Hardeep Singh vs Gagan Gulati

(Arising against the Impugned order dated 21.08.2024, passed by the National Company Law Tribunal, New Delhi Bench-II in IA-2677/ND/2022 and CP(IB)- 265/ND/2022)

IN THE MATTER OF: Hardeep Singh ...Appellant/ Personal Add: C1/B, Mansarovar Garden, New Delhi-110042. Guarantor Email: hardeep.singh@jssi.com

Versus

Mr. Gagan Gulati, Resolution Professional ...Respondent No.1/ Resolution Having its office at: A-179, First Floor, Sudarshan Professional Park, New Delhi-110015 Email:- advocategulati@gmail.com

M/s Intec Capital Limited Respondent No. 2 708, Manjusha Building, 57, Nehru Place, New Delhi- 110019 Email: ibc@inteccapital.com Phone: 9582555722

Present: For Appellant : Mr. Rakesh K. Bajaj, Mr. Hitesh Chopra, Advocates. For Respondents : Mr. Manish Kumar, Advocate for R-2. Mr. Jasmeet Singh & Mr. Nitin Kumar, Advocates for R-1.

Cont'd..../ -2-

JUDGMENT

(27th November, 2025)

INDEVAR PANDEY, MEMBER (T)

The present appeal arises from the order dated 21.08.2024 passed by

the National Company Law Tribunal, New Delhi Bench-II (Adjudicating

Authority) in IA-2677/ND/2022 and CP(IB)-265/ND/2022, wherein the

Adjudicating Authority initiated the Personal Insolvency Resolution Process

(PIRP) against Mr. Hardeep Singh, Personal Guarantor to M/s Jagtar Singh &

Sons Hydraulics Pvt. Ltd. (Corporate Debtor) for the default of a total amount

of Rs. 4,00,76,605/- (Rupees Four Crore Seventy-Six Thousand Six Hundred

Five only) as on 01.12.2021, under Section 95 of the Insolvency and

Bankruptcy Code, 2016, (hereinafter referred to as 'Code'). Shri Gagan Gulati

was appointed as Resolution Professional (RP) by the Adjudicating Authority.

Resolution Professional is arrayed as Respondent No.1 in this appeal.

2. The appeal has been filed by Mr. Hardeep Singh (Appellant) impugning

the order of Adjudicating Authority (AA) on the grounds that the AA has

passed the order, solely on the basis of the Resolution Professional's report

without examining or adjudicating upon the detailed objections he had raised

regarding limitation; incorrect computation of claim; discharge of guarantee

due to the 2019 settlement; the legal effect of his resignation; and revocation

of guarantee. Feeling aggrieved by the non-speaking and mechanically passed

order, and asserting that the initiation of PIRP is contrary to the mandate of

law, barred by limitation, and based on an incorrect appreciation of facts, he

Company Appeal (AT) (Ins.) No. 2239 of 2024 -3-

has approached this Appellate Tribunal seeking the setting aside of the

impugned order.

Brief facts of the case

3. The brief facts of the case are as given below:

i. M/s Jagtar Singh & Sons Hydraulics Pvt. Ltd., (Corporate Debtor),

approached M/s Intec Capital Limited/ Financial Creditor and

Respondent No. 2 in this appeal, for availing the credit facility for a

sum of Rs. 3,18,00,000/- which was sanctioned by Financial Creditor

vide sanction letter dated 22.03.2013. Pursuant to the sanction, a loan

agreement bearing No. 012/920 dated 28.03.2013/ Loan Account No.

LNPIT00712-130002234 was executed between the Corporate Debtor

and the Financial Creditor along with Personal Guarantor, Mr. Hardeep

Singh. The Appellant, who was a director of the Corporate Debtor,

signed the Deed of Guarantee. The appellant subsequently resigned

from the directorship of the CD on 04.04.2016.

ii. The Corporate Debtor again approached the Financial Creditor for

another credit facility for a sum of Rs. 41,32,383/- which was

sanctioned vide letter dated 31.05.2016 and a second loan agreement

with reference to Loan Account No. LNIPT03516-170006753 was

executed between the parties. The second loan facility carried an

interest rate of 13%, and it was repayable in 36 monthly instalments of

Rs. 1.57 lakhs each. The Corporate Debtor serviced approximately 36

Company Appeal (AT) (Ins.) No. 2239 of 2024 -4-

instalments of this loan before financial circumstances hindered further

payments.

iii. Instalments under the 2013 loan were paid regularly until the SBI

account of the Corporate Debtor was frozen in July 2016 due to

classification of CD's account as NPA, leading to disruption in EMI

payments.

iv. The Corporate Debtor communicated with Financial Creditor/

Respondent-2 through emails during mid-2016 requesting alteration of

EMI cheque particulars due to the freezing of its SBI account. However,

before such changes could be affected, cheques were dishonoured,

prompting the Respondent 2 to initiate proceedings under Section 138

NI Act.

v. A loan recall notice cum Arbitration Notice was issued for the first time

by the Respondent 2 to the Corporate Debtor for the Loan Account No.

LNPIT00712-130002234 on 18.07.2017 and the same was duly served

upon the Appellant on 26.07.2017. Arbitration Award was passed in

the favour of the Respondent 2 on 28.08.2018.

vi. The Financial Creditor also initiated CIRP proceedings against the

Corporate Debtor by filing a petition under Section 7 of the Code which

was listed as CP(IB)-619/ND/2018, and admitted by Ld. Adjudicating

Authority on 03.09.2019.

vii. An appeal was filed before this Appellate Tribunal by the Corporate

Debtor bearing No. Company Appeal (AT) (Ins) No. 968 of 2019, wherein

a settlement was reached between the parties and Justice (retd.) A.K.

