BALRAM CHAINRAI v. LAKSHMI PREMISES PRIVATE LTD

HCSD 16/2022

[2022] HKCFI 3560

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO.16 OF 2022

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BETWEEN

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DECISION

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1.  This is an application by Balram Chainrai (“the Applicant” or “Balu”) to set aside a statutory demand dated 24 May 2022 served on him by Lakshmi Premises Private Limited (“the Respondent”). The debt claimed in the statutory demand is alleged to have arisen from an oral guarantee given by the Applicant in relation to a loan provided by the Respondent to an Indian company called Mangal Savitri Bizcon Private Limited (“Mangal”) dated 4 January 2018 (“the Loan”). The amount outstanding together with claimed interest is INR 186,723,425 or approximately HK$18.6 million. At the conclusion of the hearing, this Decision was reserved which I now give.

Background facts

2.  Harry Hassomal Mohinani (“Harry”) is one of 4 shareholders of the Respondent over which Harry exercises de facto control.

3.  The Respondent was set up as an investment vehicle for a group of 11 investors (“the Group”).

4.  Ravichandran Narasimhan (“Ravi”) is a director of the Respondent and assists Harry in his business interests. He is also a director of Gaia Developers Private Limited (“Gaia”) referred to in §8 below.

5.  The Applicant was aware that Harry ‘owned’ (in the layperson’s sense) a building in Mumbai (“the Mumbai building”) in that sometime in 2016, Harry had asked Kishore Samtani (“Kishore”) (a member of the Group and whom the Applicant knew) for assistance and Kishore in turn had asked the Applicant if he would help.

6.  The Applicant approached Suresh Gaggar (“Suresh”), one of the key persons in his network of connections in India with whom he had been doing business since 2010 and at the time (2016-2018) the Applicant had a high opinion of Suresh.

7.  Suresh worked with Harry and they were successful in finding a buyer for the Mumbai building which the Applicant believed was sold for approximately INR 300 million (“the sale proceeds”). The Applicant accepts that the Mumbai building may have been owned directly or indirectly by the Respondent at the time of the sale but had no knowledge of the ownership structure.

8.  It transpires that the Mumbai building was owned by the Respondent and Gaia which, like the Respondent, was also set up as an investment vehicle for the Group.

9.  The Applicant and Harry are prominent members of the Indian community in Hong Kong and had significant financial dealings with each other. At the relevant time, there were 3 outstanding personal loans from the Applicant to Harry amounting in the aggregate to approximately HK$190 million (plus interest), reduced from earlier sums due in August 2017.

10.  Kaushik Deva (“Kaushik”) (who features in some of the emails and messages upon which the Respondent relies to establish “admissions” made by the Applicant and to which reference will be made) is a director of Kay Dee Corporate Advisors Private Limited (“Kay Dee”) and of Kredere Wealth Partner Private Limited which is the Applicant’s financial adviser only with respect to his investment portfolio in India but is known to both parties.

The Respondent’s claim

11.  The Respondent’s claim arises from an oral guarantee said to have been given by the Applicant in circumstances set out in Harry’s affirmation dated 22 August 2022 (“Harry 1st”).

12.  In essence, Harry’s evidence is that the Applicant initiated a meeting held on 27 December 2017 at the Kowloon Shangri-La Hotel at which the Applicant, Harry and Kishore were present to discuss “the Applicant’s need for a significant sum of cash in India[1]”, that it was “the Applicant [who] approached [Harry][2]” about “borrowing funds” and at which meeting the Applicant made a loan proposal to the Respondent.

13.  According to Harry[3], the loan proposal was that

(a) Harry would procure the Respondent and Gaia to lend the sale proceeds to companies nominated by the Applicant in India in return for 12% per annum (6.75% per annum would be recorded in a written loan agreement and an additional 5.25% per annum which would not be so recorded but would be paid directly to Harry for and on behalf of the Group; and

(b) the Applicant would personally guarantee the repayment of the loans to the nominated companies (“the oral guarantee”).

14.  In the course of the meeting, Harry called Rajesh Mirpuri (“Rajesh”) to seek his endorsement on behalf of the Group.

