NCLT Chennai (2025.05.30) in Liquidator, Hotel Milestonnez India Pvt. Ltd. Vs. State Bank of India [IA(IBC)/1934(CHE)/2024 in CP(IB)/243(CHE)/2021] held that-
However, since the discharge of liability of the Corporate Debtor is by way of operation of law and not by means of any other contractual arrangement, the liability of the guarantors is not discharged. Hence, SBI has the contractual right to enforce the liability of the guarantors towards the financial creditor in terms of the guarantee deed.
Therefore, this Tribunal is of the view that the Liquidator cannot seek SBI to return the amounts realised by enforcement of its contractual rights.
Blogger’s Comments; In the present case liability of the Corporate Debtor towards the lender SBI, stands fully discharged (SBI-lender’s admitted claim stands fully paid/discharged by the liquidator). Basic principle of guarantee--in which the guarantor secures the debt of the principal debtor. He does not, then, undertake a promise to pay an amount simpliciter, if at all such a promise could be enforceable in law. Thus when the debt of the principal debtor stands fully paid/discharged, nothing survives against the guarantor.
HC Delhi (21.07.2023) In Vineet Saraf vs REC Ltd. [W.P.(C) 3293/2023 & CM APPL 12815/2023] held that;
# 106. It is this that Hutchens (supra) concludes, lies ill of the basic principle of guarantee--in which the guarantor secures the debt of the principal debtor. He does not, then, undertake a promise to pay an amount simpliciter, if at all such a promise could be enforceable in law.
As far as calculation of claim amount is concerned, a lender after getting his claim fully satisfied under IBC, cannot claim a different amount under any other law (Doctrine of Election).
Excerpts of the Order;
# 4. IA(IBC)/1934(CHE)/2024
4.1. This is an application filed by the Liquidator of the Corporate Debtor against the SBI under Section 60(5) read with Regulation 43 of Liquidation Regulations, seeking the following reliefs,
“The Tribunal may please pass an order under Section 60 (5) & Liquidation Regulation 43 of the IBBI (Liquidation Process) Regulation, 2016 to direct, State Bank of India, the Respondent, to forthwith return Rs.1,06,00,000, the excess monies received by them from the liquidator in distribution on 3rd August with an interest at the rate of 12% per annum from 03.08.2024 until the date of payment to the liquidation estate.”
4.2. In this Application, the Liquidator has reiterated the facts stated in IA(IBC)/1825(CHE)/2024. The Additional facts submitted by the Applicant are enumerated below.
4.3. It is stated that sale realization amount under the SARFAESI and under IBC code 2016 was credited to the Liquidator's Account. It is stated that the 8th SCC meeting was conducted on 19.07.2024, wherein the SCC discussed the distribution of the amount to be released from the successful bidder. The details of the realisation are extracted for reference,
4.4. It is stated that in the 9th Meeting conducted on 01.08.2024, the SCC discussed the full bid value realization from the successful bidder and the distribution of the amount realized from the sale of the Corporate Debtor to the creditors whose claims were admitted by the Liquidator. The Applicant in the meeting represented the Respondent to release the Liquidator's fee of Rs.15,86,250 plus GST for the realization and distribution of Rs.11.25 Crore to the Respondent as part of the Joint e-auction sale proceeds. However, the Respondent declined to release the fees with a reason that the land parcel assets were sold in the Joint e-auction sale under SARFAESI.
4.5. It is stated that the Applicant on 03.08.2024, after the 9th SCC meeting on 01.08.2024 disbursed an amount of Rs.8,77,60,996 to the Respondent after deducting the Liquidator's fees as per Section 53(3) of the Code, computed according to Regulation 4(2) (b) at Rs.23,36,478 (inclusive of GST). The details of the disbursements are given below:
4.6. It is stated that after the initial disbursement of Rs. 11.25 Crores to the Respondent, the bank filed a revised claim and requested the Applicant to release further sum of Rs.2,42,83,842 in addition to Rs. 8,77,60,996. This amount encompasses the interest accumulated from the Liquidation Commencement Date (post-LCD) up to 01.08.2024, as well as other post-LCD expenses incurred by the Respondent.
