Shantanu Prakash vs State Bank Of India And Anr

(Arising out of the Order dated 31.05.2024 passed by the National Company Law Tribunal, New Delhi Bench (Court-II), in Company Petition No. (IB)- 446(PB)/2021.)

IN THE MATTER OF:

Shantanu Jagdish Prakash R/O F-5/2, DLF City Phase 1, Gurgaon, Haryana, Presently In New Delhi ...Appellant

Versus

1. State Bank of India SBI House, 3rd Floor, 1211, Padma Tower I, 5, Rajendra Place, New Delhi-110008 ...Respondent No. 1

2. Mr. Kanti Mohan Rastogi Resolution Professional, Registration No. IBBI/IPA-002/IPN00097/ 2017-18/10240 email: Kanti.rustagi@patanjaliassociates.com F-14, First Floor, Kailash Colony, New Delhi, 110048 ...Respondent No. 2

Present For Appellants: Mr. Sunil Fernandes, Sr. Advocate along with Ms. Rajshree Chaudhary, Mr. Abhinav Kumar & Ms. Diksha Dadu, Advocates.

For Respondents: Mr. Akhil Anand, Ms. Vishrutyi Sahni & Ms. Muskaan Gupta, for R-1. Comp. App. (AT) (Ins.) No. 1609 of 2024

JUDGEMENT

(23.01.2025)

NARESH SALECHA, MEMBER (TECHNICAL)

1. The present appeal has been filed by the Appellant i.e., Shantanu Jagdish

Prakash under Section 61 of the Insolvency and Bankruptcy Code, 2016 ('Code')

against the Impugned Order 31.05.2024 passed by the National Company Law

Tribunal, New Delhi Bench (Court-II) ('Adjudicating Authority') in Company

Petition No. (IB)-446(PB)/2021.

2. State Bank of India is the Respondent No. 1 herein.

Mr. Kanti Mohan Rastogi is the Resolution Professional of the Corporate

Debtor and Respondent No. 2 herein.

3. The Appellant submitted that the Impugned Order has led to a gross

miscarriage of justice, as it failed to recognize that the Petition filed by the

Respondent No. 1 under Section 95 of the Code was barred by limitation.

Furthermore, there was no privity of contract between the Appellant and State

Bank of India ('SBI'), since the Personal Guarantee dated 03.06.2015 was

executed solely between the Appellant and SBICAP. Additionally, the Appellant

asserted that the Impugned Order disregarded the critical fact that if the auction

of the shares of The Learning.com had been conducted in a fair, transparent, and

unbiased manner, the principal borrower, Educomp Solution Limited ('ESL')

being the major shareholder of Educomp Asia would have generated substantial

revenues. This revenue could have satisfied the claims of all lenders including

Page 2 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

Respondent No. 1 /SBI, thereby rendering the proceedings before the

Adjudicating Authority unnecessary.

4. The Appellant submitted that ESL was incorporated in 1994 as the flagship

company of the Educomp Group within the emerging Education Technology

sector. The Appellant, an ex-director and promoter of ESL, highlights that ESL

aimed to establish a digital network for modern education across over 25,000

schools in India. The Appellant further stated that ESL availed various credit

facilities from a consortium of banks, including Respondent No. 1 /SBI, to

support its business operations. However, due to an economic slowdown in 2013,

ESL faced significant financial difficulties, leading to its accounts being declared

as Non-Performing Assets (NPA) on 31.03.2013. Consequently, ESL was

compelled to seek restructuring from the consortium of banks in accordance with

the Reserve Bank of India's guidelines on Corporate Debt Restructuring ('CDR').

5. The Appellant submitted that following the financial difficulties faced by

ESL, the Corporate Debtor underwent an extensive Techno-Economic Viability

('TEV') Study, which was a prerequisite for admission into the CDR process.

This TEV Study was conducted by the one consultant, Matt McDonald who stated

that the business was viable. The Appellant stated that Master Restructuring

Agreement ('MRA') was executed between the CDR lenders and ESL, with a

cut-off date of 01.04.2013.

6. The Appellant emphasized that the execution of personal guarantees was

made a condition precedent to signing the MRA, leaving the Appellant with no

Page 3 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

alternative but to comply and execute these guarantees. It is the case of the

Appellant that the terms and conditions of these personal guarantees were

imposed by the CDR lenders, over which the Appellant had no control and under

duress, the Appellant provided personal guarantees in favor of SBICAP Trustee

Company Limited whenever the financial facilities under the MRA were revised,

with each new guarantee superseding the previous one. The final personal

guarantee was executed on 03.06.2015. The Appellant further argued that the

Appellant was coerced into pledging his shareholding in ESL as additional

security. The Appellant highlighted that the personal guarantees and share pledge

were not necessary for the CDR lenders to extend loans, as sufficient security had

already been provided against these facilities, nonetheless, the CDR lenders,

including Respondent No. 1 /SBI, insisted on obtaining the Appellant's personal

guarantee and share pledge as further security measures.

7. The Appellant submitted that, according to the Master Restructuring

Agreement (MRA), the consortium members were obligated to extend a Capex

LC limit of Rs. 108,49,00,000/- to ESL which was not honoured by the Lenders

leading to further financial crises to ESL. It is brought to our notice that the

relevant clause, Clause 2.15.1 of the MRA, which reads as under:

"2.15.1. the Parties agree and understand that the Borrower has changed its business model from 1 April, 2013 ('New Business Model'). Pursuant to the New Business Model, the borrower is selling its Smart Classes Products through third party i.e., Edu Smart Services Private Limited ("Outright