Sikri of Hon'ble SC of India was appointed as Mediator. His mediation

Company Appeal (AT) (Ins.) No. 2239 of 2024 -5-

led to signing of a comprehensive Settlement Agreement on 02.12.2019

between the Financial Creditor and the Corporate Debtor.

viii. Under the settlement, the first Loan Account No. LNPIT00712-

130002234 stood restructured into a full and final settlement amount

of Rs. 1.20 crore, payable in six instalments of Rs. 20 lakhs each

between March 2020 and August 2020. The second Loan Account No.

LNIPT03516-170006753 stood fully settled for a lump sum of Rs. 5

lakhs, and post-dated cheques were accordingly issued.

ix. Several instalments were honoured by the Corporate Debtor, including

the entire settlement of Rs. 5 lakhs towards the second loan, but the

national lockdown imposed during March 2020 due to COVID-19

caused absolute disruption of business operations, impacting the

repayment capability.

x. The last repayment made by the Corporate Debtor to the FC in the loan

Account No. LNIPT03516-170006753 was Rs. 1,00,000/-on

11.09.2020. The last of such repayment in the Loan Account no.

LNPIT00712-130002234 of Rs 1,00,000/- was made on 29.04.2021.

The Corporate Debtor and the Personal Guarantor failed to make the

full payment under the terms of settlement agreement dated

02.12.2019.

xi. In terms of the order dated 06.12.2019 passed by this Tribunal, a

revival application was filed by the Financial Creditor before the NCLT

for the initiation of the CIRP process, which was allowed on 23.11.2021.

The initiation of CIRP proceedings eventually led to liquidation of the

Corporate Debtor.

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xii. A Demand Notice (Form-B) dated 25.01.2022 was issued to the

Appellant as Personal Guarantor, which he received on 28.01.2022,

wherein the Financial Creditor demanded payment of dues.

xiii. An application under Section 95 IBC was thereafter filed by the

Financial Creditor before NCLT, which was registered as CP(IB)-

265/ND/2022, and Mr. Gagan Gulati was appointed as Resolution

Professional and was directed to submit a report under Section 99 of

the Code.

xiv. The Resolution Professional submitted his report vide I.A No. 2677 of

2022 dated 25.05.2022 under Section 99 of the Code, recommending

initiation of the Personal Insolvency Resolution Process against the

Personal Guarantor/ Appellant. The Adjudicating Authority on

21.08.2024 accepted the Resolution Professional's recommendation

and initiated the Personal Insolvency Resolution Process against the

Appellant. Aggrieved by the aforesaid order of the Adjudicating

Authority the Appellant/ Personal Guarantor has filed this appeal.

Submissions of the Appellant

4. Ld. Counsel for the Appellant submits that the dispute arises from a

series of financial transactions undertaken between the Financial Creditor,

M/s. Intec Capital Limited and the Corporate Debtor, M/s Jagtar Singh &

Sons Hydraulics Pvt. Ltd. The Appellant had signed certain documents as a

Personal Guarantor for one of the loan accounts, and even that guarantee was

subsequently substituted by a later settlement agreement.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -7-

5. Ld. Counsel submits that a Deed of Guarantee dated 28.03.2013 was

executed in respect of Loan Account No. LNPIT00712-1300002234, under

which the Appellant acted as guarantor. The Financial Creditor thereafter, in

March 2016, disbursed a loan amount of Rs. 3,18,00,000/- to the Corporate

Debtor.

6. Ld. Counsel further submits that in May 2016, the Financial Creditor

disbursed another loan for Rs. 41,32,383/- under Loan Account No.

LNPIT03516-170006753, for which no deed of guarantee was executed by the

Appellant. The Appellant had no privity of contract in respect of this second

loan. Despite this, the Financial Creditor later sought to invoke liability of the

Appellant for both loans indistinguishably.

7. It is submitted by Ld. Counsel that due to business stress and lack of

working capital, the Corporate Debtor eventually defaulted in timely

repayment as per agreed terms. As a consequence, the Financial Creditor

issued a Notice of Termination and Reference to Arbitration dated 18.07.2017.

8. It is further submitted by the Ld. counsel for the appellant that the

Applicant/Creditor had 3 years' period of Limitation, available in terms of

Section 238A of IB Code read with Article 137 of the Limitation Act, 1963. The

period of Limitation for filing the present application has already expired on

17.07.2020. The Applicant/Financial Creditor issued Demand Notice dated

25.01.2022, which was received by the Respondent on 28.01.2022, i.e. 17

months after the period of 3 years from the date of default. Therefore,

application of the Applicant/ Creditor is barred by time.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -8-

9. Thereafter, the Financial Creditor initiated CIRP against the Corporate

Debtor by filing CP (IB) No. 619 (ND)/2018, which was admitted on

03.09.2019. The said order of admission was challenged before this Appellate

Tribunal, wherein the Corporate Debtor sought settlement of the creditor's

claims. This Tribunal vide order dated 06.12.2019, permitted settlement

subject to revival of CIRP in case of default. In consequence, the parties

executed a Mediation Settlement Agreement dated 02.12.2019, under the

aegis of Hon'ble Mr. Justice A.K. Sikri (Retd.), where the loan dues of both

loan accounts were finally quantified and settled.

10. Ld. Counsel submits that as per the Settlement Agreement:

a) The first Loan Account No. LNPIT00712-1300002234 was settled for

Rs.1,20,00,000/-.

b) The second Loan Account No. LNPIT03516-170006753 was settled for

Rs. 5,00,000/-.

11. It is the submission of Ld. Counsel that partial payments were indeed

made under the settlement, and the second loan was fully adjusted.

Thereafter, unprecedented circumstances due to the Covid-19 pandemic

prevented further payments. Further, one of the directors, Mr. Sukhwant

Singh, passed away due to Covid, and the other director, Mr. Jagtar Singh,

aged about 86 years, was not in a position to attend to business affairs.