4.7. It is stated that on the question, whether the Liquidator can accept the aforesaid revised claim of the Respondent, Regulation 12 of Liquidation Regulations pertaining to the publication of a notice inviting stakeholders to submit their claims to the Liquidator and Regulation 16 pertaining to filing of claims with the Liquidator (Regulation 16). Regulation 12 of the Liquidation Regulations be considered. The same is extracted hereunder,
12. Public announcement by liquidator.
(1) The liquidator shall make a public announcement in Form B of Schedule II within five days of his appointment.
(2) The public announcement shall-
(a) call upon stakeholders to submit their claims or update their claims submitted during the corporate insolvency resolution process, as on the liquidation commencement date; and
(b) provide the last date for submission or updation of claims, which shall be thirty days from the liquidation commencement date.
(c) provide that where a stakeholder does not submit its claims during the liquidation process, the claims submitted by such a stakeholder, and duly collated by the interim resolution professional or resolution professional, as the case may be, during the corporate insolvency resolution process under the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, shall be deemed to be submitted under section 38.
4.8. It is stated that as per Regulation 12, it is clear that claims must be filed as on the Liquidation Commencement Date, although, a period of 30 days from that date is allowed for submission. Therefore, claims are to be calculated up to the Liquidation Commencement Date, and any amount accruing or arising on or after that date is not permissible. In the present case, the Liquidation Commencement Date is 15.02.2023, following which the Liquidator issued a public announcement on 18.02.2023. The Respondent filed its claim in Form D on 06.03 2023.
4.9. It is stated that Regulation 16(2) of Liquidation Regulation requires that a creditor must prove its claim as on the Liquidation Commencement Date. Claims by Financial Creditors are to be submitted in Form D, as specified in Regulation 18 of Liquidation Regulation. Regulation 18 is extracted below,
"18. Claims by financial creditors.
(1) A person claiming to be a financial creditor of the corporate debtor shall submit proof of claim to the liquidator in electronic means in Form D of Schedule II.
(2) The existence of debt due to the financial creditor may be proved on the basis of-
(a) the records available in an information utility, if any; or
(b) other relevant documents which adequately establish the debt, including any or all of the following-
(i) a financial contract supported by financial statements as evidence of the debt;
(ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor;
(iii) financial statements showing that the debt has not been repaid: and (iv) an order of a court or tribunal that has adjudicated upon the nonpayment of a debt, if any."
4.10. It is stated that claims must be filed up to the Liquidation Commencement Date. As per Column 3 of the statutory Form D (Proof of Claims of Financial Creditors) and Form C (Proof of Claims of Operational Creditors, excluding workmen and employees), which are part of the Liquidation Regulations, the 'Total Amount of Claim, Including Interest as on the Liquidation Commencement Date and Details of Nature of Claim (Whether Term Loan, Secured, Unsecured)" are required to be stated. Column No. 3 of the Form D filed by the Respondent is extracted below,
4.11. It is stated that as per Form D, claim has been filed by the Respondent with respect to the term loan, corporate loan, and cash credit sanctioned to the Corporate Debtor. The Respondent has claimed a principal amount of Rs. 13,25,03,276.79, with an interest amount of Rs. 6,99,96,291.78, and charges amounting to Rs. 20,27,032.00, totalling Rs. 20,45,26,600.57 as of the Liquidation Commencement Date.
4.12. It is stated that since Form D explicitly uses the phrase "As at the Liquidation Commencement Date", the Liquidation Regulations, clearly contemplate that the claim, including interest, should be calculated "As at the Liquidation Commencement Date." The term "Liquidation Commencement Date" is defined in Section 5(17). Section 5(17) is extracted hereunder,
"(17)liquidation commencement date" means the date on which proceedings for liquidation commence in accordance with section 33 or section 59, as the case may be:"
4.13. It is stated that in the present case, the Liquidation Commencement Date is 15.02.2023. Accordingly, claims must be based on the Liquidation Commencement Date. The statute specifically pegs the claim on this date for a clear purpose and objective. When a claim is filed in Form D, where interest and principal have been included up to the Liquidation Commencement Date, claimants should not be permitted to claim any additional amounts beyond what they have already included in their Form D.
