Nakul Gupta vs State Bank Of India & Anr & Ors

IN THE MATTER OF: Nakul Gupta Erstwhile Director of Technofab Engineering Limited S-481, Greater Kailash II, ...Appellant New Delhi 110048 Versus

1. State Bank of India State Bank Bhawan, Madame Cama Road, Nariman Point, Mumbai - 400021

And Local Head Offices at: 11, Parliament Street, New Delhi-110001

And one of its Branches at: Stressed Assets Management Branch-I, at 12th Floor, Jawahar Vyapar Bhawan, STC, Building, 1 Tolstoy Marg, Janpath Road, New Delhi - 110001 ...Respondent No.1

2. Mr. Rajesh Mittal Resolution Professional IN CP (IB) 769/2022, NCLT DELHI IBBI/IPA-001/IP-P01114/2018-19/11816 C56 Ground Floor, Soami Nagar Delhi - 110017 ...Respondent No.2

Present:

For Appellant : Mr. Gaurav Mitra, Mr. Abhirup Dasgupta, Mr. Shreesh Chadha, Ms. Vagisha Tiwari, Ms. Aishwarya Modi and Mr. Joby P.V., Advocates.

For Respondent : Mr. Bheem S., Advocate for SBI. Mr. Kunwarpreet Singh, Advocate for R-2 PCS Prakul Khadi, Advocate. JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)] This is an Appeal against the initiation of personal insolvency

proceedings against the Appellant - Nakul Gupta in the default and repayment

of credit facilities by Techno Fab Engineering Limited -CD in the judgment

and final order dated 27.02.2024 passed by the Ld. NCLT, New Delhi in CP

(IB) No.769/2022 whereby the Ld. NCLT admitted the application filed by

Respondent No.1 bank seeking personal insolvency resolution process against

the Appellant Nakul Gupta on the report filed by Respondent No.2 RP under

Section 99 of IBC, 2016.

Submissions of the Appellant

2. Respondent No.1- SBI has been granting various loan/credit facilities

to the Corporate Debtor from 17.04.2009. On 11.10.2017 as part of Bank of

India (hereinafter referred to as "BoI" i.e. the lead bank) consortium, credit

facilities for a total amount of ₹907/- Crore was sanctioned in favour of

Corporate Debtor by the BOI consortium with BOI being the lead bank.

3. The Respondent No.1 bank joined the BOI consortium and renewed its

credit facility for an amount of ₹17/- Crore out of the total consortium amount

of ₹907/- Crore in favour of the Corporate Debtor. These 'facilities' are

working capital facilities and do not operate like 'term loans'.

4. The facility availed by Corporate Debtor from Respondent No.1 bank as

part of BOI Consortium from 2017 was a renewal of the credit facilities which

were being availed by the Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 494 of 2024 2 of 40

5. In consideration to the credit facilities granted to the Corporate Debtor

by BOI consortium, including the renewal sanctioned by Respondent No.1,

the Corporate Debtor, its then directors Arjun Gupta, Avinash Chander Gupta

and Nakul Gupta executed Working Capital Consortium Agreement, Joint

deed of hypothecation, deeds of guarantee and other contemporaneous

documents all dated 17.10.2017 favouring the BOI consortium.

6. The Appellant Nakul Gupta resigned as a director from the Corporate

Debtor on 08.03.2018 and the said fact is duly conveyed to the consortium

member by the Corporate Debtor.

7. After the Appellant resigned as a director, the credit facilities availed by

Corporate Debtor in the year 2017, which was part of the working capital

consortium agreement dated 17.10.2017 with Bank of India (BOI) (lead bank)

came up for renewal in October 2018. The lead bank, i.e. Bank of India by its

of its sanction letter dated 24.10.2018 renewed the credit facilities in favour

of the Corporate Debtor.

8. Subsequently, the Respondent No.1 bank also by way of its sanction

letter dated 01.01.2019 renewed the working capital facilities in favour of the

Corporate Debtor with effect from 14.12.2018. The security for the renewal

dated 01.01.2019 granted by the Respondent No.1 included personal

guarantee of the Appellant Nakul Gupta as well. However, the same was never

given by the Appellant, nor he ever consented for the renewal. However,

despite there being no consent/guarantee towards security given by the

Appellant, Respondent No.1 as well as the lead bank BOI renewed the

Company Appeal (AT) (Insolvency) No. 494 of 2024 3 of 40 facilities granted to the Corporate Debtor and the BOI consortium even

enhanced the total amount from ₹907/- Crore to ₹1078/- Crore.

9. Before renewing the credit facilities, with enhancement, in favour of the

Corporate Debtor, it was incumbent upon the Banks and more specifically

Respondent No.1 to take the consent of the Appellant for his guarantee. Since

the consent was not given, either the guarantee of the Appellant should have

been replaced or the credit facilities granted in favour of the Corporate Debtor

should have been recalled as the term for the previous working capital limit

had expired. However, Respondent No.1 bank renewed the credit facilities to

the tune of ₹117/- Crore in favour of the Corporate Debtor for a further period

of 1 year till 13.12.2019 and thereby with effect from 14.12.2018, it is

submitted that the Corporate Debtor had been availing credit facilities to the

tune of ₹117/- Crore from Respondent No.1 under the new contract which

was the sanction letter dated 01.01.2019 with varied terms and conditions

and not in terms of the working capital consortium agreement dated

17.10.2017. It is a matter of record that till 14.12.2018 there was no default

on the part of the Corporate Debtor and the same is also evident from the

Information Utility documents filed by the Respondent No.1 bank.

Subsequently, Corporate Debtor allegedly defaulted in its repayment and the

account turned NPA on 27.06.2019.

10. Despite the Appellant not being party to the credit facilities availed by

Corporate Debtor after 14.12.2018, to which it was in default, Respondent

No.1 initiated proceedings under IBC against the Appellant as well and filed

application under Section 95, IBC, 2016.

Company Appeal (AT) (Insolvency) No. 494 of 2024 4 of 40

11. Since with effect from 14.12.2018, credit facilities to the tune of ₹117/-

Crore granted by Respondent No.1 bank to the Corporate Debtor was under

the new renewal sanction dated 01.01.2019, Respondent No.1 bank never

disclosed the fact of renewal dated 01.01.2019 in its application filed under

Section 95 IBC, 2016. Further, the RP in its report filed under Section 99 also

did not disclose the correct facts before the adjudicating authority. Both the

bank and RP concealed this material fact from the Ld. Adjudicating Authority.

Since Appellant had left Corporate Debtor in March 2018, and the Corporate

Debtor itself was admitted into insolvency by NCLT, Delhi by way of its order

dated 02.11.2022, the Appellant didn't have any access to the documents of

the Corporate Debtor to find out about the renewal of the credit facilities

granted in favour of the Corporate Debtor after he left the Corporate Debtor.

Thus, the Appellant moved an application being I.A No.3895/ND/2023 in CP

(IB) 681/2022 seeking production of documents from the IRP of the Corporate

Debtor pertaining to the credit facility renewals granted in favour of the

Corporate Debtor. On 09.01.2024, the Ld. NCLT directed the IRP of the

Corporate Debtor to provide documents as sought by way of I.A

No.3895/2023 and listed the matter for final arguments on 16.01.2024, with

liberty to add submissions pertaining to the new documents supplied by IRP

in the Written Submissions of the Appellant. It is submitted that I.A

No.3895/2023 was finally disposed of by NCLT by way of its order dated

26.02.2024. Thus, the fact regarding the renewal of credit facilities through

sanction dated 24.10.2018 and 01.01.2019, which were concealed by

Respondent No.1 and Respondent No.2 RP from the Ld. Adjudicating

Authority were disclosed by the Appellant for the first time in his written

Company Appeal (AT) (Insolvency) No. 494 of 2024 5 of 40 submissions which were filed hurriedly within the timeline allowed by the Ld.

Tribunal.