Consequently, the Financial Creditor sought revival of CIRP, which was

allowed on 23.11.2021 resulting in liquidation proceedings.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -9-

12. Ld. Counsel further submits that it was the obligation of the Corporate

Debtor, and not the Appellant to honour these settlements through post-dated

cheques issued by the directors.

13. He submits that subsequently, the Financial Creditor filed an

application under Section 95 of the IBC, 2016 before NCLT against the

Appellant as Personal Guarantor. The IRP submitted a report under Section

99, which the Appellant opposed. However, the NCLT, Delhi Bench-III passed

a non-speaking order, mechanically initiating the Personal Insolvency

Resolution Process against the Appellant, without considering the objections

raised. Aggrieved by the impugned order the Appellant has preferred the

present appeal.

14. The first contention of the Appellant is that he is not guarantor in the

second loan given to corporate debtor and in the settlement deed entered

between financial creditor and corporate debtor. Ld. Counsel submits that the

Appellant had executed a deed of guarantee, only for Loan Account

LNPIT00712-1300002234 under the Deed of Guarantee dated 28.03.2013.

The Appellant never signed any guarantee for Loan Account LNPIT03516-

170006753, and therefore cannot be made liable for the second loan under

any circumstances.

15. Ld. Counsel further submits that Clause 8 of the Deed of Guarantee,

relied on by the Financial Creditor, merely speaks of continuity of guarantee

in respect of a series of transactions under the same agreement. As per

Section 129 of the Indian Contract Act, a continuing guarantee applies only

to transactions under the same contract, and does not extend to new or

Company Appeal (AT) (Ins.) No. 2239 of 2024 -10-

independent contracts, such as the second loan agreement dated 31.05.2016.

Therefore, the second loan is outside the guarantee framework.

16. Further, Ld. Counsel submits that the Mediation Settlement

Agreement, particularly Clause (j), explicitly records that Mr. Jagtar Singh

and Mr. Sukhwant Singh agreed to provide their personal guarantees for

fulfilment of obligations under the settlement. Thus, the parties expressly

substituted the earlier contractual arrangement by introducing new

guarantors. As per Section 62 of the Indian Contract Act, a substituted

agreement dispenses with the original contract, including any earlier

guarantee. Therefore, the Appellant's original guarantee stands revoked and

cannot be pressed into service.

17. Ld. Counsel further submits that the Financial Creditor's actions are

vitiated by several procedural defects. Firstly, the Notice of Termination and

Reference to Arbitration was wrongly addressed to the Appellant in the

capacity of "Director", even though the Appellant was not a director of the

Corporate Debtor at that point of time. Misaddressed notices violate principles

of natural justice and statutory compliance. Reliance is placed on 'Mathew

Varghese v. M. Amritha Kumar, [(2014) 5 SCC 610]' where the Hon'ble

Supreme Court emphasised correct service on the correct legal capacity.

18. Secondly, Ld. Counsel submits that the termination notice was issued

only for the first loan of 28.03.2013, and no termination notice was ever

served for the second loan dated 31.05.2016, thereby rendering any action

under the second loan ex facie illegal.

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19. Thirdly, Section 95(5) of the IBC mandates that a creditor must serve a

copy of the Section 95 application not only on the debtor, but also on the

Corporate Debtor, where applicable. In the present case, the Financial

Creditor failed to supply a copy of the Section 95 application to the Corporate

Debtor, rendering the filing non-compliant.

20. Fourthly, Section 99(6) imposes a duty on the Resolution Professional

to ensure that the Section 95 application satisfies statutory requirements

before recommending admission. However, in this case, the RP failed to

discharge this statutory obligation and mechanically submitted the report

ignoring multiple legal defects. Therefore, the order based on such report is

unsustainable.

21. In his next submission Ld. Counsel for Appellant submits that the

Financial Creditor has deliberately misrepresented the outstanding dues. The

demand raised is artificially inflated by ignoring the Settlement Agreement

dated 02.12.2019, wherein the entire loan liabilities were crystallized and

reduced to a mutually agreed settlement figure. As per the settlement

agreement :

 Rs. 1.20 crore was agreed as full and final settlement of Loan Account

LNPIT00712-1300002234.

 Rs. 5 lakhs was agreed as full and final settlement of Loan Account

LNPIT03516-170006753.

22. It is the submission of Ld. Counsel that the Corporate Debtor paid the

full amount of the second loan under settlement terms. Further, before

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repayment of the first loan could commence in accordance with the schedule,

the Covid-19 pandemic struck, paralyzing business operations and causing

the death of one director (Mr. Sukhwant Singh) while the surviving elderly

director (Mr. Jagtar Singh, aged 86) was incapable of managing affairs.

23. Ld. Counsel further submits that Clause (k) of the Settlement

Agreement only provides that the unpaid amount under the settlement shall

be treated as admitted debt for limited purposes of filing a Section 7 petition.

It does not revive the original loan amounts, nor does it impose liability on the

Appellant as guarantor under the earlier guarantee deed, which already stood

superseded.

24. Therefore, the only amount legally due is Rs. 1,20,00,000/-, i.e., the

unpaid portion of the first loan settlement, and even that is the liability of the

Corporate Debtor and not of the Appellant, whose guarantee stood

substituted.

25. In light of the above submissions, facts, and legal principles, counsel

for the Appellant most respectfully prays that this Hon'ble Tribunal may be

pleased to allow the Appeal, and Set aside the impugned order admitting the

Section 95 application, and pass such other or further orders as may be

deemed fit in the interest of justice.