Page 4 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

Sales"). Pursuant to the New Business Mode, the Borrower would recognize the sale and expenses towards hardware in the same year for the contracts entered on Outright Sale basis, whereas for the contracts entered on Build Own Operate (BOO) basis, the Borrower would capitalize the assets created and book the revenue over a period of the contract (typically 3 years). The borrower further agreed that gradually it shall increase the proportion of the Outright Sales in future and bring down the sales done on BOO basis. Similarly, for JCT business, the Borrower would incur Capex for the contracts entered on BOO basis and for Outright Sales mode; the expense would be booked in profit & loss statement. For the contracts entered on BOO basis, the Borrower would require Capex LCs with a usance period of 3 (three) years for purchase of hardware and the same would be capitalized accordingly. "

(Emphasis Supplied)

8. The Appellant submitted that the Capex LC was essential for ESL to

address its stressed financial situation and embark on a path of recovery and

expansion under the New Business Model outlined in the MRA. The Appellant

provided the Personal Guarantee under the belief that this Capex LC limit would

indeed be extended to ESL. The Appellant castigated the CDR lenders, including

Respondent No. 1 /SBI who failed to fulfill their part of obligations under the

MRA, as no funds were released to ESL for the Capex LC limit. It is the case of

the Appellant that the failure of lenders prevented the effective implementation

Page 5 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

of the New Business Model designed to revive ESL and facilitate its recovery and

expansion. The Appellant argued that actions of the CDR lenders in willfully

violating the MRA's terms significantly exacerbated ESL's financial distress,

hindering its ability to recover. The Appellant submitted that ESL underwent a

Techno-Economic Viability Study (TEV Study) conducted by Price water house

Coopers Pvt Ltd ('PwC') and a forensic audit by Grant Thornton, both of which

found no adverse findings against ESL.

9. The Appellant submitted that both ESL and the Appellant have complied

with all terms and conditions set forth in the MRA, and the CDR lenders have

never raised any objections regarding this compliance. Consequently, the

Appellant contends that the CDR lenders are entirely culpable for ESL's default.

Furthermore, since the Personal Guarantee issued by the Appellant was based on

the assumption of compliance with the MRA by the consortium banks, which was

intentionally not fulfilled by lenders including Respondent No. 1 /SBI, the

Appellant argues that this Personal Guarantee is rendered vitiated.

10. The Appellant submitted that in an effort to address the challenges

associated with the CDR package, ESL submitted a re-work plan for a second

restructuring during the joint lenders' meeting on 29.07.2015. Although the

second restructuring was discussed in several meetings over the following two

years, no decisions were made by the CDR lenders. The Appellant highlighted

that during this two-year period, the CDR lenders continued to violate the terms

of the MRA, worsening the ESL's financial situation.

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Comp. App. (AT) (Ins.) No. 1609 of 2024

11. The Appellant stated that ESL was admitted into Corporate Insolvency

Resolution Process ('CIRP') by an order dated 30.05.2017, issued by the

Adjudicating Authority in CP(IB) No. 101(PB)/2017 following which,

Respondent No. 1 /SBI was included in the CoC for ESL after the entirety of SBI's

claim was accepted.

12. The Appellant submitted that Educomp Asia Pacific Pte Limited

('EAPPL'), ESL's step-down subsidiary, was placed into liquidation by an order

of the High Court of Singapore. The Appellant explained that ESL, through

EAPPL, acquired approximately 55% equity in the U.S.-based e-learning

solutions company, 'The Learning Internet Inc' or 'Learning.com', after securing

a loan facility of USD 20 million from State Bank of India, Singapore ('SBI

Singapore'). This loan was further secured by a Corporate Guarantee issued by

ESL in favor of SBI Singapore. Following ESL's admission into the CIRP, SBI

Singapore became a member of the CoC.

13. The Appellant stated that, notwithstanding the aforementioned

circumstances, the Respondent No. 1 /SBI filed O.A. No. 152/2019 before the

Debt Recovery Tribunal - III, Delhi, against the Appellant under the Recovery of

Debts Due to Banks and Financial Institutions Act, 1993 seeking recovery of a

sum Rs. 404,74,85,005.90, which is based on the Personal Guarantee executed by

the Appellant on June 3, 2015.

14. The Appellant submitted that in the aforementioned O.A. filed before the

Debt Recovery Tribunal - III, Delhi, the Appellant has made a counterclaims of

Page 7 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

Rs. 1,540 Crores against the Respondent No. 1 /SBI and other CDR lenders based

on the direct commercial losses incurred by the guarantors of ESL, including the

Appellant, due to the violation of the MRA by the CDR lenders including

Respondent No. 1 /SBI. The Appellant seeks a set-off or equitable set-off against

the sum of Rs. 404,74,85,005.90 claimed by SBI in the proceeding before DRT.

15. The Appellant submitted that the CoC of ESL, which includes the

Respondent No. 1 /SBI, has approved the resolution plan submitted by Ebix

Singapore Pte Ltd. The claims filed by SBI and SBI Singapore are incorporated

within this Resolution Plan and by an order dated 09.10.2023, of the Adjudicating

Authority in CP (IB) No. 101 of 2017 has approved the resolution plan submitted

by Ebix Singapore Pte Ltd., during the CIRP of ESL, and this plan is currently

pending implementation.

16. The Appellant submitted that the Respondent No. 1 /SBI, despite lacking

locus standi, filed an application under Section 95 of the Code, as CP No.

IB/446/(ND)/2021, based on the Personal Guarantee executed on 03.06.2015, in

favor of SBICAP. The Appellant contended that this application is hopelessly

barred by limitation, as ESL's account was declared a Non-Performing Asset

(NPA) on 31.03.2013, implying that the limitation period expired on 30.03.016.

The Appellant submitted that Respondent No. 1 /SBI has relied on a Revival

Letter dated 30.11.2016; however, even if this letter is considered, it cannot serve

as a valid basis for asserting that the application was filed within the limitation

period. The Appellant submitted that the limitation period even counting from

Page 8 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

the Revival Letter dated 30.11.2016, concluded on 30.11.2019. Following this, a

Demand Notice under the Code was issued on 05.11.2020, and the application

under Section 95 of the Code was filed on 01.04.2021 by the Respondent No. 1

/ SBI and thus both the Demand Notice and the application under Section 95 of

the Code are time-barred.