12. For the first time, in the present appeal, in the Replies filed by

Respondents before this Appellate Tribunal, it has been admitted that the

credit facilities were renewed by Respondent No.1 bank by way of sanction

dated 01.01.2019. Despite specific and categorical admission in the replies

filed in the present appeal before this Hon'ble Appellate Tribunal, the

Respondents made an oral submission to the effect that the sanction dated

01.01.2019 was never given effect to. There is no dispute with regards to the

fact that the Sanction Letter dated 01.01.2019 was acted upon by the

Respondent No. 1 bank. The same has been admitted on Affidavit in the Reply

filed before this Hon'ble Tribunal in this Appeal. The Respondent No. 1 bank

has categorically pleaded that the letter dated 01.01.2019 was acted upon.

The oral submissions by the Respondent No. 1 bank that the letter dated

01.01.2019 was not acted upon is contrary to their own pleadings before this

Hon'ble Tribunal. Further, it is submitted that Respondent No.2 RP had also

admitted in his reply that the credit facilities were renewed by Respondent

No.1 by way of sanction dated 01.01.2019.

13. Even in the Impugned Judgment of the Ld. Adjudicating Authority

dated 27.02.2024 categorically renders a finding to the effect that a renewal

has been given effect to after 2018 and the Corporate Debtor was in default

of the credit facilities granted under the renewed sanction there has been a

renewal of sanction letters by the Respondent No. 1 bank. Thus, a specific

finding has been returned by the Ld. NCLT that the corporate debtor was in

Company Appeal (AT) (Insolvency) No. 494 of 2024 6 of 40 default for the facilities availed by it under the renewed sanction, and the

Appellant Nakul Gupta had neither consented for it, nor gave any personal

guarantee. This finding of the Ld. Adjudicating Authority in this regard, has

not been challenged by the Respondent No. 1 bank. Thus, the letter dated

01.01.2019 was an ACCEPTANCE of an OFFER made by the Corporate

Debtor- resulting in a concluded contract.

14. The Respondent No. 1 bank classified the account of the Corporate

Debtor as NPA only on 27.06.2019 and the first loan recall notice was issued

only in November 2021. It is the case of the Respondent No. 1 bank itself that

the 'DATE OF DEFAULT' was 27.06.2019 as mentioned in their Petition under

Section 95, IBC. Thus, as per the Respondent No. 1 itself, the date of

classification of NPA of the Corporate Debtor is the date of default.

Considering that this is subsequent to the renewed Sanction Letter dated

01.01.2019 having taken effect, it is submitted that the 'DEFAULT' occurred

after the discharge of the Appellant's personal guarantee to the Corporate

Debtor. The Appellant cannot be held liable for any 'DEFAULT' occurred after

discharge from his personal guarantee. As per the records submitted by the

Respondent No. 1 bank with the Information Utility (placed on record before

the Ld. Adjudicating Authority) the Corporate Debtor was not even in default

under the previous sanction letter dated 11.10.2017. The first entry of any

'amount overdue' as per the Respondent No. 1 bank itself is 22.05.2019.

Thereafter, the Corporate Debtor was deemed to be in 'default' only after

27.06.2019. Prior to 22.05.2019, as per the record submitted by the

Respondent No. 1 bank itself, there was no 'amount due' only. By that time,

Company Appeal (AT) (Insolvency) No. 494 of 2024 7 of 40 the RENEWED, REVISED and VARIED Sanction Letter dated 01.01.2019 had

been issued by the Respondent No. 1 bank and given effect to. Therefore,

there has been no DEFAULT in terms of Section 3(12), IBC until 04.07.2019

as per the record of the Information Utility submitted by the Respondent No.

1 itself. The RENEWED, REVISED and VARIED Sanction Letter dated

01.01.2019 was given effect to and the Appellant had not issued any 'Revival

Letter' for his guarantee. The Appellant stood discharged latest on 01.01.2019

upon the issuance of the RENEWED, REVISED and VARIED Sanction Letter

dated 01.01.2019 and all 'Default' of the Corporate Debtor has occurred only

thereafter as per the Respondent No. 1 bank itself. It is reiterated herein that

with effect from 14.12.2018, the credit facilities of ₹117/- Crore availed by

the Corporate Debtor from Respondent No.1 bank was under the new renewal

sanction letter dated 01.01.2019 and the said facilities were provided by

Respondent No.1 to Corporate Debtor without the knowledge and consent of

the Appellant, and hence Appellant cannot be held liable for any dues arising

thereunder. The Ld. Adjudicating Authority in the Impugned Judgment dated

27.02.2024 records that the Appellant would only be liable in case of any

'Default' in the repayment of the credit facilities prior to the RENEWED

Sanction Letter dated 01.01.2019. However, there is no finding or any sort of

adjudication on the DATE OF DEFAULT by the Corporate Debtor so as to

fasten the liability on the Appellant. As per the Respondent No. 1 bank itself,

there was no 'DEFAULT' of payment until 27.06.2019 and there was no

overdue 'DEBT' until 22.05.2019. Despite holding that there has been a

variance and renewal in the credit facilities after 2018, the Impugned

Judgment is completely silent on what the 'DATE OF DEFAULT' is in the

Company Appeal (AT) (Insolvency) No. 494 of 2024 8 of 40 present case. For this reason alone, the Impugned Judgment is bad in law

and warrants to be set aside. It is pertinent to note that the Appellant had

resigned and had completely disassociated from the Corporate Debtor by

08.03.2018. Thereafter, the lead bank of the Consortium had issued letter

dated 24.10.2018 which recorded enhancement of total credit facilities from

₹907/- Crores to ₹1075/- Crores, which was duly accepted by the Corporate

Debtor on 22.11.2018. Further, the Respondent No. 1 bank also issued a

Sanction Letter dated 01.01.2019 which contained material variances

regarding the terms and conditions and also recorded enhancement of credit

facilities. After all of this, the guarantee of the Appellant had been discharged.

It is only thereafter that the 'debt' of the Corporate Debtor became overdue

and a 'default' was committed by the Corporate Debtor.

15. The appellant cannot be held to be personal guarantor of the

corporate debtor- Technofab Engineering Limited as the deed of guarantee

dated 17.10.2017 stands varied and novated by the issuance of

subsequent sanction letter dated 24.10.2018 by the consortium and

sanction letter dated 01.01.2019. Firstly, the Deed of Guarantee dated

17.10.2017 itself did not extend to the Sanction Letter(s) dated 24.10.2018

and Sanction Letter dated 01.01.2019. The Deed of Guarantee was executed

to secure the credit facilities granted and covered under the Working Capital

Consortium Agreement dated 17th October 2017, which along with the joint

deed of hypothecation has been defined as 'said agreement of loan' in this

deed of guarantee. The same is also for credit facility of aggregate sum of

₹907/- Crores and the Deed of Guarantee dated 17.10.2017 was issued by

Company Appeal (AT) (Insolvency) No. 494 of 2024 9 of 40 the Guarantors for a sum NOT EXCEEDING ₹907/- Crores. The Working

Capital Consortium Agreement dated 17th October 2017 under Article 1

specifically states that the credit facilities granted under the Working Capital

Consortium Agreement shall be governed by the terms and conditions as set

out in the Letters of sanction of member banks of BOI Consortium including

the Letter of Sanction/Letter of arrangement dated 11.10.2017 being

CBND/AMT-II/2017-18 issued by Respondent No.1 which specifically and

categorically provided that the working capital facility is valid only upto

04.10.2018. The Sanction Letter dated 11.10.2017 issued by the Respondent

No. 1 bank was categorically the subject matter of the Deed of Guarantee. It

is submitted that there is no separate Deed of Guarantee executed by the

Appellant for any subsequent Sanction Letter apart from those defined in the

Working Capital Consortium Agreement 17.10.2017 mentioned in the Deed

of Guarantee dated 17.10.2017. Further, as stated above the previous

sanction dated 11.10.2017, which formed basis of the working capital

consortium agreement dated 17.10.2017 qua Respondent No 1 was valid only

from 05.10.2017 for a period of 12 months. Subsequently the credit facilities

were renewed by Respondent No.1 bank for an amount of ₹117/- Crore for a

further period of one year by way of its fresh contract/sanction dated

01.01.2019 with effect from 14.12.2018. Thus, for the credit facilities availed

by Corporate Debtor, as rightly held by the Ld. Adjudicating Authority, after

2018 under the renewed sanction, to which Appellant had neither consented,

nor given his guarantee, he cannot be held liable. As stated above, it is a

matter of record that there was no default under the credit facilities provided

in terms of sanction dated 11.10.2017.