4.14. It is stated that the payments to the creditors have been distributed in accordance with Section 53 of the IBC, 2016. The claims to be paid under Section 53 are to be submitted up to the Liquidation Commencement Date and no interest or other charges can be claimed by the Claimant for payment after the Liquidation Commencement Date. It is stated that there is no specific provision for payment of any amount beyond the claims that were submitted and accepted as on the Liquidation Commencement Date. As no provision exists in Section 53 of the Code for the payment of interest from the Liquidation Commencement Date until the date of realization, the Respondent cannot claim additional amounts for various components such as expenses, penalties, interest, etc., beyond what has already been claimed in Form D. Further, it is the duty of the Liquidator, under Section 35(1)(j) of the Code, read in conjunction with Regulation 12(2)(a) of the Liquidation Regulations, to invite and settle the claims of creditors and claimants as on the Liquidation Commencement Date.
4.15. It is stated that similar issue was adjudicated by the Hon'ble NCLAT, New Delhi, in the matter of DBS Bank India Ltd. vs. Kuldeep Verma, Liquidator of Eastern Gases Ltd., Company Appeal (AT) (Insolvency) No. 1048 of 2022 decided on 06.02.2023. The Hon'ble NCLAT has held that when a claim is filed in Form D, where interest and principal have been included up to the Liquidation Commencement Date, claimants cannot be allowed to claim any additional amounts beyond what they have claimed in their Form D. Permitting any claimant to increase their claim on any ground or reason would not align with the liquidation scheme as contemplated by the Liquidation Process Regulations.
4.16. It is stated that the Applicant served a letter to the Respondent mentioning that there is no provision in IBC, 2016 or the Liquidation Regulations framed thereunder that authorizes secured financial creditors or any other creditors to charge interest for the period after the filing of Form D. Therefore, the Respondent is entitled only to the amount claimed in Form D as on the Liquidation Commencement Date. It is stated that when the statute specifies the Liquidation Commencement Date as the deadline for filing and proving claims, no claims submitted thereafter can be entertained by the Liquidator. However, the Respondent made the revised claim and submitted a detailed worksheet amounting to Rs.11,20,44,838. The details of the revised claim are extracted hereunder,
4.17. It is stated that, according to the aforementioned schedule, the Respondent has claimed the interest accrued to the Corporate Debtor's Debt from the Liquidation commencement date to 01.08.2024. This includes the Liquidator's fees of Rs. 23,36,468 (inclusive of GST) for disbursing Rs. 9,00,97,474 and the TDS amount of Rs. 11,25,000 that was deducted by the Successful Bidder from the sale proceeds of Rs. 11,25,00,000 for the two land parcels sold under SARFAESI. If the Applicant reimburses the liquidator's fees, the Respondent will receive the full original claim amount without deductions. Further, the Respondent would receive the GST sum of Rs. 3,56,412 twice. It is stated that the Respondent has already received the GST input tax credit. It is stated that while analysing the additional claim submitted by the Respondent, the Respondent Bank mentioned in the column no. 2, that the interest accrued for payment by the Corporate Debtor is net off with the realization of SARFAESI proceeds.
4.18. It is stated that the Applicant requested the Respondent to provide the details of the SARFAESI sales they had executed. However, the Respondent hesitated to disclose the details of the SARFAESI Sales to the Applicant-Liquidator and informed that "there is no justifiable reason to the liquidator seeking clarification in respect of the SARFAESI Sales executed by the Bank."
4.19. It is stated that the Personal Guarantors (Suspended Directors) of the Corporate Debtor notified the Applicant that their residential property, mortgaged as collateral for the Corporate Debtor's debt, has been e-auctioned for Rs. 1,06,00,000 by the Respondent under the SARFAESI Act, 2002 on 23.03.2023. The suspended directors also shared copy of the Sale Certificate issued by the Respondent. As per the sale certificate, the SARFAESI Sale was conducted by the Respondent after the liquidation commencement date of the Corporate Debtor, and following the submission of the proof of claim to the liquidator in Form D on 06.03.2023.
4.20. It is stated that the proceeds from the sale of the guarantors' properties during the liquidation of the Corporate Debtor through SARFAESI are the recoveries against the corporate debtor's debts and claims. There is no other loan of the Corporate Debtor or the Suspended directors in their personal capacity pending with the Respondent. Therefore, it is the duty of the Respondent to promptly disclose such information to the Applicant. Further, the Respondent failed to offset the sale proceeds under SARFAESI sale after the Liquidation
Commencement Date of the Corporate Debtor against the Crystallized Debt accepted by the Applicant as on the LCD. Hence, the claim previously submitted by the Respondent should be appropriately rephased.