15.  Following the call, Harry accepted the Applicant’s offer on behalf of the Group and set up a WhatsApp chat group entitled “India funds” (the “IFG”) which included the Applicant, Rajesh, Ravi and Harry for discussing and finalising the documentation and logistics of the loans to be made. Kishore was added to the IFG on 20 February 2018.

16.  Pursuant to the loan proposal, 3 loans covered by the oral guarantee were made:

(a) a loan of INR 140 million from the Respondent to Mangal on 5 January 2018;

(b) a loan of INR 160 million from Gaia to Mangal on 8 January 2018; and

(c) a loan of INR 80 million from Gaia to Kay Dee on 22 March 2018.

17.  The Respondent’s claim concerns the oral guarantee said to have been given in relation to the first of the 3 loans (i.e. the Loan) as the other 2 have been repaid.

18.  The Loan agreement was reduced to writing by the Respondent[4] as an “unsecured[5]” loan repayable after one year, on 3 January 2019. There is no reference in the Loan agreement to any oral guarantee.

19.  It was extended 3 times by written agreements, to 3 January 2020, 30 June 2021 and 31 March 2022.

20.  After a statutory demand was served on him on 24 May 2022, the Applicant applied to set it aside on 10 June 2022.

Applicable principles

21.  The legal principles are well established and uncontroversial.

22.  To demonstrate that the debt is disputed on substantial grounds within rule 48 (5) (b), it must be established by sufficiently precise factual evidence which is believable that the applicant has a defence of substance, not just a fair probability of one: see Chan Ping Lam Waymond v Noble Art Limited, CACV 270/2012, unrep., 30 September 2013 at §8.

23.  Petitions and demands are not to be used for debt collection and the court’s winding up or bankruptcy jurisdiction is exercised only in very clear cases: Re Leung Cherng Jiunn [2016] 1 HKLRD 850 at §27; Ling Wai Hoi v Jetland Global Investments Limited [2022] HKCA 1457 at §57.

24.  As DHCJ To said Andrew Wyles Waters v Malahon Credit Company Limited, HCSD 24/2001, unrep., 27 February 2003 at §§6-7 (approved by Rogers VP and Kwan J (as she then was) in the Court of Appeal[6]):

“… 6. The court has to take a view on the evidence before it, to see if on the evidence there is a genuine triable issue that the debt is disputed on substantial as opposed to trivial or frivolous grounds. The burden is on the applicant to put forward his defence with sufficient clarity and to adduce sufficiently precise factual evidence to satisfy the court that he has a bona fide dispute on substantial grounds. He does not have to show that his evidence is believable, but he has to satisfy the court that he has a bona fide dispute as to the debt in that the dispute is not a cloud of objections without substance. Statutory demands are only meant for clear cases. Once the court finds some substance in the defence, the court shall set aside the statutory demand. It would not undertake a trial during this summary procedure. The party claiming to be the creditor has to establish its claim to the alleged debt by instituting a proper action for determination of that claim.

7. The court does not have to satisfy itself that the debt is a valid one before it will dismiss an application to set aside a statutory demand; or that it is not valid before it will allow the set aside application. Usually the court will not embark on an inquiry as to the validity of the debt unless the dispute is capable of summary disposal, for example, that the facts are not in dispute or indisputable in the light of incontrovertible evidence ...”

The Applicant’s case

25.  The Applicant accepted that he did have a meeting with Harry at the latter’s request in 2017 but he has no record or any particular recollection of any meeting with Harry on 27 December. The purpose of the meeting was not to discuss his borrowing the equivalent of HK$14 million from Harry since at the time (late 2017) Harry was actually indebted to the Applicant for HK$190 million. Rather, the discussion was limited to what could be done with the sale proceeds and how they could be utilised to generate income since Harry was unable to remit them to Hong Kong due to exchange control and tax issues. The Applicant suggested that Suresh might provide a suitable solution.

26.  The Applicant recalled discussing with Harry[7] the Applicant’s extensive dealings with Suresh whom the Applicant found to be trustworthy and who would keep to his side of whatever bargain they might reach. During that introductory conversation, in the Applicant’s words[8], he “may have used the word “guarantee” in the sense I guaranteed he was trustworthy. This was indeed my honest view, as at the time I had often placed significant funds with [Suresh] without any default on his part.”