17. The Appellant submitted that the Respondent No. 1 /SBI has failed to

properly invoke the Personal Guarantee, which is in any case is an afterthought,

as the purported letter of demand dated 22.06.2018, issued under Section 13(2) of

the Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 ('SARFAESI Act'), amounted to an invocation of the

Personal Guarantee. The Appellant asserts that SBI incorrectly claims that the

date of default was August 21, 2018, which cannot be valid as it falls after the

declaration of the account as a NPA on 31.03.2013.

18. The Appellant submitted that the Respondent No. 1 /SBI is not a signatory

to the Personal Guarantee dated 03.06.2015, and therefore, could not have

invoked this guarantee against the Appellant. Furthermore, the invocation of the

Personal Guarantee was executed in blatant disregard of its express terms, as

Clause 9 of the guarantee explicitly prohibits lenders from enforcing it severally.

The Appellant stated that even Clause 17 of the Personal Guarantee has also been

overlooked, as it requires the issuance of a certificate by the Security Trustee or

lenders detailing the amount due from the guarantors, which Respondent No. 1

/SBI failed to provide.

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Comp. App. (AT) (Ins.) No. 1609 of 2024

19. The Appellant stated that SBI Singapore, in a manner that lacks

transparency, sold shares of 'Learning.com' pledged to it by EAPPL at a

significantly undervalued price at USD 7.1 million, intentionally obscuring the

sale from creditors and other stakeholders of ESL. The shares were valued at USD

42.049 million in 2014 by the global audit and consulting firm M/s Mazars. It is

the case of the Appellant that a fair and authentic valuation of 'Learning.com'

would have placed its worth in the range of USD 400 million, which means that

ESL's 55% stake would have been sufficient to settle the entire debt owed to the

CoC.

20. The Appellant submits that on 21.09.2021, the Appellant sent an email to

the Respondent regarding the shares of Learning.com, requesting information

about the auction process for these shares, including an independent valuation

report, a copy of the share purchase agreement with the buyers, approvals

obtained for the sale, and the latest financial statements for the past three years.

Additionally, the Appellant was compelled to send a legal notice to the CoC of

ESL and the Resolution Professional, urging them to investigate the sale of this

asset and disclose all relevant details to the entire CoC. The notice also called for

appropriate legal actions, including approaching the Adjudicating Authority to

reverse the transactions undertaken by SBI in India and Singapore, citing the

illegal, arbitrary, and non-transparent nature of these actions, however, SBI and

SBI Singapore failed to provide any of the requested information concerning the

auction of Learning.com shares.

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Comp. App. (AT) (Ins.) No. 1609 of 2024

21. The Appellant submitted that the Resolution Professional has erroneously

relied on Clause 9 of the Personal Guarantee to assert that this clause allows

lenders to enforce the guarantee jointly and severally against the Appellant as the

Personal Guarantor. The Appellant contends that the RP has completely

misconstrued Clause 9, which explicitly refers to the two guarantors, not the

lenders. This clause permits enforcement of the guarantee either against both

guarantors or against one guarantor individually, thereby indicating that the

enforcement cannot be applied to the Appellant alone without considering the

other guarantor. The said Clause 9 does not permit the lenders to severally enforce

the Personal Guarantee.

22. The Appellant stated that Clause 17 of the Personal Guarantee, mandates

the issuance of a certificate by the Security Trustee, to be annexed with any

application filed under Section 95 of the Code. However, the application

submitted by Respondent No. 1 /SBI under Section 95 of the Code does not

include such a certificate from the Security Trustee or the lenders, nor has the

Security Trustee invoked the Personal Guarantee therefore action of Respondent

No. 1/SBI is illegal.

23. The Appellant stated that a careful examination of the recitals and Clause

29 of the Personal Guarantee reveals that the rights to enforce the personal

guarantee have been ceded to the Security Trustee. Specifically, Recital F states

that "In order to create a joint guarantee for the Loans, the Security Trustee has

called upon the Guarantors to execute, and the Guarantors have executed, this

Page 11 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

Guarantee in favor of the Security Trustee for the benefit of all Lenders."

Additionally, Clause 29 clarifies that "The Guarantors agree and declare that the

rights and powers conferred on the Security Trustee/Lenders by these presents

may be exercised by the Security Trustee acting for the benefit and on behalf of

all or any of the Lenders." The Appellant submitted that enforcement actions must

be taken by the Security Trustee rather than by individual lenders.

24. The Appellant submitted that he presented objections to the petition filed

under Section 95 of the Code and the report submitted by the Resolution

Professional under Section 99 of the Code. Among other grounds, the Appellant

categorically stated that:

(a) there was no privity of contract between SBI and the Appellant as Guarantor,

thus Respondent No. 1 /SBI could not invoke a guarantee executed by the

Appellant and the Security Trustee, SBICAP;

(b) the purported Personal Guarantee, upon which the application was based, is

void ab initio and non-est as it contravenes Section 28 of the Indian Contract Act,

1872;

(c) the demand notice issued by Respondent No. 1 /SBI on November 5, 2020,

and the subsequent application under Section 95 of the code were both time-

barred, having been initiated after the expiration of three years from the date when

the cause of action arose; and

(d) the application was premature as Respondent No. 1 /SBI's claim against the

Appellant had not yet crystallized.

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Comp. App. (AT) (Ins.) No. 1609 of 2024

(e) Additionally, during the liquidation process of EAPPL, shares of

Learning.com were sold on 03.09.2021, at a grossly undervalued price in a

deliberate attempt to conceal the sale from creditors and other stakeholders of

ESL, which owned nearly 55% of Learning.com. There was no satisfactory

explanation provided by Respondent No. 1 /SBI or SBI Singapore regarding the

sale of this asset at such a low price.