4.21. It is stated the sale was not reported promptly and the said fact was suppressed by the Respondent to the Applicant, leading to the Respondent, collecting an excess of Rs. 1,06,00,000 illegally over the admitted claim from the Liquidator. Consequently, the Respondent ought to refund the excess sum of Rs. 1,06,00,000 with an interest rate of 12% from 03.08.2024, until repayment to the liquidation estate. Therefore, the Applicant issued a letter no. 291 dated 21.08.2024, requesting the Respondent to return the over-collected funds to the Liquidator by 30.08.2024.
4.22. It is stated that the Respondent, vide letter No. 271 dated 27.08.2024 replied to the above-referred letter of the Applicant stating that the demand to return 1,06,00,000 is not legal and instructed the Liquidator to withdraw the said letter. The relevant portion of the reply of the Respondent is extracted below:
"the land property belonging to Personal Guarantors (PGs) Mr. Rajamanickam and Ms. R. Manimegalai, mortgaged to the Bank was duly sold by the Bank under SARFAESI Act, 2002 in order to recover its dues against the Certificate Debtors which does not have any bearing on the liquidation estate of the CD and hence your claim to return the amount of Rs. 1,06,00,000 is not legally tenable and falls beyond the power and duties of the Liquidator under IBC liquidation process. Hence we call up on you to withdraw the above demand and advise you to abstain from such conduct in future which could be inferred as a contravention to the Code of Conduct of Insolvency Professional." (Para 4 of the reply letter).
4.23. It is stated that the Applicant enquired about the SARFAESI sale process conducted by the Respondent during the liquidation period of the Corporate Debtor, whether this constitutes a contravention of the IBC, 2016.
4.24. It is stated that the properties listed in Annexure I of Form D were sold by the Applicant through a joint e-auction sale process successfully concluded on 17.07.2024. Further, the entire proceeds of the joint auction of Rs 28.40 Crores were received in the liquidator's account. In compliance with the orders of the Tribunal, the Authorized Officer of the Secured Financial Creditor signed a joint e-auction notice & issued the sale certificate for the guarantor's land property only.
4.25. It is stated that the properties mortgaged as security for the Corporate Debtor's debt are interconnected to the extent of their realized value. Therefore, any realisation transpired, under the orders of Tribunal, concerning the properties enumerated in the Annexure, the liquidator must consider it as a recovery and adjust it within the admitted claim. As the admitted claim was crystallized on the liquidation commencement date, this adjustment is necessary to determine the remaining debt owed to the Financial Creditor.
4.26. It is stated that when a statute provides for liquidation commencement date as the date up to which the claim can be filed and proved, no claim from the Respondent thereafter can be entertained by the Liquidator. Therefore, the amount realised and credited to the Corporate Debtor's Current Account from the joint e-auction sale of properties should be reconciled with the claim settled by the Liquidator, which is similar to the assets built up process of a Company through the liabilities (funding). Since the Applicant has settled the claim of the Respondent in full, the amount of Rs.1,06,00,000 recovered by the Respondent through the sale of the personal property of the personal guarantors under SARFAESI Act, subsequent to the liquidation commencement date in addition to the admitted claim amount ought to be adjusted against the Crystallized Claim amount.
4.27. It is stated that as per Regulation 43 of the Liquidation Regulations, “a stakeholder shall forthwith return any monies received by him in distribution, which he was not entitled to at the time of distribution, or subsequently became not entitled to.” Further, as per Section 128 of the Indian Contract Act, 1872, the Surety's liability is coextensive with that of the Principal Debtor. Since the Corporate Debtor's liability to the Respondent was fully settled on 03.08.2024, with both the claim accepted by the Applicant and the amount paid to the Respondent being Rs.20.25 Crores, the Surety's liability would be extinguished as the Principal Debtor's (Corporate Debtor) liability is fully discharged as on the liquidation commencement date. Consequently, any amount from the SARFAESI sale not accounted for to the Liquidator, resulting in the Respondent receiving excess amount, should be promptly returned in accordance with Regulation 43 of Liquidation Regulations.