Submission of Respondent No.2/ M/s INTEC CAPITAL LIMITED

26. The learned counsel for Respondent No.2/ M/s. Intec Capital Limited/

Financial Creditor, respectfully submitted that Respondent No.2, being the

Financial Creditor, has throughout acted in accordance with law and the

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various directions of the Adjudicating Authority as well as this Hon'ble

Tribunal. It is his submission, that the impugned order dated 21.08.2024,

initiating PIRP of the Personal Guarantor/Appellant under Section 100 of the

IBC, is absolutely correct, justified, and liable to be upheld.

27. The learned counsel submits that the present appeal has been filed by

the Appellant/Personal Guarantor challenging the correctness of the

impugned order dated 21.08.2024, whereby the Adjudicating Authority has

rightly admitted the application filed under Section 95 of the Insolvency and

Bankruptcy Code, 2016. It is submitted that the Appellant has attempted to

raise grounds that are neither supported by facts nor sustainable in law. The

Respondent submits that the present proceedings pertain to the liabilities

arising out of the personal guarantee executed by the Appellant towards the

credit facilities extended to the Corporate Debtor and the default thereof. The

impugned order is based on a correct appreciation of material facts,

chronology of default, and the continuous non-compliance by the Appellant

and the promoters of the Corporate Debtor. Thus, no interference is warranted

by this Hon'ble Tribunal.

28. The Learned Counsel submits that the Appellant has challenged the

impugned order primarily on two grounds, both of which are wholly

misconceived and contrary to the record.

29. The learned counsel submits that the entire plea of limitation raised by

the Appellant is baseless and contrary to the clear factual record. Respondent

No.2 places a detailed chronology of recurring and continuing defaults, each

of which independently constitutes a fresh cause of action.

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30. It is submitted that the first default occurred on 18.07.2017, when

Respondent No.2 issued a Loan Recall Notice (LRN)-cum-Arbitration Notice to

the Corporate Debtor in relation to Loan Account No. LNPIT00712-

130002234, which was duly served upon the appellant on 26.07.2017. The

Corporate Debtor failed to regularize the account despite service, thereby

constituting a clear default in terms of the loan agreement. This notice marks

the first crystallized date of default.

31. The Respondent submits that an Arbitration Award was passed on

28.12.2018 in favour of the Financial Creditor (Respondent No.2), confirming

the outstanding dues. The Award conclusively acknowledges the debt and

default, thereby extending the limitation period under settled jurisprudence.

32. Ld. Counsel submits that on 03.09.2019, the Hon'ble NCLT admitted

the Section 7 Petition filed by Respondent No.2 against the Corporate Debtor

in CP (IB) 619(ND)/2018, Intec Capital Ltd. v. M/S Jagtar Singh & Sons

Hydraulics Pvt. Ltd. The admission of the petition, based on continued

default, once again constitutes a fresh acknowledgment of liability and

extends limitation under Section 18 of the Limitation Act.

33. It is the submission of Respondent no. 2 that the Corporate Debtor

came to the Hon'ble NCLAT with a settlement proposal, which led to an order

dated 06.12.2019, wherein a settlement was recorded. However, the

Corporate Debtor subsequently failed to honour the settlement terms,

rendering the arrangement infructuous. The settlement and its breach

reaffirm the continuing default.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -15-

34. Ld. Counsel submitted that the Corporate Debtor made a payment of

INR 1,00,000/- on 11.09.2020 via Instrument No. SBIN220255518010

towards second Loan Account LNPIT03516-170006753. This payment

constitutes a clear acknowledgment of debt under Section 18 of the Limitation

Act, providing a fresh period of limitation.

35. He submits that another payment of Rs. 1,00,000/- was received on

29.04.2021 by NEFT (Instrument No. 108917554718) in first Loan Account

LNPIT00712-130002234, which again extends the limitation period.

36. Ld. Counsel for Respondent 2 submits that on 25.01.2022, a Form-B

Demand Notice was issued to the Personal Guarantor (Appellant), demanding

discharge of liabilities arising under the Deed of Guarantee. The Appellant did

not respond or repay any amount, thereby admitting default.

37. It is submission of Ld. Counsel that the Section 95 Application filed on

03.05.2022 is well within limitation, taking into account the series of

acknowledgements and last payments made as late as 29.04.2021. Hence,

the Appellant's plea is untenable. He submits that the application is squarely

within limitation and is legally maintainable.

38. The Learned Counsel for Respondent No.2 submits that the second

contention of the Appellant that the settlement is a bar to PIRP proceedings

is misplaced, unfounded, and contrary to the actual facts and binding orders

of this Hon'ble Tribunal.

39. Respondent No.2 submits that proceedings under Section 7 of the IBC

were duly initiated against the Corporate Debtor in 'Intec Capital Ltd. v. M/S

Jagtar Singh & Sons Hydraulics Pvt. Ltd., CP (IB) 619(ND)/2018'. Upon

Company Appeal (AT) (Ins.) No. 2239 of 2024 -16-

admission of the petition on 03.09.2019, the promoters of the Corporate

Debtor approached this Appellate Tribunal seeking a settlement. Respondent

No.2 further submits that an appeal was filed by the promoters titled

'Parvinder Singh v. Intec Capital Ltd., Comp. App. (AT)(Ins.) No. 968 of 2019',

wherein this Hon'ble Tribunal, at the request of the promoters, appointed

Hon'ble Mr. Justice (Retd.) A.K. Sikri, Former Judge of the Supreme Court of

India, as Mediator.

40. The learned counsel submits that the mediation resulted in a detailed

Settlement Agreement dated 02.12.2019, under which:

 Loan Account No. LNPIT00712-130002234 was settled for INR

1,20,00,000.

 Loan Account No. LNPIT03516-170006753 was settled for INR

5,00,000.

As part of the settlement, the Corporate Debtor issued post-dated cheques.

However, the Corporate Debtor failed to comply with the settlement terms,

several cheques were dishonoured, and only partial payments were made.

This non-compliance resulted in the settlement becoming unworkable.