25. The Appellant submitted that, by way of I.A. No. 187/ND/2022 in CP (IB)

No. 101 (PB)/2017, the Appellant sought directions from the Adjudicating

Authority to hold SBI and SBI Singapore liable for damages or compensation to

ESL and/or its lenders for the surplus or profit that would have benefited the

lenders and other stakeholders of ESL. The Appellant argued that based on this

IA, in an order dated 25.08.2023, the Adjudicating Authority found merit in the

Appellant's submissions and directed for re-evaluation of the shares of

Learning.com.

26. The Appellant submitted that the Adjudicating Authority further directed

that if the re-evaluated valuation of the shares exceeds USD 7.1 million, which is

the amount for which the shares were sold on 03.09.2021, then the claim of SBI

Singapore against ESL would be reduced accordingly. The Appellant contends

that had the shares of Learning.com been sold at their correct valuation, ESL's

entire debt would have been settled, leaving nothing to be recovered from the

Appellant as Guarantor.

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Comp. App. (AT) (Ins.) No. 1609 of 2024

27. Concluding his arguments, the Appellant urged this Appellate Tribunal to

dismiss the Impugned Order and allow his appeal.

28. Per contra, the Respondent denied all the averments made by the Appellant

in the present appeal.

29. The Respondent No.1 submitted that the Corporate Debtor availed a range

of credit facilities, which included Rupee Term Loans totalling Rs. 636.82 crores

from existing term loan lenders, and working capital facilities, both fund-based

and non-fund-based, amounting to Rs. 543.80 crores from working capital

lenders. Additionally, the Corporate Debtor secured external commercial

borrowings ('ECB') of Rs. 434 Crores from ECB lenders. The Corporate Debtor

also acquired equipment through financial leases and obtained financial facilities

backed by pledged promoter's shares. The Respondent No.1 stated that to secure

these credit facilities, the Corporate Debtor created charges over its movable

assets and mortgaged its immovable properties in favor of the lenders. Despite,

these measures, the Corporate Debtor encountered significant adverse financial

conditions, leading to its classification as a NPA on 31.03.2013.

30. The Respondent No.1 submitted that the Corporate Debtor acknowledged

its debt under Section 18 of the Limitation Act, 1963, by executing a Revival

Letter dated 30.11.2016. However, the Corporate Debtor subsequently defaulted

on its obligations to Respondent No. 1, with the last payment of ₹1,56,842 made

on 02.02.2017. The CIRP for the Corporate Debtor commenced on 30.05.2017,

during which Respondent No. 1 filed and had its claim admitted. Nonetheless, the

Page 14 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

approved Resolution Plan under the CIRP allocated only Rs. 40.77 crores against

Respondent No. 1's total claim of Rs. 532.99 crores.

31. The Respondent No.1 submitted that on 22.06.2018, Respondent No. 1

issued a demand notice under Section 13(2) of the SARFAESI Act to the

Appellant, invoking the Personal Guarantee and requesting repayment of the

outstanding amount. The Appellant failed to discharge the outstanding dues

within the stipulated 60 days, constituting a default. Subsequently, on 05.11.2020,

Respondent No. 1 issued another demand notice under Rule 7(1) of the

Insolvency and Bankruptcy Rules, 2019, demanding payment of Rs.

532,99,88,089.76 as of 28.02.2021. In response, the Appellant admitted the

execution of the Personal Guarantee and its failure to pay the debt due in its reply

to Respondent No. 1's demand notice dated 18.11.2020. Despite this admission,

neither the Corporate Debtor nor the Appellant has cleared the outstanding dues

or accrued interest. As a result, Respondent No. 1 filed the Company Petition on

01.04.2021.

32. The Respondent No.1 submitted that the Resolution Professional, who was

appointed on 17.11.2021, submitted a report dated 28.01.2022, under Section 99

of the Code to the Adjudicating Authority recommending the admission of the

Company Petition against the Appellant. Furthermore, in the Reply/Objections to

the RP's report filed by the Appellant on 08.04.2022, the Appellant admitted to

the execution of the Personal Guarantee and acknowledged its failure to pay the

debt due.

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Comp. App. (AT) (Ins.) No. 1609 of 2024

33. The Respondent No.1 submitted that allegation of the Appellant that there

exists no privity of contract between Respondent No. 1 and the Appellant, which

precludes Respondent No. 1 from invoking the Guarantee executed by the

Appellant and the security trustee, SBICAP Trustee Company Limited

("SBICAP") is far from truth. The entries in Form B (Notice of Demand) and

Form C (Application) are specifically related to the filing of a Section 95 petition

by a creditor. Importantly, there is no provision in the Code that prohibits a lender

from filing a petition, even in cases where a security trustee has been appointed

to hold the security interest. Therefore, the assertion that Respondent No. 1 cannot

proceed based on the lack of direct contractual relationship with the Appellant is

unfounded.

34. The Respondent No.1 submitted that the terms of the MRA and the Security

Trustee Agreement (STA) clearly indicate that the security trustees are holding

'Security' not for their own benefit, but on behalf of and for the benefit of the

Claimant/Lender. Consequently, the Lender has the right to enforce the security

documents even if they are not a party to the trusteeship agreement. Furthermore,

it is well-established law that beneficiaries under a contract are entitled to enforce

its covenants. This principle is supported by the case of M.C. Chacko v. State

Bank of Travancore, Trivandrum, [(1969) 2 SCC 343] at Paras 9-12, which

affirms that a party can indeed enforce a contract made for its benefit. Therefore,

the Lender's ability to act upon the security documents is valid and enforceable,

irrespective of their direct involvement in the trusteeship agreement. Page 16 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

35. The Respondent No.1 submitted that the arguments of the Appellant about

the demand notice dated 05.11.2020, and the present Company Petition being

time-barred, as the Corporate Debtor was declared a NPA on 31.03.2013 are

misplaced because it relates to loans that predate the MRA, which restructured

these liabilities with the consent of all parties, culminating in the MRA dated

25.03.2014. Thus, the argument regarding the NPA from 2013 is irrelevant.

Furthermore, the appellant acknowledged its liability through a Revival Letter

dated 30.11.2016. Consequently, any limitation period for the Corporate Debtor

commenced on that date and expired on 30.11.2019. Respondent No. 1 issued a

Demand Notice on 22.06.2018, requiring payment within 60 days (i.e., by August

22, 2018). Therefore, for the present application against the appellant, the

limitation period commenced on August 22, 2018, and expired on 23.08.2021.