27.  In his written submissions, Mr Simon Westbrook SC, leading counsel for the Applicant referred to M’Iver v Richardson (1812) 1 M.& S. 557; 105 ER 208 where, the statement that “I can assure you, from what I know of A’s honour and probity, you will be perfectly safe in crediting them to that amount; indeed, I have no objection to guaranty you against any loss from giving them this credit” set out in the defendant’s letter was not interpreted as an unenforceable guarantee. It was submitted that in the present case, the Applicant was doing no more than vouching for Suresh’s credibility.

28.  In any event, any comments the Applicant made was only in relation to Suresh and was not an endorsement of any other entity that Harry might lend money to. He did not know that Mangal would become the borrower. He has no connection with Mangal. There was no commercial reason why he would be prepared to help Mangal to obtain a loan by giving such a guarantee nor any basis upon which he would give Harry that comfort.

29.  The Applicant explained that as he had introduced and recommended Suresh to Harry, he felt morally obligated to assist Harry to navigate the subsequent difficulties. As such, he helped the parties to agree to terms to extend the Loan with interest being payable for a longer period.

30.  The Applicant is adamant that he never gave a personal guarantee at the alleged meeting on 27 December 2017. He also checked with Kishore who also does not recall being present at such a meeting on that day.

31.  After receiving the Respondent’s written submissions for the hearing which commented adversely on the absence of any affirmation from Kishore, the Applicant requested Kishore to check his passport. Upon checking, Kishore realised that he was in Fiji on 27 December 2017. That prompted the Applicant’s last-minute summons (dated 25 October 2022) for leave to file Kishore’s affirmation of even date, limited to exhibiting a statement of Kishore’s travel records from the Immigration Department obtained on 21 October 2022 and various passport entries.

32.  That gave rise to Harry’s 2^nd affirmation[9] (“Harry 2^nd”) and a 2^nd affirmation from Rajesh dated 28 October 2022 (“Rajesh 2^nd”) with Harry “correcting” all references of “27 December 2017” in Harry 1st “for confusing the exact date” on which he met the Applicant and Kishore, allegedly “wrongly assuming” that the IFG was created on the same day.

33.  Harry’s travel records show that he returned to Hong Kong on 20 December 2017. He could not find further records on the exact date of the meeting itself and concluded that “it could only have taken place between 21 and 23 December 2017[10].” Rajesh 2^nd is along the same lines as Harry 2^nd except that he had relied on Harry’s memory on the date of the meeting.

34.  The Applicant was not in Hong Kong on 21 and 22 December 2017. He only arrived in the afternoon of 23 December 2017 and he has no recollection of meeting Harry on the same day[11].

35.  Given the evidence, the date of the meeting remains unresolved.

36.  In so far as the Respondent was critical of Kishore’s affirmation in that it shed no light on whether a meeting was held in Kishore’s presence and if so what was said at the meeting, that is of little moment. Had Kishore’s affirmation travelled beyond exhibiting immigration records (which are incontrovertible), leave to admit that affirmation into evidence might not have been forthcoming or the leave application could have derailed the hearing which would not have been desirable from the Applicant’s point of view.

The oral guarantee

37.  The Respondent’s case on the oral guarantee said to give rise to the debt that is the subject of the statutory demand is premised on a meeting held on 27 December 2017[12] requested by the Applicant who was in dire need of funds. As shown above, the meeting could not have been held on 27 December 2017 as the Respondent had to accept in the face of Kishore’s affirmation.

38.  As earlier mentioned[13], Harry created the IFG group chat on 27 December 2017. But the very first message sent from Harry addressed to Ravi undermined his own evidence concerning the purpose of the meeting at which the oral guarantee was said to have been given:

“[27/12/2017. 12:41:44] Harry: Dear Ravi

All the funds we have in deposit in India

Balu has agreed to help us use the funds at 1% per month payable monthly in hk …”

39.  I agree that it is a matter of significance in that it undermines the premise of the meeting: rather than it being the Applicant who was seeking Harry’s assistance, it was in fact the other way round. That necessarily changes the nature of the dispute since the purpose of the meeting is central to understanding what was being discussed.