41. Ld. Counsel for Respondent No.2 submits that Para K of the settlement

categorically stipulates that the default in the first instalment or any two

consecutive instalments would constitute default and entitle the Financial

Creditor to file a fresh Section 7 petition, which the NCLT shall admit

forthwith. The Corporate Debtor failed repeatedly, thereby triggering the

consequences of Para K. The Para K of the agreement is extracted below:

Company Appeal (AT) (Ins.) No. 2239 of 2024 -17-

"k. It is agreed between the parties that on the recording of this settlement by the Hon'ble NCLAT. IBC Petitions filed by the Financial Creditors before the NCLT shall be disposed of on the aforesaid terms. It is also agreed between the parties that in case of default of first instalment or any two consecutive instalments thereafter in respect of the main loan, it will be treated as default on the part of the Corporate Debtor and the unpaid amount shall also be treated as admitted debt, entitling to the Financial Creditor to file fresh petition under Section 7 of the IBC, which shall be admitted by the NCLT forthwith."

42. Ld. Counsel for Respondent No.2 submits that the promoters Mr. Jagtar

Singh and Mr. Sukhwant Singh gave an undertaking before this Appellate

Tribunal which are reflected in Clause (i) and (j) of the Settlement Agreement.

These clauses are extracted below:

"(i) Insofar as Mediation proceedings are concerned, Mr.

Hardeep Singh attended the proceedings, representing Mr.

Jagtar Singh and Mr. Sukhwant Singh, the erstwhile Directors,

who have given Letter of Authority in his favour. In order to

bind the company, the Hon'ble NCLAT may pass appropriate

Orders.

(j) Both Mr. Jagtar Singh and Mr. Sukhwant Singh are ready to

give undertaking and assurance to the NCLAT in the form of

Affidavits to the effect that they would honour the terms of this

settlement and ensure that all cheques (PDCs) are encashed on

presentation. They have also agreed to give undertaking to the

Hon'ble NCLAT in this behalf with the stipulation that in case

of breach of the Agreement, they would personally liable for the

consequences, including contempt of Court. They have also

Company Appeal (AT) (Ins.) No. 2239 of 2024 -18-

agreed to give their personal guarantee for fulfilment of the

obligations under the Agreement."

43. It is clear from the above that the undertaking given by Mr. Jagtar Singh

and Mr. Sukhwant Singh before the Mediator and this Appellate Tribunal

entailed the following:

 They would honour the settlement terms.

 They would ensure all PDCs are honoured.

 They would be personally liable, even to the extent of contempt, in

case of breach.

 They would furnish personal guarantees for fulfilment of obligations.

However, subsequently, they could not honour these undertakings.

44. The Learned Counsel points out that by order dated 06.12.2019, this

Hon'ble Tribunal made the settlement terms part of its binding directions.

However, the promoters, including the Personal Guarantor (Appellant herein),

failed to comply. In case of failure of the agreement, this Appellate Tribunal

directed that the order setting aside the impugned order dated 3rd September,

2019 shall stand recalled and the Corporate Insolvency Resolution Process

will continue. Thus, the breach is not merely of a private settlement but of the

binding orders of this Hon'ble Tribunal.

45. The Respondent No. 2 submits that this Hon'ble Tribunal vide order

dated 15.03.2021 again modified the terms and allowed the promoters to clear

50% dues by March 2021 and the remaining by June 2021. Even these revised

Company Appeal (AT) (Ins.) No. 2239 of 2024 -19-

conditions were breached due to due to failure of the Appellant and other

promoters.

46. Respondent No.2 submits that the settlement dated 02.12.2019, being

executed under express directions of this Hon'ble Tribunal, cannot be treated

as a fresh, novated contract under Section 62 of the Contract Act. Non-

compliance of the settlement revived the original liability under the loan

agreement, making both the Corporate Debtor and the Personal Guarantor

jointly and severally liable.

47. In view of the above submissions, the Ld. Counsel for Respondent No.2

prays that this Hon'ble Tribunal may be pleased to dismiss the present appeal

with costs, as the Appellant has failed to make out any ground for interference

with the impugned order dated 21.08.2024; and Pass any further orders

deemed fit in the interest of justice.

Analysis and findings

48. We have heard the learned counsel for the parties and examined the

material placed on record. The counsels for appellant and respondent No.2

have also submitted their written submissions.

49. Based on the record and submissions, the following two issues arise for

consideration:

ISSUE I: Whether the application filed under Section 95 of the Insolvency and

Bankruptcy Code, 2016, against the Appellant-Personal Guarantor, was within

limitation?

Company Appeal (AT) (Ins.) No. 2239 of 2024 -20-

ISSUE II: Whether the guarantee executed by the Appellant continued to bind

him, or whether it stood extinguished or substituted because of the later

settlement and undertakings given by the Corporate Debtor's promoters?

50. We first take the issue of limitation argued by the appellant. Ld. Counsel

for the Appellant argues that the creditor's Section 95 application is barred

by limitation. Ld. Counsel submits that the first and only relevant default took

place on 18.07.2017 when the loan recall notice was issued. He submits that

since Section 95 was notified on 01.12.2019, the creditor had three years from

the date of default to file the application, which period expired in July 2020.

He therefore says that the filing of the application in May 2022 is hopelessly

delayed and that the Adjudicating Authority wrongly ignored this primary

defence.

