The suit revolves around whether the Deed of Guarantee executed by the plaintiff, Mr. Deepen Arun Parekh, became operative. The court held that the guarantee was conditional and depended on the successful approval and implementation of the Corporate Debt Restructure (CDR) package. Since the CDR package was never approved and subsequently failed, the guarantee never came into force.

Acts and Sections Discussed:

1. Code of Civil Procedure, 1908 (Order VII Rule 11): On rejection of plaint where the suit appears barred by limitation or any law.
2. Limitation Act, 1963:
   • Article 58: Period of limitation for declaratory suits.
   • Article 59: Limitation to cancel or set aside instruments.
3. Recovery of Debts and Bankruptcy Act, 1993 (RDB Act): Sections 17 and 18 (Jurisdiction of DRT and bar on civil court jurisdiction).
4. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act): Sections 34 and 35 (Jurisdiction exclusion clauses).
5. Insolvency and Bankruptcy Code, 2016: Section 180 (Related to insolvency proceedings).

1. Background of the Case

• Facts: After the sudden demise of Mr. Amitabh Parekh in January 2013, the company owed ₹2762.09 crores to a consortium of lenders.
• The family was pressured to involve themselves in management and execute a Deed of Guarantee for debt restructuring under the CDR Scheme​.

2. Execution of Conditional Deed of Guarantee

• Date: 10 April 2014.
• Condition: The Deed of Guarantee was to become effective only if the CDR package was sanctioned and implemented in totality.
• Clause 12 outlined specific termination events if CDR failed, lenders walked out, or insolvency proceedings occurred​.

3. Failure of CDR Package

• Event: On 23 March 2016, the CDR Cell declared that the restructuring had failed, leading the company to exit the mechanism.
• Resultantly, the Deed of Guarantee did not come into effect.

4. Plaintiff’s Grievances

• The plaintiff resigned as a Director on 28 April 2016 after the failure of CDR.
• Banks, however, initiated multiple proceedings against the plaintiff, forcing him to defend the guarantee.

5. Key Issue – Operability of the Guarantee

• The court observed that the guarantee was never operative since the condition precedent—approval and implementation of CDR—remained unmet​.

6. Statutory Bar and Limitation

• Defendant’s Argument: The suit filed in 2024 was barred by limitation under Article 58 and Article 59 of the Limitation Act since the cause of action arose in 2016.
• Court’s View: The claim challenged the formation of the contract, not just enforceability, thereby questioning the very existence of the guarantee.

Ratio Decidendi:

The court held:

1. Condition Precedent: A conditional contract cannot become operative if the condition precedent fails.
2. Void Instrument: Since the CDR package was not approved, the Deed of Guarantee did not come into force. No formal declaration of voidability was needed.
3. Bar of Limitation: When a contract never comes into force, the limitation under Article 58 or 59 does not strictly apply as the instrument is void ab initio​.

Subjects:

Commercial Law, Conditional Contract, Enforcement of Guarantees
Conditional Guarantee, Corporate Debt Restructuring (CDR), Limitation Act, Void Instrument, Jurisdiction of DRT, Enforcement of Security Interest