Company Appeal (AT) (Insolvency) No. 494 of 2024 10 of 40

16. Secondly, there is a material variance in the terms of the Sanction

Letter dated 11.10.2017 issued by the Respondent No. 1 bank as compared

to the subsequent Sanction Letter dated 01.01.2019 issued by the

Respondent No. 1 bank. The Terms of the Letter dated 01.01.2019 are

materially different from the original sanction letter dated 11.10.2017 issued

by the Respondent No. 1 bank. Due to the fact that there were material

variances in the old sanction letter dated 11.10.2017 and new sanction letter

dated 01.01.2019 and no fresh document was executed by the Appellant as

guarantee under the new Sanction Letter dated 01.01.2019, the lead bank of

the Consortium categorically sought written renewal and revival confirmation

from the Appellant of his personal guarantee on 06.06.2020. It is undisputed

that this letter was never signed by the Appellant, rather, the Appellant had

objected to the very issuance of this letter on 26.06.2020. It is submitted that

if there had been no material variance in the terms of the new sanction letter

dated 01.01.2019, there would have been no need for the consortium of banks

to seek a 'REVIVAL LETTER' from the Appellant.

17. The impugned judgment completely misinterprets the clause on

'continuing guarantee' in the deed of guarantee dated 17.10.2017. The clause

on 'Continuing Guarantee' in the Deed of Guarantee dated 17.10.2017 does

not cover the present situation where a new, revised, renewed, varied

Sanction Letter has been issued by the Consortium of Banks vide letter dated

24.10.2018 and the Respondent No. 1 vide letter dated 01.01.2019). Firstly,

the continuing guarantee clause would NOT APPLY IN THE CASE OF

ENHANCEMENT beyond the original sum of credit facilities. Secondly, the

Company Appeal (AT) (Insolvency) No. 494 of 2024 11 of 40 continuing guarantee clause under the deed of guarantee was restricted to

the credit facilities termed as 'abovementioned credit facility'. The term

'abovementioned credit facility' has been defined under the deed of guarantee

as those credit facilities which have been granted in terms of the working

capital consortium agreement, joint deed of hypothecation dated 17.10.2017,

which were defined as 'said agreements of loan'. As stated above, Article 1 of

the Working Capital Consortium Agreement dated 17.10.2017 specifically

states that the credit facilities granted under the Working Capital Consortium

Agreement shall be governed by the terms and conditions as set out in the

Letters of sanction of member banks of BOI Consortium including the Letter

of Sanction/Letter of arrangement dated 11.10.2017 being CBND/AMT-

II/2017-18 issued by Respondent No.1. Thus, with respect to Respondent No.1

bank, the continuing guarantee as provided in the deed of guarantee was

limited to the facilities granted in terms of the sanction/renewal dated

11.10.2017 and cannot under any circumstances be extended to sanction

letters/renewals issued subsequent on its expiry. In the present case, it is

apparent that there has been an enhancement of sums from ₹907/- Crores

to ₹1075/- Crores on the basis of fresh sanction letter issued by the lead bank

of the Consortium on 24.10.2018 which recorded enhancement of total credit

facilities from ₹907/- Crores to ₹1075/- Crores, which was duly accepted by

the Corporate Debtor on 22.11.2018 and the letter dated 01.01.2019 issued

by the Respondent No. 1 bank. In addition to 'enhancement', there has also

been a 'RENEWAL' of credit facilities on completely new and varied terms by

the letter dated 01.01.2019 issued by the Respondent No. 1 bank- which is

undisputedly not covered by the Deed of Guarantee dated 17.10.2017.

Company Appeal (AT) (Insolvency) No. 494 of 2024 12 of 40 Therefore, the 'Continuing Guarantee' clause is completely inapplicable to the

present facts and circumstances. On the one hand, the Impugned Judgment

holds that the limits of the Credit Facilities were 'enhanced', while on the

other hand, the Ld. Adjudicating Authority also states that the term in the

Deed of Guarantee qua 'Continuing Guarantee' would apply. It is submitted

that these findings are completely contradictory. These findings are

completely contrary to one another and results from a complete misreading

of Clause 8 of the Deed of. The finding of 'enhancement' as adjudicated in the

Impugned Judgment is unchallenged by the Respondents. It is apparent from

a bare reading of the 'Continuing Guarantee' clause that the same only

applied for facilities being granted 'within the overall limit'. In the present

case, the Ld. Adjudicating Authority itself observed that there has been an

enhancement of the 'overall limit', whereas, contrarily, the Ld. Adjudicating

Authority has also stated that the 'Continuing Guarantee' clause would apply,

resulting in blatantly contrary findings. For this reason itself, the Impugned

Judgment warrants to be set aside.

18. The impugned judgment proceeds on mutually destructive findings

which cannot stand together in law. The Adjudicating Authority records, as a

matter of categorical fact in para 10 of the Impugned Judgment, that the

credit facilities of the Corporate Debtor were renewed and enhanced pursuant

to the sanction letter dated 24.10.2018 issued by the lead bank and the

subsequent sanction letter dated 01.01.2019 issued by Respondent No. 1.

The Impugned judgment further records that these renewed and enhanced

facilities--raising the consortium limit from ₹907/- crores to ₹1075/-crores--

Company Appeal (AT) (Insolvency) No. 494 of 2024 13 of 40 were availed by the Corporate Debtor after 2018, and that the default

occurred in respect of these renewed facilities. The Adjudicating Authority

also records that the renewed sanction expressly provided for a guarantee of

the Appellant, but that the Appellant admittedly did not sign or consent to

such guarantee. These findings are clear, unequivocal, and unchallenged by

the Respondents. Having recorded these findings, the Adjudicating Authority

nevertheless proceeds, in the very next breath, to hold that the Appellant

continues to remain liable under the original guarantee dated 17.10.2017, on

the basis that the guarantee was a "continuing guarantee" and that the

Appellant would remain liable for the "initial amount" of ₹907/- crores "which

existed prior to its variance." This reasoning is fundamentally contradictory

to the earlier finding that the default itself arose only under the renewed and

varied sanction terms of 2018-2019, to which the Appellant never consented.

The impugned order therefore simultaneously holds that (i) the default

occurred under the renewed sanction, and (ii) the Appellant is liable under

the original sanction--two conclusions that cannot coexist. The contradiction

becomes starker when the statutory framework is applied. Section 133 of the

Indian Contract Act mandates that any variance in the terms of the contract

between the principal debtor and the creditor, made without the surety's

consent, discharges the surety as to all transactions subsequent to the

variance. The Adjudicating Authority itself records that there was a variance--

indeed, a complete renewal--of the credit facilities after 2018, and that the

Appellant did not sign or consent to the renewed terms. Once this finding is

recorded, the legal consequence under Section 133 is automatic. The

Appellant stands discharged for all transactions subsequent to the variance.