51. The Respondent's case is that the debt did not stop or end in 2017.

According to him, the Corporate Debtor continued to deal with the creditor

even after 2017, including entering into a settlement in December 2019 before

this Appellate Tribunal, making part-payments in 2020 and 2021, and

defaulting again when cheques issued under the settlement were

dishonoured. The Respondent submits that these later payments amount to

acknowledgements under Section 19 of the Limitation Act and therefore

extend the limitation period. It also maintains that the guarantee is a

continuing one and that the default continued until the demand notice was

issued to the guarantor on 25.01.2022.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -21-

52. We have carefully examined the material placed before us. The question

of limitation in this case cannot be decided by treating the loan recall notice

of 18.07.2017 as the only event that matters. The relationship between the

creditor and the Corporate Debtor continued far beyond this date. The

Corporate Debtor participated in arbitration proceedings, faced admission of

CIRP in 2019, and then approached this Appellate Tribunal with an offer of

settlement. At that stage, on the request of the parties, mediation was

conducted under the leadership of a former Judge of the Supreme Court, and

the settlement dated 02.12.2019 came into existence. This settlement was not

merely a private compromise between the debtor and creditor; it was placed

before us in the appellate proceedings; agreed to by the parties; and expressly

recorded in an order of this Tribunal dated 06.12.2019. Therefore, the

obligations arising from the settlement were backed by judicial authority and

carried legal sanctity.

53. The relevant portion of the order of this Tribunal dated 06.12.2019 as recorded in paragraph 11 is extracted below:

"06.12.2019:

11. Terms of Settlement as recorded by the Hon'ble Mediator

should be treated to be order and direction of this Appellate

Tribunal to be complied by all the parties including the Promoters

of 'M/s Jagtar Singh and Sons Hydraulics Private Limited'

(Corporate Debtor); Parvinder Singh, Authorized Representative;

Intec Capital Ltd. And Interim Resolution Professional. In the

present, whole process practically stands suspended for

compliance of the Terms of Settlement. The Corporate Insolvency

Company Appeal (AT) (Ins.) No. 2239 of 2024 -22-

Resolution Process can be revived by the Petitioner in case of

breach of Terms of Settlement or default of any post-dated

cheque. On completion of compliance of terms and conditions, the

application under Section 7 will be deemed to have been

withdrawn by Intec Capital Ltd.', otherwise the order setting

aside the impugned order dated 3rd September, 2019 shall stand

recalled and the Corporate Insolvency Resolution Process will

continue. The Interim Resolution Professional may allow the

Promoters/ Board of Directors to run the Corporate Debtor through

Board of Directors. However, the Appellant, the Corporate Debtor,

its Directors, Officers, Employees will not sell, alienate, transfer

or create third party encumbrance on any of the movable or

immovable property of the Corporate Debtor during the period

Terms of Settlement are complied."

(Emphasis supplied)

54. The order recorded the binding nature of the settlement and

consequences of the failure of the settlement. The settlement fixed a schedule

of instalments and required the Corporate Debtor to honour post-dated

cheques. Importantly, the parties agreed that if the Corporate Debtor

defaulted even in the first instalment or two consecutive instalments

thereafter, the entire unpaid amount would become the admitted debt of the

Corporate Debtor. This clause is extremely significant because it shows that

the original debt did not vanish. Instead, the settlement placed the original

debt in a suspended state, with a clear provision that the entire liability would

spring back into effect if the debtor failed to perform the settlement terms.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -23-

When the Corporate Debtor later failed to honour the cheques issued under

the settlement, it is clear that this clause was triggered. In such a situation,

the debt stood revived and re-acknowledged.

55. The directions of this Appellate Tribunal given in para 11 of the order

dated 06.12.2019 was reiterated by this Tribunal in para 4 of the order dated

15.03.2021. Same has been extracted below :

"15.03.2021:

4. After hearing learned counsel for the parties and going through the records, we are of the view that it would be conducive to interest of justice to allow the Appellant to pay 50% of the balance amount by the end of March, 2021 and remaining amount by the end of June, 2021, failing which Respondent No.1 shall be entitled to approach the Adjudicating Authority to seek revival of CIRP proceedings against the Corporate Debtor for breach of Terms of Settlement recorded by this Appellate Tribunal in terms of para 11 of the order dated 6th December, 2019 treating it to be an order and direction of this Appellate Tribunal to be complied by the parties. In the event of nonadherence to this revised schedule, in whole or in part, order passed in appeal dated 6th December, 2019 shall stand recalled in terms of para 11 and CIRP revived. CIRP costs including the fees of the Interim Resolution Professional, in such eventuality shall be addressed by the Adjudicating Authority.

I.A. Nos.1071 & 2218 of 2020 stands disposed off.

(Emphasis supplied)

56. We also find that the Corporate Debtor made payments on 11.09.2020

and again on 29.04.2021. These payments are admitted and have not been

Company Appeal (AT) (Ins.) No. 2239 of 2024 -24-

disputed by the Appellant. Under Section 19 of the Limitation Act, even a

small part-payment renews the limitation period. It is well settled that an

acknowledgment or part-payment by the principal debtor extends limitation

against the guarantor also, unless the guarantee has been expressly revoked

by the creditor or the creditor has agreed to treat the guarantor differently. No

such revocation or release is shown here. As long as the principal debtor

continues to acknowledge the debt, the guarantor remains equally bound.

Therefore, the payments of September 2020 and April 2021 extend the

limitation period at least till April 2024. Another important aspect is that the

creditor issued a fresh demand notice to the guarantor on 25.01.2022. A

demand on the guarantor is legally meaningful because the guarantor's

liability is co-extensive with that of the principal debtor unless the agreement

specifically says otherwise. Once the guarantor received the demand notice in

January 2022, the default clearly stood crystallised as against him. The

Section 95 application filed on 03.05.2022 was therefore well within the

extended limitation period.

57. In assessing limitation, we also cannot ignore the fact that the corporate

insolvency process itself was revived by the Adjudicating Authority on

23.11.2021, after finding that the Corporate Debtor had breached the

settlement as endorsed by this Appellate Tribunal vide the aforesaid orders

dated 06.03.2019 and 15.03.2021, which provided for re-initiation of CIRP

proceedings. A revived CIRP on the basis of the same debt necessarily signifies

that the debt was still subsisting and that the breach of settlement had

Company Appeal (AT) (Ins.) No. 2239 of 2024 -25-

reopened the underlying liability. This is an objective judicial fact that directly

contradicts the argument that the debt had become time-barred long ago.