Since the application was filed on 31.03.2021, it is well within the limitation

period following the Section 95 Demand Notice issued on 05.04.2020.

36. The Respondent No.1 submitted that it is settled law that when a guarantor

becomes liable due to a valid demand made in a timely manner, the creditor

retains the right to sue the guarantor within three years, even if the claim against

the principal debtor subsequently becomes time-barred. This principle is

established in the case of Syndicate Bank v. Channaveerappa Beleri & Ors.,

[(2006) 11 SCC 506] at Paras 9-14. The respondent asserts that the timing of the

demand and subsequent actions taken by the creditor are valid and enforceable

Page 17 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

under the law, irrespective of any limitations that may apply to the principal

debtor's obligations.

37. The Respondent No.1 submitted that the Adjudicating Authority correctly

determined that since Respondent No.1/SBI issued the notice demanding

payment of the entire loan amount within 60 days of service on 23.08. 2018, the

limitation period for the claim commenced on that date. Consequently, the

Company Petition was filed within the applicable limitation period. This

interpretation aligns with established legal principles regarding the

commencement of limitation periods in insolvency proceedings, reinforcing the

validity of the petition and the timely actions taken by SBI.

38. The Respondent No.1 submitted that the appellant's contention that the

Notice of Demand dated 22.06.2018, under Section 13(2) of the SARFAESI Act

is not an invocation of the personal guarantee is unfounded. Respondent No. 1

issued the Notice specifically against the Appellant, clearly referencing the

Personal Guarantee dated 03.06.2015. The Notice explicitly states, "The said

financial assistance is also secured by the personal guarantee of Sh. Shantanu

Prakash & Sh. Jagdish Prakash & corporate guarantee of Edu Smart Services

Pvt Limited for consortium advance." This unequivocal mention demonstrates

that the personal guarantee was indeed invoked, thereby validating the present

petition.

39. The Respondent No.1 submitted that the Notice of Demand dated 22.06.

2018, while referencing Section 13(2) of the SARFAESI Act, explicitly called

Page 18 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

upon the Appellant to discharge in full the borrower liabilities stated hereunder to

the Bank within 60 days of this notice which clearly indicates that the Notice

fulfils all conditions stipulated under the Personal Guarantee and constitutes a

valid invocation. Furthermore, the Appellant did not raise this objection in its

reply to the Demand Notice dated 05.11.2020, suggesting that this argument is an

afterthought intended to evade the admission of the Application.

40. The Respondent No.1 submitted that the appellant's claim regarding SBI

Singapore selling a 55% stake in Learning.com during EAPPL's liquidation at an

undervalued price, leading to insufficient debt recovery is completely unfounded,

baseless and illegal and with purpose to derail CIRP under section 95 of the code.

41. The Respondent No.1 submitted that the appellant's claim that the Personal

Guarantee is vitiated due to a breach of the MRA by the CDR Lenders,

specifically regarding the failure to extend the Capex LC limit of Rs. 108.49

Crores and the alleged non-implementation of a second restructuring, is without

merit. The Respondent No.1 submitted that the issues pertain to the terms of the

MRA, which govern the relationship between the CDR Lenders and the Corporate

Debtor, and do not impact the enforceability of the Personal Guarantee, which

remains valid until the underlying debt is fully discharged. Additionally, the

Revival Letter executed by the appellant on 30.11.2016, further confirms their

acknowledgment of the outstanding debt and reinforces their continuing liability

under the Personal Guarantee, irrespective of any disputes regarding MRA

performance. The Respondent No.1 submitted that appellant's argument fails to

Page 19 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

provide any valid legal basis for vitiating the Personal Guarantee, especially

considering that the default by the Corporate Debtor occurred after both the

restructuring and the acknowledgment of debt by the Appellant.

42. Concluding, his arguments the Respondent No.1 defended the Impugned

Order and requested this Appellate Tribunal to dismiss the appeal with exemplary

costs.

Findings

43. We note that application under Section 95 of the Code filed by the

Respondent No.1/SBI was admitted vide the Impugned Order dated 31.05.2024

and Personal Insolvency Resolution Process ('PIRP') has been initiated against

the Appellant who is the guarantor of the of the Corporate Debtor ESL.

44. We have already noted the facts from the pleadings of the Appellant and

the Respondent herein above and therefore shall not repeat. The Impugned Order

has been challenged by the Appellant based on the following grounds :-

a) The application filed under Section 95 of the Code was barred by

limitation.

b) There was no privity of contract between Applicant/ SBI and Appellant/

personal guarantor.

c) The Adjudicating Authority could not have passed the Impugned Order

based on invocation of personal guarantee by 3rd party.

Page 20 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

d) The Appellant has also challenged on the ground that the debt itself has

not been crystalised.

e) The Impugned Order did not issue direction under Section 100 (2) of

the Code regarding negotiations to be held in Appellant/ personal

guarantor and the Creditor/ Respondent.

f) The Impugned Order ignored the fact regarding under valued sale of

shares in learning.com held by of Corporate Debtor subsidiary EAPPL

leading to groups under recovery for the principal borrower.

45. These points are interconnected and inter dependent and shall be dealt in

conjoint manner in the following discussions :-

(a) The application filed under Section 95 of the Code was barred by

limitation.

(i) As regards, the issue of limitation, it is the case of the Appellant

that ESL was declared as NPA on 31.03.2013 and thus, limitation

period should have ended on 30.03.2016. The Appellant

considered that even based on the revival letter dated 30.04.2016,

the limitation period could have been only up to 30.11.2019.

