Case Note & Summary
The appeal arose from an order dated 25.07.2024 passed by the LXXXV Additional City Civil and Sessions Judge, Bengaluru (Commercial Court) in I.A. No.2 in Com.O.S.No.1159/2023. The respondent, Patel Engineering Limited (PEL), had filed a suit seeking a declaration that no liability accrued under a guarantee executed by it, and filed an application under Order 39 Rules 1 and 2 read with Section 151 of the Code of Civil Procedure, 1908, seeking a temporary injunction restraining State Bank of India (SBI) from taking further proceedings in respect of PEL's corporate guarantee dated 06.07.2018. The commercial court granted the injunction, restraining SBI from proceeding against the guarantee till disposal of the suit. SBI appealed under Section 13(1A) of the Commercial Courts Act, 2015, impugning this order. The factual background involved a loan of ₹49 crores sanctioned by SBI to GM Infinite Dwelling (India) Private Limited (the Principal Borrower) for a real estate project, secured by personal and corporate guarantees, including from PEL, and a mortgage of immovable properties. PEL claimed its guarantee was conditional, limited to the value of its share of mortgaged land, but SBI contended it was unconditional. The Principal Borrower defaulted, SBI classified the loan as NPA, issued a demand notice under Section 13(2) of the SARFAESI Act, and filed a petition under Section 7 of the IBC before NCLT. The core legal issues were whether the commercial court erred in granting the temporary injunction and whether the guarantee was conditional or unconditional. SBI argued the guarantee deed was unconditional and the injunction improperly restrained statutory recovery mechanisms. PEL argued the guarantee was limited and the injunction was necessary to protect its rights. The court analyzed the guarantee deed, noting that while the letter of arrangement mentioned a qualification, the deed itself contained no such limitation and included clauses indicating an unconditional guarantee. Applying the principles for temporary injunctions under Order 39 Rules 1 and 2 CPC, the court found SBI had a prima facie case, the balance of convenience favored SBI as the guarantor's liability was clear, and irreparable injury would be caused to SBI if restrained from recovery. The court held the commercial court erred in granting the injunction, as it prevented SBI from pursuing remedies under SARFAESI Act and IBC. The appeal was allowed, setting aside the impugned order and permitting SBI to proceed with its recovery actions.
Headnote
A) Banking Law - Corporate Guarantee - Interpretation of Guarantee Deed - Commercial Courts Act, 2015, Section 13(1A) and Code of Civil Procedure, 1908, Order 39 Rules 1 and 2 - Dispute involved a bank's appeal against an injunction restraining it from enforcing a corporate guarantee - The court examined the guarantee deed and found it to be unconditional, with no qualification limiting liability to the value of mortgaged land - Held that the commercial court erred in granting injunction as the bank had a prima facie case and balance of convenience favored the bank (Paras 1-3, 8-9). B) Civil Procedure - Temporary Injunction - Principles Under Order 39 Rules 1 and 2 CPC - Code of Civil Procedure, 1908, Order 39 Rules 1 and 2 - The court applied the tripartite test for granting temporary injunctions: prima facie case, balance of convenience, and irreparable injury - Found that the bank established a prima facie case based on the unconditional guarantee deed, and the balance of convenience favored the bank as the guarantor's liability was clear - Held that the injunction was improperly granted as it prevented the bank from pursuing statutory recovery mechanisms (Paras 2-4). C) Debt Recovery - Enforcement of Guarantee - SARFAESI Act and IBC Proceedings - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(2) and Insolvency and Bankruptcy Code, 2016, Section 7 - The bank had issued a notice under SARFAESI Act and filed a petition under IBC before NCLT - The injunction restrained these proceedings, which the court found unjustified as the guarantee was enforceable - Held that the bank should be allowed to proceed under SARFAESI Act and IBC as the guarantee was unconditional and the debtor had defaulted (Paras 4, 14-15).
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Issue of Consideration: Whether the commercial court erred in granting a temporary injunction restraining the bank from enforcing the corporate guarantee and proceeding under SARFAESI Act and IBC, and whether the guarantee was conditional or unconditional
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Final Decision
The appeal is allowed. The impugned order dated 25.07.2024 is set aside. The bank is permitted to proceed with its recovery actions under SARFAESI Act and IBC.