40.  What was the consideration for the oral guarantee? Entering into the principal transaction is typically the consideration for a guarantee but without details of the transaction that was allegedly guaranteed, the task of assessing if the Loan represents the precise principal transaction cannot be performed.

41.  That aside, why would the Applicant be offering an oral guarantee in circumstances where the borrower is a company with which the Applicant has no connection and the Applicant was not personally benefiting[14] from the Loan?

42.  Further, it is to be noted that while the 3 loans were all reduced to writing, the oral guarantee was not. Seemingly, that is inexplicable when it is Harry’s evidence that he would not have agreed to the 3 loans but for the oral guarantee. Yet the oral guarantee is not even mentioned in the Loan agreement and there is no contemporaneous memorandum that refers to it.

43.  What is also remarkable about the oral guarantee is that Harry did not even attempt to set out the actual words used by the Applicant that are said to constitute the oral guarantee.

44.  Mr Westbrook submitted that the proper construction of the oral guarantee can only be based on the precise words spoken by the Applicant, citing the following passage from the judgment of Phillips J (as he then was) in Wardens and Commonalty of the Mystery of Mercers of the City of London v New Hampshire Insurance Company, QBD (Commercial Court), unrep., 18 January 1991 (at page 11):

“In my judgment the cases demonstrate that the construction of the contract of guarantee is of critical importance. It is vital to identify the precise nature of the obligation or obligations guaranteed. In many cases the obligations will be those arising under a specific contract between debtor and creditor. This may be evident from the terms of the contract of guarantee itself, where specific reference is made to the contract giving rise to the obligations guaranteed, or from a consideration of the circumstances surrounding the conclusion of the contract of guarantee, where these show that a specific contract was the subject matter of the guarantee. In such circumstances the terms of the contract giving rise to the obligations guaranteed will be treated as embodied or incorporated in the contract of guarantee …”

45.  It is also the Respondent’s case that Harry’s evidence is corroborated by Rajesh’s affirmation dated 23 August 2022 (“Rajesh 1^st”). But that is not borne out. There is no reference in §§6-7 of Rajesh 1^st to any oral guarantee: all that was conveyed to Rajesh was that the proposed loan would generate an attractive interest rate for the Group which Rajesh was willing to endorse as being a good commercial deal.

46.  The Respondent was left to relying heavily on various emails and messages exchanged between the Applicant and various individuals between 14 September 2018 and 30 December 2019 as evidencing and/or constituting “admissions” by the Applicant of his having given an oral guarantee. They were said to be “damning”.

47.  The “admissions” referred to by the Respondent at the hearing in chronological order are the following:

(a) 14 September 2018 email from Balu to Harry

Subject: Re: Interest on Loan – Gaia to [Mangal]:

“These Indian guys need to pay. i m responsible to pay if they don’t.”

(b) 10 October 2018 email from Balu to Ravi

Subject: Re: Interest on Loan – Gaia to [Mangal]

“…

The interest of all loans … offshore part … till 31.12.18 … pls calculate n send statement and agree Ravi Kaushik … till 31.12. I will pay immediately when both sides agree in hk.”

(c) 27 November 2018 from Balu to Harry and Kaushik

Subject: Re: Interest on Loan – Gaia to [Mangal]

“The overseas part for one year i am ready to pay u immediately.since they hav not.

The date and Amt can be worked out immediately and agreed with yr man n Kaushik n I will clear here immediately ...”

(d) [7/12/2018, 13:26:39] Balu to Harry:

“sure …trying to get money from them. as I told u… I honour my word. if they wont pay….. I will.”

(e) [10/1/2019, 23:54:36] BALU: saw yr mail.pls tell ravi to demand them to pay. not demand me.

I told u I am responsible but efforts need to be there not on me.if u make them believe i will pay … I am screwed.u need to send them legal notice etc

[11/1/2019, 00:38:00] BALU: pls harry.i am responsible…but not the interest and not if both sides know I am the rich one so who cares.go after balu.

personal guarantee does not work this way. i help not to be screwed.