4.28. It is stated that the said act of the Respondent suppressing the fact of concealing information is not legally tenable and collecting the amount over and above the claim submitted to the Liquidator tantamounts to a clear violation of IBC, 2016.
# 5. Counter Affidavit Filed by the Respondent in IA(IBC)/1934(CHE)/2024
5.1. The Respondent filed counter affidavit in IA(IBC)/1934(CHE)/2024 on 15.10.2024
5.2. The Respondent reiterated the facts and submissions in the counter affidavit filed in IA(IBC)/1825(CHE)/2024.
5.3. Additionally, it is stated that the guarantors namely Rajamanickam and Manimegalai created a mortgage on their personal property situated at Virugambakkam measuring 66.0 sq.m. and buildings and another property to the extent of 58.80 sq.m. land and building situated at Virugambakkam, by deposit of title deeds as the security for the repayment of loans availed by the Corporate Debtor. The Memorandum of Deposit of Title deed was registered with the SRO Virugambakkam.
5.4. It is stated that by virtue of the mortgage created by the Guarantors and Corporate debtor, the Respondent obtained mortgage decree on the schedule mentioned property in its favour vide DRT order dated 24.7.2017 and the same culminated into recovery certificate in DRC No. 463 of 2017 dated 27.9.2017 against the Corporate Debtor as well as the Guarantors
5.5. It is stated that the Bank initiated the SARFAESI proceedings against the guarantors namely M. Rajamanickam and R. Manimegalai. The Respondent thereby enforced the security interest created by Guarantors on their assets situated at Virugambakam by issuing sale notice dated 06.03.2023 for recovery of Rs.20,51,82,541/- due to the bank as on 05.03.2023 and the auction date was fixed as 23.03.2023.
5.6. It is stated that the Guarantors did not challenge the above sale notice before DRT under SARFAESI Act, 2002. The auction held on 23.03.2023 was successful and the security interest was sold in favour of the successful bidders namely KS Surya Narayanan and S. Lokesh. A certificate of sale dated 28.6.2023 was issued and registered as Document No. 5232/2023. It is stated that after receiving the sale proceeds of Rs.1,06,00,000/- the Respondent adjusted the same as per Section 13(7) of the SARFAESI Act, 2002.
5.7. It is stated that the Guarantors filed SA.67/2016 before the DRT challenging the earlier e-auction notice dated 16.2.2016 for sale of their property at Virugambakkam and obtained a conditional order. However, the same was not complied with. Thereafter, they filed SA.174/2016 and SA.175/2016 before the Hon'ble DRT in respect of eauction of their property situated at Virugambakkam. However, the Guarantors once again failed to comply the conditional order, and the interim stay was vacated. Aggrieved by the said order of the Tribunal, they filed RA.274/2016 before the DRAT, Chennai. The Hon'ble DRAT on 15.7.2016 directed to deposit 25% of the amount, however, the Guarantors failed to deposit the same. Subsequently, the Guarantors preferred W.P.1413/2016 seeking directions of the Hon'ble High Court to the Registrar of the Hon’ble DRAT to extend the time by 60 days to comply with the conditional order. The Hon'ble High Court dismissed the Writ Petition vide order dated 26.10.2016
5.8. It is stated that after a long battle of the litigation initiated by the Guarantors and also by the Corporate Debtor, the Respondent enforced the security interest created by them on Virugambakkam property only on 23.03.2023 for a sum of Rs. 1,06,00,000/-. It is stated that the Respondent appropriated the said amount as per Section 13(7) of SARFAESI Act, 2002 towards their liability as per DRC No. 463/2017 dated 27.9.2017.
5.9. It is stated that the liability of the Guarantors is joint and several and the Respondent is entitled to proceed to recover the entire amount as per DRC No. 463/2017. The liability of the Guarantors does not get discharged in view of recovery made under liquidation in CIRP before this Tribunal. The Hon'ble Supreme Court in the case of Lalith Kumar Jain vs. Union of India and Ors. Reported in AIR ONLINE 2021 SC 401 has held that the guarantor shall not get discharged in view of liquidation of the Corporate Debtor.
5.10. It is stated that the Respondent also initiated insolvency proceedings against the Guarantor, Manimegalai before the Tribunal bearing CP(IBC)/106(CHE)/2023 and the same is pending before the Tribunal.