58. When we consider all these circumstances together - the judicially

recorded settlement, the part-payments of 2020 and 2021, the dishonour of

settlement cheques, the revival of CIRP, the fresh demand notice to the

guarantor, and the continuing guarantee, we are satisfied that the creditor's

Section 95 application was well within limitation. The Appellant's argument

relies on treating only the 2017 recall notice as relevant, but the subsequent

events show that the debt was repeatedly acknowledged and revived.

Limitation law does not permit us to ignore such acknowledgements merely

because the guarantor himself did not sign them, especially when his

guarantee continued to operate for the entire duration.

59. For these reasons, we hold that the Adjudicating Authority was correct

in rejecting the limitation objection and in admitting the Section 95

application. The challenge on the ground of limitation therefore fails.

ISSUE II: Whether the guarantee executed by the Appellant continued to bind

him, or whether it stood extinguished or substituted because of the later

settlement and undertakings given by the Corporate Debtor's promoters?

60. We now take up the issue related to validity of guarantee extended by

the appellant. Ld. Counsel for the Appellant argues that his personal

guarantee related only to the first loan of March 2013 and not to the second

loan granted in May 2016. He claims that when the Corporate Debtor and the

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creditor entered into a settlement in December 2019, a new contract came

into existence between them. He says that under this settlement only the two

promoters, Jagtar Singh and Sukhwant Singh, gave personal undertakings,

and therefore only they became liable. He submits that since he was not a

party to the settlement and since the terms of the debt changed in that

settlement, his earlier guarantee stood discharged under Sections 62 and 133

of the Contract Act.

61. The Respondent, on the other hand, asserts that the guarantee signed

by the Appellant is a continuing guarantee and covers the dues under the

main loan agreement, until they are fully cleared. According to the

Respondent, the settlement did not replace or cancel the original contract; it

only gave the Corporate Debtor an opportunity to pay in instalments. It is

further said that when the debtor defaulted on those instalments, the full debt

revived automatically because the settlement itself provided for such revival.

The Respondent argues that since the creditor never agreed to release the

Appellant from his guarantee, he continues to remain liable.

62. It is stated that the Corporate Debtor had availed two loan facilities--

Loan Account LNPIT00712-130002234 and Loan Account LNPIT03516-

170006753- and that the second loan sanctioned on 31.05.2016 was granted

specifically to regularise the existing account and therefore formed part of the

same continuing financial relationship. This can be seen from the submission

of the appellant in para 9 Page 26 of facts of the case in memo of appeal. An

identical clause is reflected in the Settlement Agreement finalized under the

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aegis of Justice (Retd.) A.K. Sikri in para 6 of the agreement. The same has

been extracted below:

"6. AND WHEREAS, in order to regularise the aforesaid account, the

Financial Creditor agreed advance another sum of Rs.41,32,383

(hereinafter referred to as the second loan) to Corporate Debtor

which carried interest @ 13% on 31.05.2016 and this loan was to be

repaid in 36 instalments of Rs. 1.57 lakhs each."

63. Clause 15 of the Guarantee Agreement expressly states that the

guarantee remains valid even for an enhanced loan limit with or without

informing the guarantor, to show that the Appellant's guarantee automatically

applied to the second loan as well, which in effect was a continuation of first

loan, as admitted by the appellant. The clause 15 is extracted below:

"15. In event of enhancement of the LOAN provided by INTEC CAPITAL LTD with or without informing the Guarantor, this guarantee shall remain valid for such enhanced limit also."

We also note that the Corporate Debtor continued making payments in both

loan accounts even in 2020 and 2021, which clearly demonstrates that both

loans were treated as part of one composite financial obligation and would be

covered by the same guarantee in terms of Clause 15 above.

64. We now have a look at the relevant clauses 8, 10, 14 and 19 of the

Guarantee Agreement, which are extracted below:

"8. The Guarantee shall be a continuing till such time INTEC CAPITAL LTD may have any claim against the Borrower under the Agreement and all dues are discharged completely to the satisfaction of INTEC CAPITAL LTD.

Company Appeal (AT) (Ins.) No. 2239 of 2024 -28-

10. Any novation/variation of the Agreement and for concessions acquiescence made by INTEC CAPITAL LTD to the Borrower with/without informing/notifying the Guarantor shall not discharge the Guarantee The Guarantor further agrees that any concession or indulgence granted to the Borrower in respect of the terms and conditions either in releasing or returning the security (ies), after taking possession of it or in any other manner, shall not prejudice INTEC CAPITAL LTD's right against him or relieve him from his/her guarantees. It shall not be necessary for INTEC CAPITAL LTD to give any notice to the Guarantor in the event any such novation, variation etc."

14. The Guarantor confirms and accepts that any default by the Borrower under the Agreement. On such termination the entire sum of money due and outstanding under the agreement shall become payable forthwith.

19. This Guarantee is unconditional and irrevocable and shall remain so till such time INTEC CAPITAL LTD discharges this Guarantee by issuing a letter in this behalf."

65. When we examine the clauses of the Guarantee Agreement, each one

shows that the Appellant's liability was meant to continue without

interruption. Clause 8 states that the guarantee will remain in force until all

dues are fully paid, meaning his liability continues until the entire debt is

cleared. Clause 10 explains that even if the creditor changes the loan terms

or gives concessions to the borrower, without informing the guarantor, the

guarantee still remains valid; this means he cannot claim discharge because

of any variation or settlement. Clause 14 provides that if the borrower

defaults, the entire outstanding amount becomes immediately payable,

showing that the guarantor's liability becomes absolute, the moment a default

occurs. Clause 15 states that even if the loan amount is increased, with or

Company Appeal (AT) (Ins.) No. 2239 of 2024 -29-

without his knowledge, the guarantee covers the enhanced amount as well.

