Balance sheet acknowledgement of guarantee liability as 'contingent' extends limitation under IBC Sec.7, as guarantor's co-extensive liability not truly contingent; unaccepted sanction proposals do not discharge guarantees; CIRP admissible despite pending civil suit challenging validity.

JUDGEMENT

Per Justice N. Seshasayee, Member (Judicial)

1. This appeal is preferred by the Suspended Director of the CD who challenges the Order of the Adjudicating Authority (NCLT, Kolkata) dated 17.12.2024 in CP (IB) No. 89 of 2024, which the first respondent herein has instituted for initiating a CIRP.

2. The CD was not the principal borrower, but the corporate guarantor for the loan which the first respondent had advanced to M/s Eastern Gases Ltd., the principal borrower. The defence to the initiation of CIRP was founded on the validity, subsistence, invocation, and enforceability of the corporate guarantee itself are in serious dispute.

THE FACTS

3. The essential facts necessary for appreciating the merit of this appeal are stated as below:

a) The CD is, inter alia, engaged in the business of real estate investment and management. Be that as it may, on 16.11.2012, a consortium of banks led by the first respondent sanctioned a working capital loan of Rs.20.0 crores to M/s Eastern Gases Ltd., the principal borrower. The sanctioned facilities comprised of fund-based and non-fund-based limits and were extended under a consortium arrangement. As part of the security structure for the said facilities, the consortium inter alia required corporate guarantees and the CD herein offered to be a corporate guarantor. Accordingly, on 05.02.2013 the CD executed necessary deed of guarantee in favour of the consortium banks, which, needless to state included the first respondent herein. Besides, the CD had also offered its nine residential apartments as security for the said loan and created an equitable mortgage over them.

b) While so, on 21.01. 2016, the principal lender and the CD entered into a supplemental working capital agreement, following which a further deed of guarantee came to be executed by the CD. According to the lender, this deed of guarantee constituted a valid and continuing guarantee.

c) On 02.05.2017, the loan account of the principal borrower was classified as NPA, and eventually on 08.11.2017 a CIRP was initiated against the principal borrower vide Order in CP(IB) 482 of 2017. This CIRP against the principal borrower failed, and on 21.08.2018, it was ordered to be liquidated. In this liquidation proceedings, the first respondent made a claim of Rs.23,15,37,663/-, but managed to recover only Rs.10,20,37,136/-. The remaining amount continued to remain unpaid, on which interest continued to accrue.

d) Now turning to the CD herein (to repeat the corporate guarantor), the bank had issued communication to it requiring the former to discharge its liability. Notice under Sec.13(2) of the SARFAESI Act was issued in October 2017. And, in April, 2022, the bank issued a show-cause notice to the CD proposing to classify it as a willful defaulter in relation to the account of the principal borrower. In response, the CD had sought information regarding the status of the loan account and the securities. According to the CD, it was at this stage it came to know of the sanction letter dated 30.06.2016.

e) Subsequently, in the same year, the CD instituted a suit in C.S.2156 of 2022 before the City Civil Court, Kolkata, inter alia for a declaration that for the cancellation of the corporate guarantee and release of the mortgaged flats. The said suit is pending.

f) It is in this setting, on 04.03.2024, the first respondent laid a petition under Sec.7 of the IBC seeking initiation of CIRP against the CD. In its petition, the bank claimed that the CD had defaulted in paying Rs.42,51,09,234/-, which is made up of the amount