5.11. It is stated that the Applicant has wrongly interpreted that, the liability of the surety would get discharged as on the date of liquidation date of the Corporate Debtor i.e.,09.02.2023 which is against the liability of the Guarantor under DRC obtained from the competent court under the provisions of the Recovery of Debts and Bankruptcy Act, 1993. It is stated that the Respondent is entitled to recover the DRC amount by initiating proceeding against the security interest created by the Guarantor, which is not forming part of liquidation estate. In this case, the Applicant has exceeded his powers under the IBC to benefit the guarantors, which is against the provisions of Contract act, RDB Act, and SARFAESI Act and also against the Judgment of Hon'ble Supreme Court as referred above. It is stated that the bank has submitted a detailed letter dated 27.08.2024 to the liquidator regarding the right of the banks' against the Guarantor, under the provisions of SARFAESI Act, 2002 which does not have any bearing on liquidation estate of Corporate Debtor. The present application filed by the Liquidator is not legally tenable and falls beyond the powers and duties of the liquidator under IBC Liquidation process.
# 9. FINDINGS OF THIS TRIBUNAL
9.1. We have heard ld. counsels for the parties and perused the documents placed on record.
9.2. The Corporate Debtor was admitted to Corporate Resolution Insolvency Process (CIRP) vide order of this Tribunal dated 19.04.2022 in CP(IB)/243(CHE)/2021. Subsequently, liquidation proceedings were initiated against the Corporate Debtor vide order of this Tribunal dated 15.02.2023 in IA(IBC)/1452(CHE)/2022 and Amier Hamsa Ali Abbas Rawther (hereinafter, Liquidator) was appointed as the Liquidator of the Corporate Debtor.
9.3. The State Bank of India (hereinafter, SBI) filed a claim in Form-D dated 06.03.2023 of Rs. 20,45,26,600.57. As per the Form-D, SBI was a secured creditor holding security interest in the current assets of the Corporate Debtor, the commercial land with hotel building of the Corporate Debtor and the commercial land along with the swimming pool. Additionally, SBI also held collateral security interest in the residential property of two of its guarantors, M. Rajamanickam and R. Manimegalai. SBI also had personal guarantee of M. Rajamanickam, R. Ramachandrana. B. Sivagamani and R. Manimegalai. The details of the security details of SBI are extracted hereunder,
M/s. Hotel Milestonnez India Private Limited – Available Security details
XXXXX
Personal Guarantee of:
1. M. Rajamanickam
2. R. Ramachandran
3. B. Sivagami
4. R. Manimegalai
(Form D of SBI is marked as Annexure 2 in the Application)
9.4. The 1st sale notice cum public announcement was made on 02.04.2023 for the sale of the Corporate Debtor as a going concern. The sale notice included the following assets,
a. Hotel Complex Building admeasuring 50,000 sq. ft in the name of the Corporate Debtor
b. Land property admeasuring 146 cents with Survey Nos. 112/7 and 112/9 in the name of the suspended promoter director/ personal guarantor of the Corporate Debtor, Mr. Ramachandran
c. Land property along with swimming pool and buildings thereon admeasuring 132 cents with Survey Nos. 112/6 in the name of the suspended promoter director/ personal guarantor of the Corporate Debtor, Mr. M. Rajamanickam.
d. Leasehold land of 50 cents held by the Corporate Debtor leased by SIPCOT.
9.5. In the 1st SCC meeting held on 22.02.2023, it was resolved to seek directions from the Tribunal for intermingling of the hotel building belonging to the Corporate Debtor and the land property belonging to the guarantors, both mortgaged with the financial creditor of the Corporate Debtor, SBI and inclusion of such assets in the liquidation estate of the Corporate Debtor.