(ii) The Appellant argued that the demand notice was issued on

05.11.2020 and an application under Section 95 was filed by the

Respondent No. 1 on 01.04.2021. Hence, both the demand notice

and the Section 95 application were time barred.

Page 21 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

(iii) In this connection, we note that although the account of the

Corporate Debtor was declared as NPA on 31.03.2013, however,

the loans were predating, the MRA was restructured on

25.03.2014 with the consent of all parties including the Appellant

herein and therefore, the NPA date ceased to the relevant as such.

(iv) We further note that the Appellant acknowledged its liability

through a revival letter dated 30.11.2016 and therefore the

limitation would have expired on 30.11.2019.

(v) We further note that the Respondent No. 1 issued a demand notice

on 22.06.2018 requesting for payment within 60 days i.e., by

22.08.2018 and therefore, for the purpose of calculating

limitation period in the present case would have started on

22.08.2018 and would have ended on 21.08.2021. We note that

the application was filed on 31.03.2021 much before the expiry

of the limitation period.

(vi) Thus, we hold that both the demand notice as well as Section 95

application were filed within period the period of limitation.

(vii) The arguments of the Appellant on the issue of limitation stand

rejected.

(b) There was no privity of contract between Respondent No.1/ SBI and

Appellant/ personal guarantor.

Page 22 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

(c) The Adjudicating Authority could not have passed the Impugned

Order based on invocation of personal guarantee by 3rd party.

(i) As regard, the issue of privity of contract, it has been pleaded by

the appellant that the personal guarantee was between the

Appellant along with other guarantor with SBICAP Trustee

Company Limited and the Respondent No. 1 was not signatory to

personal guarantee as such the Respondent No. 1 could not have

initiated Section 95 application. On this account, we note that

concept of trusteeship is to act on behalf of the creditors or

consortium of creditors.

(ii) Thus, such trusteeship deeds are generally signed between the

trust on behalf of the lenders and the personal/ corporate

guarantor of the principal borrower. However, by its inherent

nature and intent, the lenders or the Financial Creditors are the

true beneficiaries of such deed of guarantee.

(iii) We further note that Section 95 of the Code provides right to the

creditors to file application to initiate PIRP.

(iv) It has been pleaded that security trustee is merely holding security

in favour of the creditor or consortium of creditors and therefore

either the trust or creditors may file application under Section 95

of the Code.

Page 23 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

(v) The wording of Section 95(1) of the Code clearly stipulate that

creditor may apply "either by himself or generally with other

creditors". Therefore, the creditor i.e., Respondent No. 1 is

within his right to initiate Section 95 application and does not

prevent him based on alleged lack of privity of contract with the

Appellant. It is settled law that a party can enforce the contract

made for its benefit.

(vi) From the terms of the MRA and the STA, it is clear that the

security trustees are holding 'Security' not for themselves, but on

behalf of, and for the benefit of, the Claimant/Lender. The

Lenders, can therefore, enforce the security documents even if

they are not a party to the trusteeship agreement.

(vii) In this connection, we note Clause 'O' of MRA, which reads as

under :-

"O. The Borrower has appointed SBICAP Trustee Company Limited as the Security Trustee in accordance with the terms of the security trustee agreement dated 25/03/2014 ("Security Trustee Agreement") for the purpose of holding the security interest for the benefit of the CDR Lenders (as defined in Article 1 of this Agreement) and Non CDR Lenders (as to give effect to Approved CDR Package)."

(Emphasis Supplied)

Page 24 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

(viii) It is settled law that beneficiaries under the terms of a contract

have the right to enforce the covenants thereof as held by the

Hon'ble Supreme Court of India in case of M.C. Chacko v. tile

State Bank of Travancore, Trivandrum, [(1969) 2 SCC 343].

(ix) The MRA acknowledges the Lenders' right to recover their

independent loans. Thus, by way of the MRA, the CDR Lenders

had not waived their right to recover their respective Restructured

Loans, the New Working Capital Facilities and the Corporate

Loans.

(x) We note the following part of Agreement :-

"WAIVER OF EXISTING EVENTS OF DEFAULTS

Subject to Section 7.3 (Consequences of Revocation), each of the CDR Term Loan Lenders and the CDR Working Capital Lenders hereby waives any Existing Events of Default relating to such Existing Term Loans and the Existing Working Capital Facilities and any and all rights, remedies and powers that may have arisen in connection therewith. For avoidance of doubt, it is hereby clarified that the CDR Lender.; do not hereby waive their right to recover their respective Restructured Loans, the New Working Capital Facilities and the Corporate Loans in accordance with the terms of this Agreement. In the event any such CDR Lender had already committed any action against the Borrower and/or its guarantors, such action shall not Page 25 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

abate, unless such action is brought to a close through consent terms or otherwise pursuant to Restructuring Documents."

(Emphasis Supplied)

(xi) This makes position very clear and give rights to the Lender/

Financial Creditor/ Respondent No. 1 herein to pursue its legal

rights.

(xii) We have noted that Guarantors has confirmed the existence of the

existing guarantee given to the Existing Term Loan Lenders and

Working Capital Lenders through the following :-

1.3.1 The Guarantors hereby irrevocably acknowledge and confirm the existing guarantee given by the guarantors to the Existing Term Loan Lenders and the Existing Working Capital Lenders and the amount of the Existing Term Loan outstanding to each of the Existing Term Loan Lenders and the amount of the Existing Working Capital Facilities of the Existing Working Capital Lenders and agrees to and acknowledges the reconstitution of the Existing Term Loans due to the Existing Term Loan Lenders and conversion of irregular portion of the Existing Working Capital Facilities due to the Existing Working Capital Lenders pursuant to the Approved CDR Package and the other Restructuring Documents."