Company Appeal (AT) (Insolvency) No. 494 of 2024 14 of 40 The impugned order, however, contradicts this statutory mandate by

simultaneously acknowledging the variance and yet refusing to give effect to

the discharge. The contradiction is further compounded by the fact that the

Adjudicating Authority does not render any finding whatsoever on the date of

default, despite the Respondent Bank's own pleadings that the account was

classified as NPA only on 27.06.2019. The Information Utility records placed

by the Respondent Bank show that until 22.05.2019 there was no overdue

amount, and that the first default entry appears only thereafter. By this time,

the renewed sanction letter dated 01.01.2019 had already taken effect. Thus,

even on the Respondent Bank's own case, the default occurred only under

the renewed and varied sanction terms, and not under the original sanction

of 11.10.2017 for which the Appellant had furnished the guarantee. The

impugned order, however, fails to reconcile this admitted factual position with

its conclusion fastening liability on the Appellant. The Ld. Adjudicating

Authority in the concluding lines of para 12 of the Impugned Judgment holds

that even if there is increase in the sanction limit/variance, the Guarantor

shall still be liable for 'debt' that existed prior to its variance. It is submitted

that the term 'debt' has been defined in Section 3 (11), IBC which says that

debt is a liability or obligation in respect of a claim which is DUE from any

person. It is a matter of record as per Information Utility record that prior to

the variance, there was admittedly no 'DEBT'. Without any finding of the

existence of any 'DEBT' prior to variance, held the Appellant liable, which is

unsustainable.

Company Appeal (AT) (Insolvency) No. 494 of 2024 15 of 40

19. There has been a violation of principals of natural justice by the ld.

Adjudicating authority as there has been no opportunity to be heard on the

documents concealed by the respondents before the ld. Adjudicating

authority. The Respondent No. 1 and Respondent No. 2 have categorically

admitted to the issuance and effect of the renewed sanction letter dated

01.01.2019 before this Hon'ble Tribunal. However, it is pertinent to note, that

both the Respondents were completely silent on the issuance of this letter in

their pleadings before the Ld. Adjudicating Authority. The Respondents

concealed the issuance of fresh sanction letters by the lead bank and the

Respondent No. 1 before the Ld. Adjudicating Authority. The Appellant had

to run from pillar to post to obtain the letters dated 24.10.2018 issued by

lead Bank of the Consortium of banks and letter dated 01.01.2019 issued by

the Respondent No. 1 bank. The Appellant had filed an application (IA

3895/2023) in the CIRP proceedings of the Corporate Debtor to seek copies

of these letters and other documents pertaining to issuance of fresh sanction

letters after the resignation of the Appellant from the Corporate Debtor. On

09.01.2024, the Ld. Adjudicating Authority in the present proceedings

directed the RP of the Corporate Debtor to provide the documents requested

by the Appellant. Thereafter on 16.01.2024, the Appellant sought time to

place the documents, particularly letters dated 24.10.2018 issued by lead

Bank of the Consortium of banks and letter dated 01.01.2019 issued by the

Respondent No. 1 bank on record which was denied by the Ld. Adjudicating

Authority by directing that written submissions may be filed by the Appellant.

There has been no oral hearing by the Ld. Adjudicating Authority on these

documents which form crux of the case of the Appellant herein. The

Company Appeal (AT) (Insolvency) No. 494 of 2024 16 of 40 application (IA 3895/2023) in the CIRP proceedings of the Corporate Debtor

filed by the Appellant came to be disposed of on 26.02.2024 and the very next

day, the Impugned Judgment came to be passed i.e. on 27.02.2024. It is

submitted that adjudication on the documents, particularly letters dated

24.10.2018 issued by lead Bank of the Consortium of banks and letter dated

01.01.2019 issued by the Respondent No. 1 bank is happening for the first

time at the Appellate stage without granting an opportunity to be heard to the

Appellant before the Ld. Adjudicating Authority, which is impermissible in

law.

20. In view of these contradictions, omissions, and violations, the

impugned judgement is unsustainable. The findings in para 10 and the

subsequent reasoning cannot stand together. The admitted variance and

renewal of the sanction terms, the admitted absence of consent of the

Appellant, the admitted date of default under the renewed sanction, and the

statutory mandate of Section 133 collectively establish that the Appellant

stood discharged from the guarantee prior to the occurrence of any default.

The impugned order, having failed to apply these principles consistently,

warrants interference. The denial of a fair opportunity to be heard on crucial

documents, coupled with the concealment of material facts by the

Respondents, has also resulted in a grave violation of the principles of natural

justice. Accordingly, the present case merits reconsideration and the setting

aside of the Impugned Judgment, in the interests of justice and equity.

Submissions of the Respondent-SBI

21. Primarily, the Appellant has assailed the impugned order on two

grounds. Firstly, even before classification of account of Corporate Debtor as Company Appeal (AT) (Insolvency) No. 494 of 2024 17 of 40 NPA on 27.06.2019, the Appellant had already resigned from Directorship of

the Corporate Debtor on 08.03.2018 and hence his guarantee stood revoked.

Secondly, there were variation of terms of contract after the resignation of the

Appellant from Directorship of the Corporate Debtor on 08.03.2018 since

thereafter the facilities stood enhanced by the lenders including Bank of India,

as stated by the Corporate Debtor in its letter dated 22.11.2018. Thus, the

contract stood novated and Appellant stood discharged.

22. Insofar as the claim of the Appellant of discharge in view of resignation

from Corporate Debtor is concerned, it would be appropriate to refer to the

terms of Deed of Guarantee dated 17.10.2017. A perusal of Clause Nos. 1, 3,

6 to 8, 11, 12, 14 and 19 of the principal Deed of Guarantee dated 17.10.2017

would reveal the following:

o Liability of the Guarantor was payable on demand (Clause 1).

o For the purpose of enforcement of the Guarantee, the Guarantors shall be deemed to the principal debtor (Clause 7).

o Guarantee is continuing in nature and is irrevocable. Guarantee is enforceable against the Guarantor irrespective of dispute between the Bank & borrower (Clause Nos. 8 & 11).

o Guarantee shall not be affected by any variation of terms of contract in future (Clause 3 & 14).

o Guarantee expressly waived his right to claim discharge under any provision of Contract Act on any ground (Clause 18).

o All admissions & acknowledgments of debt/balance confirmations, part payments etc. by the principal debtor shall be binding on the Guarantor (Clause 12 & 19).

Company Appeal (AT) (Insolvency) No. 494 of 2024 18 of 40

23. Under Section 129 of the Indian Contract Act, 1872 a continuing

guarantee is defined as a guarantee which, extends to a series of transactions

and the same can be revoked under Section 130 of the Act only qua the future

transactions and that is by way of notice to the creditor.

24. However, in the present case, no notice of revocation was ever issued

by the Appellant to the Creditor i.e. Respondent/SBI and the request for

release to UBI/BOI was accepted by the lenders. Therefore, in view of the

aforesaid clauses of the Deed of Guarantee, the resignation of the Appellant

from the Corporate Debtor shall not discharge him from the continuing and

irrevocable Guarantee admittedly executed by him in favour of the

Respondent Bank and other lenders. Therefore, Appellant cannot claim

revocation of the continuing guarantee under Section 130 of the Act which

mandatorily requires a notice of revocation and such revocation operates only

qua future transaction, as per Section 130 of the Act.

25. Reliance in this regard, is placed on the judgment of the Hon'ble Apex

Court passed in the case of Sita Ram Gupta vs PNB [2008 (5) SCC 711].

In the said case, the Hon'ble Apex Court in the background of similar

contractual clauses (para 4 of judgment), rejected an identical defense of

revocation and discharge of guarantee (para Nos. 5 to 7). Judgment in the

case of Sita Ram Gupta (supra) has been again cited with approval by the

Hon'ble Apex Court in the judgment of H.R. Basavraj vs. Canara Bank [2010

(2) SCC 458].

