagarbhai Patel Versus State Bank of India and Anr.

Case Number: Company Appeal (AT) (Insolvency) No. 1702 of 2024

Judgment Date: 18/12/2024