JUDGMENT :

SUDHANSU JYOTI MUKHOPADHAYA, J.

The Appellant, as ‘Financial Creditor’, filed application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) for initiation of the ‘Corporate Insolvency Resolution Process’ against the Respondent- ‘CHL Limited’ (‘Corporate Debtor’) on the ground of default in discharging its obligations upon invocation of its guarantee. However, the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, dismissed the application on the finding that the Respondent’s liability as a surety was not co-extensive with that of the ‘principal borrower’ by reason of Clause 4 of the ‘Deed of Guarantee’. The Adjudicating Authority held that Clause 4 of the ‘Deed of Guarantee’ is an agreement contrary to the general law of surety's liability being co-extensive with that of the ‘principal borrower’ as provided in Section 128 of the ‘Indian Contract Act, 1872’

Stand of the Appellant- ‘Export Import Bank of India’

2. Learned Senior Counsel for the Appellant submitted that the ground given by the Adjudicating Authority is untenable and the order is liable to be set aside for the following reasons:

3. According to the learned Senior Counsel for the Appellant, Clause 4 of the ‘Deed of Guarantee’ only stipulates the mode of discharge of the guarantee and not the nature of liability of the guarantor. Section 128 of the ‘Indian Contract Act, 1872’ relates to the liability of the surety which is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. Clause 4 of the ‘Deed of Guarantee’ reads as follows:-

"4. In the event of any default on the part of the Borrower in the due repayment of the Loan or any part thereof (whether at stated maturity or upon acceleration or otherwise) including any converted Rupee amount(s) consequent upon default (in the case of Loan in foreign currency) or in payment of an interest, compound interest, additional interest, by way of liquidated damages or other monies in accordance with the Loan Agreement, or in the due compliance with any of the formalities for drawal of the Loan or otherwise in the observance or performance of any other terms and conditions of the Loan Agreement, then and in such an event, the Guarantor shall, within a period not exceeding seven days from the date of despatch or delivery by Exim Bank to the Guarantor of a notice in writing of such default by the Borrower, pay to Exim Bank at Mumbai, on first demand without delay, demur or protest and without any set-off or counter claim, the amounts specified in the notice in the manner required therein and until such payment, the Guarantor shall also be liable to pay further interest thereon including compound interest and additional interest by way of liquidated damages that may be payable by the Borrower to Exim Bank under the Loan Agreement.”

4. It was submitted by the learned counsel for the Appellant that by virtue of Clause 8 of the ‘Deed of Guarantee’, the ‘General Conditions’ which are annexed to the ‘Deed of Guarantee’ form an integral part of the guarantee and the Respondent is bound by the terms stated therein. The following terms of the ‘General Conditions’ are relevant for determining the nature and extent of the Respondent's guarantee –

“2. Exim Bank shall have full discretionary power without further assent or knowledge of the Guarantor and without any way affecting the guarantee or discharging the guarantor from any liability hereunder, to postpone at any time or from time to time the exercise of any power conferred on Exim Bank under the Laon Agreement or any security document and to exercise the same at any time and in any mannet, and either to enforce or forebear to enforce payment of the loan or any part thereof or interest or other monies due to Exim Bank by the Borrower or any of the remedies or securities available to Exim Bank, or to enter into any composition or compound with or to promise t