26. Insofar as the claim of the Appellant of discharge in view of variation of

Company Appeal (AT) (Insolvency) No. 494 of 2024 19 of 40 terms of contract and alleged novation is concerned, it is submitted that after

the grant of credit facility for an amount of ₹117.00 crores (constituted of

fund based facilities of ₹10.00 crores and non-fund based facilities of ₹107.00

crores) to the Corporate Debtor vide Letter of Arrangement dated

11.10.2017, there had never been any further variation or enhancement by

the Respondent/SBI. Renewal of facilities would not amount to variation. This

fact can be ascertained from the Renewal letter dated 01.01.2019 and

subsequent notices including Loan Recall and Demand Notice dated

15.11.2021 and OA No. 556 of 2022 titled "SBI vs. Technofab Engineering

Limited & Ors." filed before the DRT-I, New Delhi.

27. As per Section 133 of the Act, 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 only qua the transactions subsequent to

the variance. The surety continues to be liable for transactions effected before

such variation.

28. This position stands fortified by the recent pronouncements of this

Hon'ble Tribunal in the cases of:

o SBI Vs. Gourishankar Poddar & Anr [2024 SCC Online NCLAT 2014] - para Nos. 26, 30, 32, 36, 40 to 42 & 46-47.

o Sri Vibu Venkatsubramanian vs. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 1228 of 2024 dated 26.02.2026].

29. In the aforesaid facts and circumstances there being no dispute to the

grant of loan facility and execution of loan and security documents including

the guarantee deeds and the defaults by the Corporate Debtor and the failure

Company Appeal (AT) (Insolvency) No. 494 of 2024 20 of 40 of repayment also being not in dispute, the present appeal is liable to be

dismissed.

Appraisal

30. We have heard the counsels of both sides and also perused the material

placed on record.

31. The Appellant, along with his brother, Mr. Arjun Gupta, and father Mr.

Avinash Chander Gupta, were the Directors of Technofab Engineering Limited

(TEL). TEL was engaged in the business of providing engineering,

procurement, and construction services. TEL availed of credit facilities from

banks and financial institutions, which used to be renewed and extended from

time to time. On 17th October 2017, TEL was offered and accepted a total

credit limit of ₹907/- crores, comprising ₹117/- crores of fund-based facilities

and ₹792/- crores of non-fund-based facilities by a consortium of six banks,

including Respondent No. 1, that is, State Bank of India. Respondent No. 1

extended total facilities of ₹117/- crores, comprising ₹107/- crores as non-

fund-based facilities and ₹10/- crores as fund-based facilities. With respect

to the aggregate credit facility limit of ₹907/- crores from the consortium of

Banks to TEL, the appellant, along with his brother and father, namely Mr.

Arjun Gupta and Mr. Avinash Chander Gupta, on 17th October 2017 stood as

guarantors by way of a deed of guarantee.

32. The Appellant claims that it had resigned as a director from TEL on 8th

March 2018, and thereafter he was not involved in the day-to-day operations

of TEL. The Appellant also claims that TEL wrote to the United Bank of India,

Company Appeal (AT) (Insolvency) No. 494 of 2024 21 of 40 as a member of the consortium of banks, informing them of the resignation of

the Appellant from the post of Director of TEL.

33. The Appellant claims that on 24 October 2018, the consortium of banks

led by Bank of India revised the aggregate limit of credit facilities from Rs 907

crores to ₹1075/- crores. But this was done without the involvement, consent,

or knowledge of the Appellant. It is also claimed by the Appellant that on 22

November 2018, this was accepted by TEL, and TEL also reiterated that the

Appellant has resigned from the company and brought to their notice the

impact of him leaving the company. The Appellant further claims that on 21st

January 2019, TEL issued another letter to the lead bank of the consortium,

i.e., Bank of India, with regards to the resignation of the Appellant from TEL.

TEL further requested the consortium to replace the personal guarantee of

the Appellant with that of his mother, a person of equal net worth. However,

on 27th June 2019, TEL was declared as an NPA (non-performing asset) by

the Respondent No.1 that is, State Bank of India. On 31 May 2020, the

Appellant wrote a letter to the lead Bank of the Consortium, i.e., Bank of India,

regarding multiple communications of TEL regarding the revocation of his

personal guarantee on account of his dissociation with TEL from 8 March

2018 onwards. The lead member, that is, Bank of India, on 6th June 2020

wrote a communication to Mr. Arjun Gupta and the Appellant with regards to

the renewal of their personal guarantees towards credit facilities for TEL. It is

also brought to our notice that, by this time, that is, 6th June 2020, one of the

directors, that is, Mr. Avinash Chander Gupta, had passed away. Mr. Arjun

Gupta had accepted the renewal of his personal guarantee towards credit

Company Appeal (AT) (Insolvency) No. 494 of 2024 22 of 40 facilities for TEL by 26 June 2020. However, the Appellant had refused to

renew it and addressed a separate communication to Bank of India regarding

release of his personal guarantee.

34. On 13 May 2022, Respondent No.1, that is, State Bank of India, sent a

demand notice to the Appellant invoking the deed of guarantee dated 17

October 2017 on the basis of an acknowledgement by Arjun Gupta dated 19

June 2020. On 30 May 2022, the Appellant replied to R1's demand notice

dated 13 May 2022, denying any demand or invocation of personal guarantee.

On 18 November 2022, Corporate Insolvency Resolution Process proceedings

commenced against TEL, the Corporate Debtor, which was initiated by the

R1- Bank as per the orders of the NCLT, New Delhi, in CP(IB) No. 681 of 2022.

On 26.12.2022, the RP in the present proceedings submitted his

recommendations under Section 99 of the Code and vide IA No.

593/ND/2023, recommended the initiation of personal insolvency

proceedings against the Appellant. In these proceedings, the Appellant filed a

reply to the report of the RP dated 26.12.2023 denying the contents of the

report of the RP. The Appellant also filed an Application IA 3895/2023 in CP

(IB) No. 681 of 2022, seeking the production of documents pertaining to the

alteration of credit facilities by the consortium of banks vide sanction letter

dated 24 October 2018. This IA was disposed of vide order dated 26 February

2024. The judgement in the application which was filed by the RP in the

present proceedings bearing number IA No. 593/ND/2023 was pronounced

on 16 January 2021 and which is being challenged by the Appellant.

Company Appeal (AT) (Insolvency) No. 494 of 2024 23 of 40

35. The Appellant has raised the issue whether the extension of aggregate

credit facilities by the consortium of banks from ₹907 crores to ₹1,075 crore

amounts to 'variance' in terms of Section 133 of the Indian Contract Act, 1872,

or not. Appellant also claims that after the corporate debtor and the

consortium of banks had extended the revised credit facilities, there had been

a novation of contract. The Appellant also raises the issue that extension of

aggregate credit facilities without the knowledge of the Appellant would entail

the discharge of the Appellant as personal guarantor of the corporate debt.

The Appellant had not signed the renewal of the deed of guarantee, and the

Adjudicating Authority had erred in ignoring the effect of non-renewal of the

deed of guarantee by the Appellant. The Appellant claims that at the time of

providing the guarantee in October 2017, the guarantee was towards total

credit facilities of ₹907/- crore. Subsequently, the Appellant had resigned as

a Director of PEL. Later on, the credit limits were increased from ₹907/- crores

to ₹1075/- crores, which would entail a higher liability for the Appellant as a

surety. The said increase was agreed to between the consortium of banks, as

evidenced by the sanction letter dated 24.10.2018 issued by the lead bank,

State Bank of India, and the sanction letter dated 01.01.2019 by the R1 bank,

without the knowledge, consent, or involvement of the Appellant. Therefore,

this falls within the meaning of a subsequent variance to the Deed of

Guarantee under Section 133 of the Indian Contract Act, 1872. The Appellant

further claims that the deed of guarantee dated 17.10.2017 does not

contemplate the continuation of guarantee in case of increase in overall limits.