9.6. Pursuant to the resolution passed in the 1st SCC meeting, IA(IBC)/530(CHE)/2023, was filed before this Tribunal seeking to handover physical possession of the lands mortgaged to SBI and to include the said property in the Liquidation Estate of the Corporate Debtor. This Tribunal vide order dated 09.02.2024, held that the relinquishment of security interest in the properties of personal guarantor in favour of the liquidation estate of the Corporate Debtor is not provided under the provisions of IBC, 2016. It was held that it is not within the scope of the provisions of Section 36 of IBC, 2013 or the regulations framed thereunder, for the financial creditor to relinquish his security interest in the personal guarantor’s property in favour of the liquidation estate of the Corporate Debtor. However, keeping in view the object of value maximisation, this Tribunal permitted joint sale of the properties of the Corporate Debtor and the Guarantor both under the provisions of IBC, 2016 and SARFAESI Act, 2002 by issuing a joint e-auction sale notice. Further, the Tribunal also protected the rights and remedies available to guarantors/suspended promoters under SARFAESI Act, 2002.
9.7. Subsequently, joint e-auction sale notices dated 28.02.2024, 12.04.2024 and 24.05.2024 were issued by the Liquidator and SBI. It is seen that the joint e-auction sale notice explicitly mentioned that the sale of the assets shall be concluded in accordance with the respective Acts. Hence, the sale of all the part and parcel of the land owned by R. Ramachandran and Rajamanickam i.e., the personal guarantors of the Corporate Debtor shall take place under SARFAESI Act, 2002 and the sale of the assets of the Corporate Debtor shall take place under IBC, 2016. However, the attempts for joint e-auction were not successful and did not yield any positive results.
9.8. Subsequently, the Liquidator and SBI issued a joint e-auction sale notice dated 14.06.2024 with two options provided to the auction bidders i.e.,
Option A: Sale as a going concern of the assets of the Corporate Debtor under IBC, 2016 and the lands of the guarantors under SARFAESI; and
Option B: Sale land parcels owned by the guarantors under SARFAESI, 2002 and sale of the assets of the Corporate Debtor collectively under IBC, 2016.
9.9. It is seen that GBJ Hotels Private Limited emerged as a successful auction bidder for a final bid price of Rs. 28,40,00,000 for Option A of the sale notice dated 14.06.2024 and a Letter of Intent dated 18.07.2024 was issued by the Liquidator in this regard. (The Letter of Intent dated 18.07.2024 is annexed and marked as Annexure 11 of the Application)
9.10. The e-auction sale notice dated 14.06.2024 does not set separate reserve price for the corporate debtor’s property and guarantor’s property. The Letter of Intent dated 18.07.2024 provides the bifurcation of the sale price pertaining to the land of the personal guarantor and the assets of the Corporate Debtor. The details are as follows,
9.11. It is seen from the Letter of Intent that the 10% of the Reserve Price amounting to Rs. 2,84,00,000 was received into the Corporate Debtor’s Liquidation Account at Union Bank of India, Egmore via RTGS on 15.07.2024. The balance due of Rs. 25,56,00,000 was to be paid into the Liquidation Account of the Corporate Debtor in three instalments i.e., Rs. 1,68,75,000 pertaining to 15% of the SARFAESI sale proceeds on 18.07.2024, Rs. 8,43,75,000 pertaining to 75% of the SARFAESI sale proceeds on 01.08.2024 and Rs. 15,43,50,000 pertaining to the sale proceeds of the assets of the Corporate Debtor on 19.08.2024.
9.12. It is seen from the minutes of the 9th SCC meeting held on 01.08.2024 that the successful auction purchaser disbursed the sale proceedings in terms of the deadlines set by the Letter of Intent dated 18.07.2024. The details of the disbursement are extracted hereunder,
9.13. It is seen that the amount of Rs. 2,81,25,000 representing 25% of the SARFAESI Sale proceeds was transferred from the Liquidation Account of the Corporate Debtor to the Current Account of State Bank of India, Stressed Assets Management Branch (SAMB), Chennai at theSBI Anna Salai, on 20.07.2024. Subsequently, an amount of Rs. 8,32,50,000 representing 75% of the SARFAESI sale proceeds (after deducting 1% TDS of Rs. 11,25,000) was transferred to SBI, SAMB on 31.07.2024.
9.14. However, at that stage, disputes arose between the Liquidator and SBI regarding settlement of claims and payment of liquidator’s fees. As a result, the present applications came to be filed before this Tribunal. The details of the applications filed and reliefs sought, in brief, are as follows,
a. IA(IBC)/1825(CHE)/2024 filed by the Liquidator seeking SBI to pay Liquidator’s fees for the realisation of the personal guarantor’s property and distribution of the SARFAESI sale proceeds thereof.
b. IA(IBC)/1934(CHE)/2024 filed by the Liquidator seeking SBI to return Rs. 1,06,00,000, being amount realised by SBI out of the sale of residential property of the personal guarantor
c. IA(IBC)/1990(CHE)/2024 file by SBI seeking the Liquidator to return the balance claim of Rs. 2.08 crores and to refund the liquidator’s fee of Rs. 0.22 crores deducted by the Liquidator.