(Emphasis Supplied)

Page 26 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

(xiii) Now, we will look into various provisions of Personal Guarantee

deed, which stipulates the rights and obligations. The relevant

clauses are :-

➢ As per Clause 1.3.4 of Terms of Guarantee, in case of

default of the Borrower, the Guarantors without protest

will pay on their behalf upon demands by the Security

Trustee/Lenders. Clause 1.3.4 of terms of guarantee reads

as under :-

"1.3.4 In the event of any default on the part of the Borrower in payment/repayment and in reimbursement of any of the monies referred to above, or in the event of any default on the part of the Borrower to comply with or perform any of the terms, conditions and covenants contained in the Restructuring Documents, the Guarantors shall upon demand from the Security Trustee/Lenders, forthwith pay to the Security Trustee/Lenders without demur and protest all the amounts payable by the Borrower under the Restructuring Document."

➢ This Clause 1.3.4 makes amply clear that both Trustee as

well the Lenders have full rights to ask guarantor to pay.

➢ Further in terms of Clause 1.3.6 of Terms of Guarantee, the

guarantor shall also indemnify and keep the Security

Page 27 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

Trustee/Lenders indemnified against all losses, damages,

costs, claims and expenses whatsoever which the Security

Trustee/Lenders may suffer, pay or incur by reason of, or

in connection with any such default on the part of the

Borrower, including the legal proceedings taken against

the Borrower and/or the Guarantor for the recovery of

monies referred to in Clause 1.3.3 and 1.3.4. The Clause

1.3.6 reads as under :-

"1.3.6 The guarantors shall also indemnify and keep the Security Trustee/Lenders, indemnified against all losses damages, costs, claims and expenses whatsoever which the Security Trustee/Lenders may suffer, pay or incur by reason of or in connection with may such default on the part of the Borrower including legal proceedings taken against the Borrower and/or the Guarantors for recovery of the monies referred to in Clause 3 and 4 above."

(Emphasis Supplied) ➢ Further in terms of Clause 1.3.8 of terms of guarantee the

Security Trustee/Lenders have the liberty to exercise the power

given to the Lenders, to enforce the payment of the Loans. Clause

1.3.8 of terms of guarantee reads as under :-

Page 28 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

"1.3.8 The Security Trustee/Lenders shall have full liberty, without notice to the Guarantors and without in any way affecting this Guarantee, to exercise at any time and in any manner any power or powers reserved to the Lenders under the Restructuring Documents, to enforce or forbear to enforce payment of the Loans or any part thereof or interest or other monies due to the Lenders from the Borrower or any of the remedies or securities available to the Lenders, to enter into any composition or compound with or to grant time or any other indulgence or facility to the Borrower AND the Guarantors shall not be released by the exercise by the Security Trustee/ Lenders of its liberty in regard to the matters referred to above or by any act or omission on the part of the Security Trustee/the Lenders or by any other matter or thing whatsoever which under the law relating to sureties would but for this provision have the effect of so releasing the Guarantors and the Guarantors hereby waive in favour of the Security Trustee/the Lenders so far as may be necessary to give effect to any of the provisions of this Guarantee, all the surety ship and other rights which the Guarantors might otherwise be entitled to enforce."

(Emphasis Supplied)

(xiv) Clause 28 of terms of guarantee clarifies that the rights and

powers of the Security Trustee/Lenders are deemed to be joint

and severable. Clause 28 of terms of guarantee reads as under :-

Page 29 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

" 28. The Guarantors agree and declare that the rights and powers conferred on the Security Trustee /Leaders by these presents to joint and several and shall be deemed always to be so and they may be exercised by the Security Trustee/Lenders accordingly."

(Emphasis Supplied)

(xv) In addition, as per Clause 30 of terms of guarantee the Lenders

have the powers against the Guarantors notwithstanding any

security given or being given to the Lenders may be void or

defective. Clause 30 of terms of guarantee reads as under ;-

"30. The Guarantors agrees that the Lenders shall not be bound to enquire into the powers of the Borrower and the Lenders have powers against the Guarantors notwithstanding any security given or being given to the Lenders may be void or defective."

(Emphasis Supplied)

(xvi) Similarly, Clause 34 (d) stipulate that the liability of the

Guarantor shall not be prejudiced or affected by way of any

irregularity or enforceability of any person or security. Clause

34(d) of terms of guarantee reads as under :-

"34 (d) any irregularity with respect to or enforceability, or of any obligations of any other person or security, to the intent that the

Page 30 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

Guarantor's obligations hereunder shall remain in full force and this Guarantee be construed accordingly as if there were no such Irregularity, unenforceability, Illegality, invalidity or frustration."

(Emphasis Supplied) (xvii) We also note that according to Clause 45 of terms of guarantee

the Security Trustee or the Lenders or the Monitoring Institution

can initiate any actions against the Guarantors in any courts or

tribunals. Clause 45 reads as under :-

"Clause 45. Any legal action or proceedings arising out of this Guarantee shall be brought in the courts or tribunals at Delhi In India and the parties hereto irrevocably submit themselves to the non- exclusive jurisdiction of such court or tribunal. The Security Trustee and/or the Monitoring Institution and/or the Lenders may, however, in their absolute discretion commence any legal action or proceedings arising out of this Guarantee In any other court, tribunal or other appropriate forum, and all the other parties to this Guarantee hereby consent to that Jurisdiction."

(Emphasis Supplied)

(xviii) We hold that the Adjudicating Authority has rightly held in para

14 of the Impugned Order that merely because the trustee acted

on behalf of Respondent No. l/SBI, it cannot be said that the Page 31 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

beneficiary/creditor cannot enforce the Personal Guarantee

executed by the Appellant. As can be seen from clause O of the

MRA, SBICAP was appointed as Security Trustee in accordance

with the terms of the Security Trustee Agreement dated

25.03.2014 for the purpose of holding the security interest for the

benefit of the CDR lenders and non-CDR lenders. Thus, SBI had

the locus to file the Company Petition.