I guaranteed principal and nothing else but not that u guys leave it to lapse and chase me.

also…..pls be fair

like I am

[11/1/2019, 00:38:10] BALU: go after them…not me

[11/1/2019, 00:38:51] BALU: I did not borrow the money

(f) [10/8/2019, 16:34:20] Balu to Harry:

“…End of the year comes quick… If they don’t pay… I will honour my word on capital as we agreed. However …Pls get the paperwork and u need to commit to continuously work on recovering the funds for me …”

(g) [4/12/2019, 15:35:23] [Harry]: Hi Balu

As you are aware we had our India partners meeting today.

The humble request of the partners is we get back the principal in Dec ‘19 as guaranteed by you.

(h) [30/12/2019, 22:49:28] BALU: “… yr harassing them and threatening them does not help the situation ….. U already told them u dont care as balu will pay if they dont.

…

U lent money without clean paperwork. We agreed to lend to [Suresh]. U lent to some companies which i found out later on.

But yr game of telling them balu will pay if u dont…. U did not lend me the money. U and yr guys……...”

48.  In addition to those extracts, the Respondent also relies on a telephone conversation between the Applicant and Harry conducted on speaker-phone and heard by, inter alia, Vijay who stated that the Applicant gave his specific reassurances that he had given his personal guarantee on the Loan as well as the loan to Kay Dee[15].

49.  Those messages do not make it any clearer as to what precisely is covered by the oral guarantee or what it is said that the Applicant has promised or was promising to do. It is apparent from those extracts that the text messages (in particular) are short non-grammatical messages, replete with mistakes and typos as well as ‘shorthand[16]’, leaving the reader to resort to guesswork which is wholly unsatisfactory.

50.  There is also the question of context: words or phrases taken out of their proper context can easily convey an unintended meaning. That the text messages are susceptible to misapprehension, misinterpretation and misreading is obvious and one must therefore be very cautious before accepting them at face value.

51.  Be that as it may,

(i) it should be noted that items (a) to (c) do not concern the Loan as the lender is not the Respondent;

(ii) in item (d) above, the extract ends “if they wont pay … I will.” However, the extract then continues (but not cited) “whatever can get from them … please take.”

The Applicant explained that the extract does not mean that if they don’t pay, then I will; it actually means that if they don’t pay, then I will try to do whatever I can to get them to pay, which is rather different to the Respondent’s interpretation[17]; and

(iii) as regards item (g) sent on 4 December 2019, it is an assertion by the Respondent of a guarantee following a meeting of the Group. But the point about the Group’s meeting taking place had arisen earlier the same day and the Applicant’s response is set out in §52 below.

52.  One should juxtapose the following extracts (which reflect and are consistent with Applicant’s explanation of his involvement) to those relied on by the Respondent:

(a) [2/12/2019, 18:23:33] BALU: I feel insulted u write me i owe u money. I never owed in my life anyone.

I reccommended u to lend money to [Suresh]. U did. However I dont owe u any money. I am trying my best to help u. If u start sending me such emails… We will stop all communication and u can sort yourself

(b) [3/12/2019, 21:46:45] [Harry]: Hi

…

It’s best we speak today as have a partners meeting tomm

[4/12/2019, 00:16:49] BALU: Best u Speak to who u lent the money to…. Not me.

I had told u clearly u could lend money to [Suresh].

After u lent it but….. Not to whom i said. I had no knowledge. li hold myself reslonsible to assist u. Byyt yr rudeness several times…..Insulting me i owe uthe money…..

Where is yr paperwork. U did not even do it….

Go sort it out. If u want my help for yr mistakes……Ask nicely sir. I am ready to help but i do not owe u money. Lets be clear here ...

53.  To focus exclusively on passages that appear to support the view that the Applicant guaranteed the principal as establishing a clear and obvious case of a debt is far from satisfactory when there are other passages that go the other way. Clearly, there is a great deal more than meets the eye.

Mangal

54.  It is the Respondent’s case that the Applicant (i) knew from the outset that the borrower would be Mangal; (ii) was connected to Mangal; and (iii) had a financial interest in the Loans.

55.  The Respondent sought to illustrate the falsity of the Applicant’s evidence by taking issue with the Applicant’s evidence that he “knew nothing of Mangal until after the Loan was entered into[18]”. The court was referred to messages sent by Kaushik on 29 December 2017. Pausing there, while Kaushik was known to both parties, there is no evidence as to how he came into the picture at all.