Finally, Clause 19 declares the guarantee to be unconditional and irrevocable,

which means it stays in force unless the creditor formally releases him from

the guarantee. Together, these clauses show that the guarantee was designed

to survive all changes, defaults, and concessions, and therefore the

Appellant's liability never came to an end. The Appellant has not been able to

point out any such document showing release from the guarantee.

66. The next question is whether the 2019 settlement constituted a new

contract which replaced the old one under Section 62 of the Contract Act. For

a novation to occur, the original contract must be expressly substituted or

extinguished by the new one. That is not the case here. The settlement did

not cancel the original loan or the rights of the creditor. Instead, it only set

out a payment schedule and stated that if the Corporate Debtor honoured

those instalments, the original dues would stand satisfied. The settlement was

meant to give the debtor a concession, not to erase or supersede the creditor's

original rights. More importantly, the settlement also contained a very clear

clause that if the Corporate Debtor defaulted even in the first instalment or in

two consecutive instalments, the entire unpaid amount would automatically

become the admitted debt. This clause, by itself, shows that the original rights

of the creditor were never surrendered. A contract cannot be said to be

substituted when the old obligations spring back into force the moment the

new arrangement is breached.

67. It is also important to keep in mind that the settlement was not a private

arrangement between the Corporate Debtor and the creditor. It formed part

Company Appeal (AT) (Ins.) No. 2239 of 2024 -30-

of judicial orders of this Appellate Tribunal dated 06.12.2019 and 15.03.2021.

When a settlement is recorded by a court or tribunal, it does not become a

new and independent contract replacing the earlier one unless such intention

is clearly recorded. In this case, the orders recorded the agreement of the

parties and gave them an opportunity to settle the dues. At the same time, it

was recorded that in case of failure to abide by the agreement, it would result

in failure of the mediation agreement and thereby leading to re-initiation of

CIRP. It is therefore clear that after the failure of terms of settlement under

the mediation agreement, the original loan agreement and the guarantee

remained in place.

68. Coming to the Appellant's argument that he was not a party to the

settlement; this fact alone does not help him. A guarantor is not discharged

merely because the principal debtor enters into a settlement or compromise

with the creditor. The law is clear that the guarantor is discharged only if the

creditor grants the debtor some benefit or makes some change in the contract

that prejudices the guarantor. Further in this case, the settlement did not put

any new burden on the guarantor. If anything, it reduced the liability by

allowing the debtor to pay a smaller amount than originally owed. A

concession given to the debtor cannot be described as a variation that harms

the guarantor. Therefore, the guarantor cannot claim discharge under Section

133.

69. The Appellant also contends that since the promoters gave personal

undertakings, his guarantee automatically stood cancelled. This reasoning

cannot stand. When two individuals give a personal undertaking, it does not

Company Appeal (AT) (Ins.) No. 2239 of 2024 -31-

mean the earlier guarantor has been released. A creditor is free to have more

than one guarantor. The creditor may take personal undertakings from

several persons without releasing the earlier surety. A release or waiver must

be explicit and agreed to by the creditor. Clause 19 of the Guarantee

agreement clearly shows that the guarantee is unconditional and irrevocable

by the guarantor. He or She can only be released from the guarantee only by

the Financial Creditor. No such release was ever granted to the Appellant.

70. We are also conscious of the fact that the Corporate Debtor later

defaulted on the settlement terms, the post-dated cheques were dishonoured.

Consequent to the failure of the settlement in accordance with orders of this

Appellate Tribunal in Comp. App. (AT) (Ins.) No. 968 of 2019 dated 06.12.2019

and 15.03.2021, the creditor revived the CIRP against the Corporate Debtor,

which was allowed by Adjudicating Authority on 23.11.2021. The revival of

CIRP makes it clear that the debtor remained liable for the debt. If the

principal debtor continued to remain liable, the guarantor necessarily

remained liable as well, because the guarantor's liability is co-extensive with

that of the debtor. Nothing has been placed before us to show that the creditor

ever agreed to treat the Appellant differently.

71. In view of these considerations, we are satisfied that the guarantee

executed by the Appellant was never extinguished, substituted, or discharged.

The settlement of 2019 did not cancel the old contract, nor did it release the

guarantor. Instead, the breach of the settlement caused the full liability to

revive. Therefore, the Adjudicating Authority was right in holding that the

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Appellant continued to be liable as personal guarantor and that the creditor

was entitled to proceed under Section 95.

72. We also take a look at the case the Appellant has referred to 'Mathew

Varghese v. M. Amritha Kumar, [(2014) 5 SCC 610]', to argue that a notice

addressed in the wrong capacity affects the rights of the person receiving it.

That judgment by Hon'ble Supreme Court, dealt with the strict procedural

requirements under the SARFAESI Act for enforcing security over immovable

property, where it was held that the statutory notice must comply with Section

13(2) before a secured asset can be sold. The present case is entirely different:

it concerns a contractual guarantee under the IBC, where liability flows from

an unconditional and continuing guarantee, and where the statute prescribes

service of notice in a particular form before filing a Section 95 petition. The

appellant had duly received the notice under section 95 and replied to the

same. Therefore, the principle in Mathew Varghese does not assist the

Appellant.

73. In view of the above findings, we do not find any infirmity in the

impugned order. The Appeal is accordingly dismissed. Pending IAs, if any, are

closed. No order as to costs.

[Justice N Seshasayee] Member (Judicial)

[Mr. Arun Baroka] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

SA/Pragya (LRA)

Company Appeal (AT) (Ins.) No. 2239 of 2024