Appellant also claims that Clause 8 of the deed of the guarantee has been

incorrectly interpreted by the Adjudicating Authority. It is the claim of the

Company Appeal (AT) (Insolvency) No. 494 of 2024 24 of 40 Appellant that the Adjudicating Authority has incorrectly held that if there is

any increase in the sanction limit without the consent of the guarantor, then

also he shall still be liable for the debt which existed prior to its variance. The

Appellant also claims that when a fresh sanction letter dated 24.10.2018 was

issued, whereby the overall limits were enhanced by almost ₹168/- crores, it

would be a novation of contract as per Section 62 of the Indian Contract Act,

1872. The Appellant claims that there had been an offer and acceptance of a

new credit facility limit, which clearly amounts to a novation of contract in

which the Appellant was not privy. Moreover, after the resignation of the

Appellant from TEL - the CD as a Director, the Appellant cannot be held liable

for the personal guarantee, as there has been a novation of the contract.

Appellant claims that due to the fact that the Appellant had ceased to be

associated with TEL-CD in any capacity from 08.03.2018, which was duly

informed to the consortium of banks by the Appellant and TEL. Furthermore,

the consortium of banks enhanced the overall credit facility limit from ₹907/-

crores to ₹107/- crores for financial year 2018-19, and which was accepted

by TEL. Also, the father of the Appellant had passed away in 2019. And lastly,

after the enhancement of credit facilities, it was only Mr. Arun Gupta, another

director and brother of the Appellant, who had signed the renewal of personal

guarantees in June 2020, and not the Appellant. Therefore, in such situation,

there have been material alterations and novation leading to an abandonment

of the deed of guarantee dated 17th October 2017.

36. The Appellant also contends that the sanction letters dated 11.10.2017

and the revised sanction letter dated 01.01.2019, issued by R1-SBI, are

Company Appeal (AT) (Insolvency) No. 494 of 2024 25 of 40 markedly different in terms of their conditions. Furthermore, the sanction

letters were valid only for a period of 12 months and were required to be

renewed. The new sanction letter was never renewed by the Appellant herein.

Therefore, the terms of the sanction of the R1 bank themselves were altered,

thereby implying that the present case falls squarely within sections 62 and

63 of the Indian Contract Act 1872.

37. The Appellant also claims that the corporate debtor TEL had addressed

communications, inter alia, dated 09/02/2018, 21/11/2018, and

21/12/2013 to the consortium of banks regarding the resignation of the

appellant as a Director of TEL and release of his guarantee. The appellant had

also addressed multiple communications, dated 31.05.2020 and 26.06.2020,

to the consortium of banks regarding the release and revocation of his

guarantee. Thus, the continuing guarantee, if any, of the appellant has to be

deemed to be revoked under Section 130 of the Indian Contract Act, 1872.

38. Appellant also claims that it had not only refused to renew the

guarantee, but had also addressed a communication dated 26.06.2020 to the

consortium of banks regarding revocation and release of his personal

guarantee. Despite which the Respondent Bank had initiated frivolous

proceedings against the Appellant in relation to a non-existent personal

guarantee.

39. The Appellant has also relied on the judgment of the Hon'ble Supreme

Court in DILIP B Jiwrajka v. Union of India & Ors., WP (C) 1281 of 2021,

whereby the Hon'ble Supreme Court had directed the Adjudicating Authorities

Company Appeal (AT) (Insolvency) No. 494 of 2024 26 of 40 to deal with the objections of the personal guarantors in an independent

manner and not mechanically agree with the report of the Resolution

Professional. In the present case, there has been no independent assessment

of the objections of the Appellant, and the commencement of the personal

insolvency proceedings against the Appellant has been directed solely on the

basis of the report of the Resolution Professional.

40. Briefly speaking the Appellant argues that when a fresh sanction letter

dated 24.10.2018 was issued, whereby the overall limits were enhanced by

almost ₹168/- crores, it would be a novation of contract as per Section 62 of

the Indian Contract Act, 1872. The Appellant claims that there had been an

offer and acceptance of a new credit facility limit, which clearly amounts to a

novation of contract in which the Appellant was not privy. Moreover, after the

resignation of the Appellant from TEL - the CD as a Director, the Appellant

cannot be held liable for the personal guarantee, as there has been a novation

of the contract.

41. Since the appellant has relied extensively on the provisions of the deed

of guarantee and also Indian Contract Act 1872 relating to the provisions for

novation and revocation of the continuing guarantee and discharge of surety

due to variance in terms of the personal guarantee/contract extended by the

appellant, these provisions are being discussed separately hereinafter.

42. For the sake of convenience, we are extracting the relevant provisions

relating to Indian Contract Act 1872 herein as below:

"Section 62. Effect of novation, rescission, and alteration of contract.

Company Appeal (AT) (Insolvency) No. 494 of 2024 27 of 40 If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed.

129. "Continuing guarantee".--A guarantee which extends to a series of transactions, is called a "continuing guarantee".

130. Revocation of continuing guarantee.--

A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.

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.

43. First we look into the argument of the plan that it had ceased to be

associated with TEL-CD in any capacity from 08.03.2018, which was duly

informed to the consortium of banks by the Appellant and TEL. The Appellant

claims that it had resigned as a director from TEL on 8th March 2018, and

thereafter he was not involved in the day-to-day operations of TEL.

Furthermore, the consortium of banks enhanced the overall credit facility

limit from ₹907/- crores to ₹107/- crores for financial year 2018-19, and

which was accepted by TEL. The Appellant also claims that when a fresh

sanction letter dated 24.10.2018 was issued, whereby the overall limits were

enhanced by almost ₹168/- crores, it would be a novation of contract as per

Section 62 of the Indian Contract Act, 1872. The Appellant claims that there

had been an offer and acceptance of a new credit facility limit, which clearly

amounts to a novation of contract in which the Appellant was not privy.

Moreover, after the resignation of the Appellant from TEL - the CD as a

Director, the Appellant cannot be held liable for the personal guarantee, as

there has been a novation of the contract. Also, the father of the Appellant

Company Appeal (AT) (Insolvency) No. 494 of 2024 28 of 40 had passed away in 2019. And lastly, after the enhancement of credit

facilities, it was only Mr. Arun Gupta, another director and brother of the

Appellant, who had signed the renewal of personal guarantees in June 2020,

and not the Appellant. Therefore, in such situation, there have been material

alterations and novation leading to an abandonment of the deed of guarantee

dated 17th October 2017.

44. We find that such an argument of the appellant is not sustainable. As

noted by us here in separately, the Appellant had signed a deed of guarantee,

which does not stand revoked by the resignation of the Appellant from the

directorship of the corporate debtor. Furthermore, we have also noted

separately herein that there is no novation of the contract. Therefore, both

these grounds cannot be sustained. We also observe that notice u/s 13(2)

dated 17.11.2021 that the debt claimed and guarantees invoked in the same,

were only in respect to the limits granted under the documents executed on

17.10.2017 ['Schedule A' of the said notice u/s 13(2)]. Even Loan Recall Notice

dt. 15.11.2022 and Original Applicant bearing OA No. 484 of 2022, filed before

DRT-I, New Delhi don't show any reference to Renewal Sanction Letter dt.

01.01.2019.

45. We find that, with respect to the claim of the Appellant that, in view of

his resignation from CD, he is discharged, is not borne out as per the terms

of the deed of guarantee dated 17.10.2017. A plain reading of the various

clauses, particularly Clause Nos. 1, 3, 6 to 8, 11, 12, 14 and 19 of the principal

Deed of Guarantee dated 17.10.2017, would reveal that the liability of the

guarantor was payable on demand. For the purpose of enforcement of the

Company Appeal (AT) (Insolvency) No. 494 of 2024 29 of 40 guarantee, the guarantor shall be deemed to be the principal debtor.

Guarantee is continuing in nature and is irrevocable. Guarantee is

enforceable against the guarantor irrespective of dispute between the bank

and the borrower. Guarantee shall not be affected by any variation of terms

of contract in future. Guarantee expressly waived his right to claim discharge

under any provision of contract on any ground. All admissions and

acknowledgements of debt, obligation, balance confirmations, part payments

etc. by the principal debtor shall be binding on the guarantor. Thus, in view

of the provisions as contained in the deed of guarantee, the Appellant's claim

that it stands discharged in view of the resignation is not at all tenable.