XXXXXX
IA(IBC)/1934(CHE)/2024
9.27. This is an application filed by the Liquidator against SBI seeking to return the alleged excess money of Rs. 1,06,00,000 recovered by the Financial Creditor from the sale of the personal assets of the personal guarantor under SARFAESI Act, 2002 on 23.03.2023 much after the Liquidation Commencement Date on 15.02.2023. According to the Liquidator, SBI did not notify him regarding the recovery of money from sale of the personal assets of the personal guarantor nor did it submit a revised claim after deducting the amount recovered during the liquidation period. The Financial Creditor, SBI, has placed reliance on the decision of the Hon’ble Supreme Court of India in Lalit Kumar Jain vs Union of India & Ors (Transferred Case (Civil) No. 245/2020) to contend that the liability of the guarantor is not discharged in view of liquidation of the Corporate Debtor.
9.28. Sections 133, 134 and 135 Indian Contract Act, 1872 provide that the liability of a guarantor, being coextensive with that of the debtor, would stand extinguished if the principal debtor’s debt is also extinguished. Such a discharge of liability of surety may arise out of variance in the terms of contract between the principal debtor and the creditor, by release or discharge of the principal debtor or when the creditor makes a composition with, or promises to give time to, or not to sue with the principal debtor. Section 133, Section 134 and Section 135 of the Indian Contract Act, 1872, are extracted hereunder,
133. Discharge of surety by variance in terms of contract. —Any variance, made without the surety’s consent, in the terms of the contract between the principal [debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.
134. Discharge of surety by release or discharge of principal debtor. —The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released, or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.
135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor. —A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.”
9.29. The Hon’ble Supreme Court in Maharashtra State Electricity Board, Bombay Vs. Official Liquidator, High Court, Ernakulam, Anr. (Civil Appeal No. 3182 of 1982) has held that when the liability of a principal debtor company is discharged by operation of law i.e., by way
of liquidation, the same would not absolve the surety of its liability to the creditor under Section 134 of the Indian Contract Act, 1872. The relevant paragraph is reproduced hereunder, “Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to Rs. 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within fortyeight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidation before the amount demanded is paid. The Bank cannot raise the plea that it is liable only to the extent of any loss that may have been sustained by the Electricity Board owing to any default on the part of the supplier of goods i.e. the company in liquidation. The liability is absolute and unconditional. The fact that the Company in liquidation i.e. the principal debtor has gone into liquidation also would not have any effect on the liability of the Bank i.e. the guarantor. Under section 128 of the Indian Contract Act, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under section 134 of the Indian Contract Act by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability.”
9.30. The Hon’ble Supreme Court in Lalit Kumar Jain (supra) relied upon its decision in Maharashtra State Electricity Board, Bombay (supra) and held that if the debt of a Corporate Debtor is extinguished by ‘operation of law’ as opposed to a contractual arrangement, then guarantor is not entitled to the right of discharge of liability vested under Sections 133, 134 and 135 Indian Contract Act, 1872. The relevant paragraphs from the judgment are extracted below,
“108. It is therefore, clear that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor’s liability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act..
111. In view of the above discussion, it is held that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.”
9.31. In the present case, the liability of Corporate Debtor is discharged by way of initiation of liquidation proceedings vide order of this Tribunal dated 15.02.2023 in IA(IBC)/1452(CHE)/2022. However, since the discharge of liability of the Corporate Debtor is by way of operation of law and not by means of any other contractual arrangement, the liability of the guarantors is not discharged. Hence, SBI has the contractual right to enforce the liability of the guarantors towards the financial creditor in terms of the guarantee deed. 9.32. Therefore, this Tribunal is of the view that the Liquidator cannot seek SBI to return the amounts realised by enforcement of its contractual rights.
9.33. In light of the above findings, the IA(IBC)/1934(CHE)/2024 is disposed of.
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