(xix) Thus, on this point, we do not find any merit and the pleadings of

the Appellant on this account stand rejected.

(d) The Appellant has also challenged on the ground that the debt itself

has not been crystalised.

(i) On this issue pleaded by the Appellant, we note that Section 95

of the Code has been initiated demanding payment of

Rs. 532,99,88,089.76 with the date of default specified as

21.08.2018.

(ii) It is the case of the Appellant that O.A. No. 152/2019 before the

Debt Recovery Tribunal - III, Delhi was filed by the Respondent

No. 1 is pending where the Appellant has also filed a counter

claims of Rs. 1540 Crores against the Respondent No. 1 and

further seeking set off/ equitable set off for the sum of

Rs. 404,74,85,005.90/- and thus, the debt has not been

crystallised.

Page 32 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

(iii) We find that the personal guarantor signed the personal guarantee

on 03.06.2015 and became guarantor on behalf of principal

borrower. The borrower amount has been stipulated therein. We

have already noted that there has been established the case of

default of debt and subsequently CDR was sanctioned which also

failed.

(iv) We further note from the particulars furnished in Section 95

application of the Respondent No. 1 (relevant portion has been

reproduced in the Impugned Order) that details of the debts along

with relied upon documents for debt has been furnished by the

Respondent No. 1/ SBI.

(v) We, therefore, do not appreciate the arguments of the Appellant

on this account based on argument that mere fact that the case is

pending before the DRT and certain counter claims have been

filed by the Appellant will not make debts payable by the

Appellant as debts not have been crystalised.

(vi) Therefore, the contention of the Appellant on this ground stand

rejected.

(e) The Impugned Order did not issue directions under Section 100 (2)

of the Code regarding negotiations to be held in Appellant/ personal

guarantor and the Creditor/ Respondent.

(i) The Section 100 (2) Code reads as under :-

Page 33 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

"(2) Where the Adjudicating Authority admits an application under sub-section (1),it may, on the request of the resolution professional, issue instructions for the purpose of conducting negotiations between the debtor and creditors and for arriving at a repayment plan."

(Emphasis Supplied)

(ii) We note that Section 100 (2) Code is applicable if repayment plan

is prepared by the debtor under Section 105 of the Code then

opportunity should be offered to the debtor. The order of the

Adjudicating Authority is only if the Resolution Professional

makes an application for the same.

(iii) On this issue, we specifically put a query to the Appellant herein

whether he is in position to repay the demanded money by the

Respondent No. 1/ SBI and whether he can offer any repayment

plan even at this stage. The Appellant could not give any concrete

reply, as such we do not find any substance that debtor/ appellant

has not been offered an opportunity to offer the repayment plan

and has suffered on this account.

(f) The Impugned Order ignored the fact regarding under valued sale

of shares of Corporate Debtor subsidiary in learning.com leading

to gross under recovery for the principal borrower.

Page 34 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

(i) This subject of sale of shares of Learning. com/ The Learning

network.com has already been challenged by SBI Singapore in

connected Appeal bearing Comp. App. (AT) (Ins.) No. 1351 of

2023 and is before us. We have examined this issue in great detail

and judgement is being pronounced in the separate judgement in

this regard allowing the appeal of SBI Singapore and setting aside

Para 27(a) and 27 (b) of the Impugned Order dated 25.08.2023

passed by the Adjudicating Authority in IA. No. 187/ND/2022 in

Company Petition No. (IB)-101/(PB)/2017.

(ii) As such, we do not find any merit on this ground in the present

appeal. For purpose of brevity, we are not elaborating the detailed

reasons once again here as we have heard both the cases together,

pleaded by the Appellant through same counsel and order was

reserved on same date and order is pronouncing on the same date

in both the appeals.

46. We shall also deal some other points which have been raised by the

Appellant. The Appellant contended that the notice of demand dated 22.06.2018

under Section 13(2) of the SARFAESI Act is not an invocation of personal

guarantee and therefore present petition cannot be invoked in absence of proper

invocation of property. On this point we note that the Respondent No. 1 has issued

notice to the Appellant specifically mentioning the personal guarantee dated

03.06.2018 which clearly stipulated that "The said financial assistance is also

Page 35 of 37 Comp. App. (AT) (Ins.) No. 1609 of 2024

secured by the personal guarantee of Sh. Shantanu Prakash & Sh. Jagdish Prakash

& corporate guarantee of Edu Smart Services Pvt limited for consortium

advance." It has further brought to our notice that while notice was issued under

Section 13(2) of the SARFAESI Act, which has also specifically called upon the

Appellant to discharge in full the borrower liability stated therein within 60 days

of the notice. Thus, the notice fulfils all the condition stipulated under personal

guarantee and can be treated as valid invocation. On this issue, the Adjudicating

Authority has also held that the demand notice issued by the Respondent No. 1

under Rule 7(1) of the I&B (Application to Adjudicating Authority for Insolvency

Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 as

valid. Thus, we do not find any error in the Impugned Order on this account.

47. One of the issues raised by the Appellant was regarding breach of the MRA

by the CDR Lenders which led to collapse of the Corporate Debtor, therefore, the

Personal Guarantee of the Appellant stood vitiated. It is the case of the Appellant

that the CDR lenders did not extend the Capex LC limit of

Rs. 108.49 Crores. On this issue, it has been brought out that the issue of Capex

LC limit and failure of the Corporate Debtor to implement CDR Plan was relating

to MRA and between the CDR Lenders and the Corporate Debtor and do not give

any right to the Appellant/ Personal Guarantor to wriggle out of the personal

guarantee. We find merit of the contention of the Respondent No. 1.

Page 36 of 37

Comp. App. (AT) (Ins.) No. 1609 of 2024

48. In view of detailed examination of various issues brought out in the present

appeal, we do not find any merit in the Appeal. Appeal stands rejected. No costs.

I.A, if any, are closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical) Sim

Page 37 of 37