46. Since clauses 3 and 8 of the Deed of Guarantee have been extensively

relied upon by both sides, we are delving into herein after.

47. The Appellant relies on clause 3 of the Deed of Guarantee which is

extracted as below:

"3. The Lead Bank shall have the fullest liberty without affecting, this Guarantee to vary the amounts of the Individual limits of the above mentioned credit facilities as may be agreed upon from time to time between the Lead Bank and the Borrower subject to the aggregate thereof not exceeding the principal sum and/or to postpone for any time or from time to time enforce or forbear to enforce any remedies or securities available to the Lead Bank AND the Guarantors shall not be released by any exercise by the Lead Bank of its liberty with reference to the matters aforesaid or any of them or by reason of time being given to the Borrower or of any other forbearance act or omission on the part of the Lead Bank or any other indulgence by the Lead Bank to the Borrower or by any other matters or things whatsoever which under the law relating to sureties would but for this provision have the effect of so releasing the Guarantors."

Company Appeal (AT) (Insolvency) No. 494 of 2024 30 of 40

48. However, from a plain reading of this clause, it is clear that only a

change within the existing overall limits of the credit facilities was

contemplated, which would not have the impact of releasing a personal

guarantor from their liability. However, in the present case, it is not where the

internal limit has been enhanced or varied within the overall limits. Thus, the

deed of guarantee itself implies that if in case there is an enhancement of

overall credit facilities, the personal guarantor would be deemed to be

discharged. The Appellant claims that in this case there has been variance,

as there has been an increase in the overall limits of almost ₹168 crores, which

materially impacts the liability of the sureties. Therefore, such variance would

necessarily be considered as material, warranting a complete discharge of the

guarantor.

49. Vehemently countering this argument Respondent SBI brings to our

notice that the renewal of Sanction Letter dt. 01.01.2019, even if assumed to

have been put in effect, did not cause any enhancement of facilities by the

SBI which continued to remain @ ₹117/- crores. Various clauses of deed of

guarantee dated 17.10.2017 including the Clause Nos. 8, 11 and 14 per which

guarantees were continuing and any modification or variation to the terms of

loan would not affect the liability of the Appellant to the extent of limits

secured under the said deed of Guarantee Deed dated 17.10.2017 i.e. ₹907/-

crores qua the consortium and ₹117/- crores qua the SBI. Even otherwise the

respondent SBI never enhanced the loan facilities thereby varying the total

liability of the Appellant against the SBI.

Company Appeal (AT) (Insolvency) No. 494 of 2024 31 of 40

50. Qua the claim of the Appellant of discharge in view of variation of terms

of contract and alleged novation, we observe that after the grant of credit

facility for an amount of ₹117/- crores (constituted of fund based facilities of

₹10.00 crores and non-fund based facilities of ₹107.00 crores) to the CD vide

Letter of Arrangement dated 11.10.2017, there had never been any further

variation or enhancement by the Respondent/SBI. We further observe that

the renewal of facilities would not amount to variation. This is clear from the

Renewal letter dated 01.01.2019 and subsequent notices including Loan

Recall and Demand Notice dt. 15.11.2021 and OA No. 556 of 2022 titled "SBI

vs. Technofab Engineering Limited & Ors." filed before the DRT-I, New

Delhi.

51. Now we briefly delve into the issue of the appellants' claim that Clause

8 of the deed of the guarantee has been incorrectly interpreted by the

Adjudicating Authority. The clause 8 is extracted as below:

"8. The Guarantee herein contained is a continuing one for all amounts advanced by the Lead Bank to the Borrower in respect of or under the abovementioned credit facilities as also for all interest, costs and other money which may from time to time become due and remain unpaid to the Lead Bank thereunder and shall not be determined or in any way be affected by any account or accounts opened or to be opened by the Lead Bank becoming nil or coming into credit at any time or from time to time or by reason of the said account or accounts being closed and fresh account or accounts being opened in respect of fresh facilities being granted within the overall limit sanctioned to the Borrower."

52. We note that Clause 8 clearly states that "the guarantee herein

contained is a continuing one for all amounts advanced by the lead bank to the

borrower in respect of or under the above-mentioned credit facilities, as also of

all interest, commission and other money which may from time to time become

Company Appeal (AT) (Insolvency) No. 494 of 2024 32 of 40 due and remain unpaid to the lead bank thereunder....". We note that the

guarantee, as in the present Deed of Guarantee, is a continuing one and

cannot be discharged by the resignation of the director from the Corporate

Debtor and the argument of the Appellant that the adjudicating authority has

incorrectly interpreted Clause 8 of the Deed of Guarantee is not sustainable.

Therefore, the argument of the Appellant that, in terms of the Deed of

Guarantee which contemplates revisions and modifications within the first

facility limit of ₹907/- crores, is entitled to a discharge of his personal

guarantee is not tenable. Thus, we do not find any infirmity in the order of

the adjudicating authority that if there is any increase in the sanction limit

without the consent of the guarantor, then also he shall still be liable for the

debt which existed prior to its variance.

53. With respect to the applicability of Section 1291 of the Indian Contract

Act, 1872, a continuing guarantee is defined as a guarantee which extends to

a series of transactions. The Appellant claims that it had resigned from the

directorship of the corporate debtor and the CD had addressed multiple

communications to the consortium of banks regarding the resignation of the

Appellant as Director of the CD and release of his guarantee. Thus, the

continuing guarantee, if any, of the Appellant has to be deemed to be revoked

under Section 130 of the Indian Contract Act, 1872. However, a plain reading

of Section 130 of the Indian Contract Act indicates that, the same can be

revoked only qua the future transactions, and that is by way of notice to the

1

129. "Continuing guarantee".--A guarantee which extends to a series of transactions, is called a "continuing guarantee".

Company Appeal (AT) (Insolvency) No. 494 of 2024 33 of 40 creditor. However, in the present case, no notice of revocation was ever issued

by the Appellant to the creditor, that is, the respondent State Bank of India

and the request for release to United Bank of India or Bank of India was

accepted by the lenders.

54. Therefore, in view of the aforesaid clauses of the Deed of Guarantee, the

resignation of the Appellant from the Corporate Debtor shall not discharge

him from the continuing and irrevocable guarantee admittedly executed by

him in favor of the Respondent Bank and other lenders. Therefore, the

Appellant cannot claim revocation of the continuing guarantee under Section

130 of the Act, which mandatorily requires a notice of revocation, and such

revocation operates only qua future transactions as per Section 130 of the

Act.

55. With reference to the argument of the Appellant that it stands

discharged in view of the variation of the terms of contract and alleged

novation2, we note that after the grant of credit facility for an amount of

₹117/- crores to the CD with a letter of arrangement dated 11.10.2017, there

had never been any further variation or enhancement by the Respondent/SBI.

Moreover, as per sanction letter dated 01.01.2019, which was renewal of

working capital, the terms of this letter were to be accepted by the

borrowers/guarantors - which was not done by the borrower or guarantor.

2 Section 62. Effect of novation, rescission, and alteration of contract.

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed.

Company Appeal (AT) (Insolvency) No. 494 of 2024 34 of 40 including the Appellant. So the same was never put into effect. Thus, we agree

with the submission of the Respondent that renewal of facilities would not

amount to variation.

56. The Respondent has placed its reliance on the judgment of the

Honorable Supreme Court of India in HR Basavraj versus Canara Bank

[2010 (2) SCC 458) which has also cited the position as was in Sitaram

Gupta versus PNB [2008 (5) SCC 711]. The relevant paras 16, 17, 18, 19 of

this judgment are extracted as below:

XXX

16. On the principles of continuing guarantee, the position was cleared by a decision of this Court in Sita Ram Gupta v. Punjab National Bank whereby it was held that it was not open to a party to revoke a guarantee when he had agreed to it being a continuing one and thus would be bound by the terms and conditions of the agreement executed at the time of entering into the guarantee. In the present facts and circumstances, we, therefore, do not find any difficulty in affirming the concurrent findings of the High Court and of the trial court on the point that the agreement executed for the purpose of a continuing liability despite the variation of terms of the contract and in the absence of a specific written document by Basavaraj (since deceased) revoking the guarantee, the guarantee stands and the legal representatives of the deceased are liable to repay the loan.

17. With regard to the second issue, the learned counsel for the appellants contended that the contract between JKNP, the Bank and the guarantor Basavaraj had been substituted by a fresh contract by which LST was required to liquidate the amount outstanding. The learned counsel based this on two facts mainly. One was the transfer of the loan accounts from JKNP to LST and the other factor was the deposit of amounts by the Receivers appointed by the court in OS No. 4 of 1977 for liquidation of outstanding amounts of money indeed gives rise to substitution by a new contract. The respondents on the other hand contended that substitution of an old contract by a new one under Section 62 of the Act would require the express consent on behalf of both the parties.

Company Appeal (AT) (Insolvency) No. 494 of 2024 35 of 40

18. Now let us examine Section 62 of the Act which reads as follows: "62.

Effect of novation, rescission and alteration of contract. If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed."

This section gives statutory form to the common law principle of novation. The basic principle behind the concept of novation is the substitution of a contract by a new one only through the consent of both the parties to the same. Such consent may be expressed as in written agreements or implied through their actions or conduct. It was defined thus by the House of Lords in Scarf v. Jardine: (AC p. 351) "... that there being a contract in existence, some new contract is substituted for it, either between the same parties (for that might be) or between different parties; the consideration mutually being the discharge of the old contract."

19. It might be useful at this juncture to turn to the decision of this Court in Lata Construction v. Dr. Rameshchandra Ramniklal Shah whereby this Court held that if the rights under the old contract were kept alive even after the second agreement and rights under the first agreement had not been rescinded, then there was no substitution of contracts and, hence, no novation.

XXX

The above judgments fully support the arguments of Respondent - SBI. From

the above judgements, we note that the principles governing the continuing

guarantee and revocation. A continuing guarantee would mean that it is not

open to a party to revoke a guarantee when he had agreed to it being a

continuing one. He would thus be bound by the terms and conditions of the

agreement executed at the time of entering into the guarantee. Novation is the

substitution of a contract by a new one only through the consent of both

parties to the same. It can happen only through the mutual consent of both

parties. Consent may be expressed, as in written agreements, or implied

through actions or conduct.

Company Appeal (AT) (Insolvency) No. 494 of 2024 36 of 40

57. We further note that, as per Section 133 of the Indian Contract Act

1872, any variance made without the surety's consent, in terms of the

contract between the principal debtor and the creditor, discharges the surety

as only qua the transactions subsequent to the variance. The surety continues

to be liable for transactions affected before such variation. Such a position

has been held in the pronouncements of this Appellate Tribunal in various

cases as noted herein under:

o SBI Vs. Guourishankar Poddar & Anr [2024 SCC Online NCLAT 2014] - para Nos. 26, 30, 32, 36, 40 to 42 & 46-47.

o Sri Vibu Venkatsubramanian vs. State Bank of India & Anr. [Company Appeal (AT) (Insolvency) No. 1228 of 2024 dt. 26.02.2026]"

58. With reference to registration of debt with NeSL (i.e. information utility)

is concerned the argument of the appellant that the amount overdue is

indicated 0.00 is misconceived. The debt registration commenced from March

2018 (after disbursement is in pursuance to loan and guarantee document

dated 17.10.2017). Till 30.04.2019 the amount overdue is indicated 0.00

since the account was either running regular or had only slipped in the

category of SMA-0 with default up to 30 days in April 2019. Thereafter the

account having slipped in the category of SMA1 & 2, the amount overdue is

indicated to be ₹2,72,00,999.00 and after NPA classification on 27.06.20219,

the defaulted amount is indicated as ₹15,61,66,989.00. Nowhere it indicates

that there was a fresh debt in pursuance to the Renewal Letter dated

01.01.2019, not guaranteed by the Appellant. Thus, the debt, as claimed by

the SBI was only emanating from the loan documents executed on

17.10.2017.

Company Appeal (AT) (Insolvency) No. 494 of 2024 37 of 40 Conclusions

59. In the facts and circumstances of the case, we find that the Appellant

has assailed the impugned order mainly on two grounds.

60. Firstly, on the claims that even before the classification of the account

of the Corporate Debtor as NPA on 26.06.2019, the Appellant had already

resigned from directorship of the CD on 08.03.2018, we are not satisfied with

the argument of the appellant that his guarantee cannot be revoked.

61. Perusal of deed of Guarantee dated 17.10.2017 signed by the appellant

would reveal the that the Liability of the Guarantor was payable on demand

(Clause 1); for the purpose of enforcement of the Guarantee, the Guarantors

shall be deemed to the principal debtor (Clause 7); Guarantee is continuing

in nature and is irrevocable; Guarantee is enforceable against the Guarantor

irrespective of dispute between the Bank & borrower (Clause Nos. 8 & 11);

Guarantee shall not be affected by any variation of terms of contract in future

(Clause 3 & 14); Guarantee expressly waived his right to claim discharge

under any provision of Contract Act on any ground (Clause 18); all admissions

& acknowledgments of debt/balance confirmations, part payments etc. by the

principal debtor shall be binding on the Guarantor (Clause 12 & 19).

62. Appellant's extensive reliance on the Indian Contract Act 1872,

particularly on the provisions relating to novation (Section 62), continuing

guarantee (Section 129), revocation of continuing guarantee (Section130) and

discharge of the guarantor (Section 133) is misplaced. Even under Section

129 of the Indian Contract Act, 1872 a continuing guarantee is defined as

Company Appeal (AT) (Insolvency) No. 494 of 2024 38 of 40 a guarantee which, extends to a series of transactions and the same can be

revoked under Section 130 of the Act only qua the future transactions.

63. On the second ground that there were variations in the terms of the

contract after the resignation of the Appellant from directorship of the CD on

08.03.2018, we do not find any novation of the contract per Section 62 of

the Indian Contract Act in 18723 as there had never been any further variation

or enhancement by the Respondent/SBI. We further conclude that the

renewal of facilities would not amount to variation. The arguments of the

appellant that since, the facilities stood enhanced by the lenders, including

Bank of India, therefore, the contract stood novated, and the Appellant stood

discharged. We find that the Appellant had signed a deed of guarantee which

does not stand revoked by the resignation of the Appellant from the

directorship of the Corporate Debtor. Therefore, both these grounds cannot

be sustained.

64. We further observe that the Respondent SBI gets full assistance from

the judgment of Hon'ble Supreme Court of India in HR Basavraj versus

Canara Bank 2010 (2) SCC 458) and Sitaram Gupta versus PNB [2008 (5)

SCC 711].

65. We also observe that the reliance placed by the appellant on the

judgment of the Honorable Supreme Court in Dilip B Jirajka (supra) is

3 Section 62. Effect of novation, rescission, and alteration of contract.

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract, need not be performed.

Company Appeal (AT) (Insolvency) No. 494 of 2024 39 of 40 misplaced as all the objections of the personal guarantors have been noted by

the Adjudicating Authority and it has not mechanically agreed with the report

of the Resolution Professional. We do not agree with the arguments of the

Appellant that there has been no independent assessment of the objections of

the appellant and we cannot dismiss the commencement of personal

insolvency proceedings against the appellant on this ground.

Order

66. Based on the above analysis we find that there is no justification in the

arguments of the appellant and therefore we are inclined to dismiss the

appeal. Accordingly, the Appeal is dismissed. All related IAs are also

dismissed. No orders as to costs.

[Justice N Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical)

New Delhi.

July 06, 2026.

pawan

Company Appeal (AT) (Insolvency) No. 494 of 2024 40 of 40