56.  It seems that prior to his first message sent on 29 December 2017, Kaushik had received some information from Suresh but he needed further details from Ravi. However, that does not shed any light on how Kaushik came to be involved.

57.  Kaushik’s message set out some information and requested more information. Mangal is mentioned in his message but it is not entirely clear to whom Kaushik’s message[19] was sent. In so far as it was to the IFG, the Applicant would have been one of the recipients. That however does not establish that the Applicant knew at the time of the alleged loan proposal that the borrower would be Mangal.

58.  In the email from Kaushik to Ravi on 11 February 2019, Kaushik described his role:

“I would like to clarify that I have neither syndicated this loan, and have no commercial interest in this. I was just facilitating this transaction for you, and I am deeply disturbed to receive this kind of mail[20] from you.”

59.  While in Ravi’s reply of 12 February 2019, he referred to Kaushik as “the only coordinator for us”, the Applicant’s evidence on Kaushik’s reply when he was asked why he was involved in the preparation of the loan documentation, Kaushik told the Applicant “that Ravi begged him to help as Harry (and Ravi) were desperate for help so that the Loans could proceed[21].”

60.  Although the Respondent submitted that the Applicant’s lack of knowledge that the borrower would be Mangal is “feigned” and that whether or not he was an officer of Mangal is not crucial, that is not the case since it would leave unexplained a key part of the Respondent’s case that interest on the Loan was agreed at the December meeting. But on the Respondent’s account of the December meeting, there was no one there representing Mangal. There is no evidence that the Applicant was an officer of Mangal or that he had the relevant authority to agree interest on Mangal’s behalf.

61.  On the issue of the Applicant’s financial interest in the Loan, relying on an email of 25 April 2018 from the Applicant that he needed to collect funds equivalent to 24% interest per annum, the Respondent jumped to the conclusion that apart from paying the 12% interest under the Loan, the Applicant was secretly retaining the remaining 12% per annum for himself[22]. The same point had been made by Bowers in their letter of 29 April 2022[23] to the Applicant.

62.  By way of a footnote[24] in the Respondent’s skeleton, the Respondent professed to be “content not to pursue the assertions at Harry §35 [A/4/32] regarding mark up on the interest for Balu’s own benefit”. But as Mr Westbrook submitted, it is not that simple. It is an allegation made against the Applicant that is part of the Respondent’s case suggesting a motivation for the Applicant to guarantee the loans as he had a personal financial interest in them. It is part of the Respondent’s factual matrix which the Respondent now accepts it cannot prove. That must be material to whether the Respondent’s version of events can be accepted as incontrovertible. I agree.

63.  The Respondent also claimed that the purpose of the Loan was illegally to boost the price of Vakrangee, a listed company in India and that the Applicant had participated in “insider trading/market manipulation”. The evidence in support is lacking in substance since it is largely inference-based. In any event, it is not a matter that can be determined in this application.

Discharge of the oral guarantee

(A) The rule in Holme v Brunskill[25]

64.  It is the Respondent’s case that the Applicant wanted to borrow the sale proceeds which he believed to be INR 300 million. That was subject matter of what is said to be his loan proposal but, as noted in §16 above, the 3 loans made pursuant to that proposal totalled INR 380 million.

65.  While the Mangal loans totalling INR 300 million were drawn down on 5 and 8 January 2018, the Kay Dee loan of INR 80 million was drawn down on 22 March 2018. If, as appears to be the Respondent’s case, the oral guarantee covered all 3 loans, the Applicant submitted that it is arguable that the oral guarantee had been discharged based on the rule in Holme v Brunskill.

66.  That rule is explained in Courtney, Phillips and O’Donovan on The Modern Contract of Guarantee, 4^th edition, at §7-002 in the following terms:

“The principle is an equitable one and is applied strictly. If the variation of the principal contract could prejudice the guarantor, the guarantor will be absolutely discharged whether or not the variation has in fact resulted in prejudice and whether or not it is likely to do so. The guarantor will remain liable only where the alteration to the principal contract is obviously “unsubstantial”, with no possible prejudice to the guarantor resulting, or where the alteration is inevitably for the benefit of the guarantor.”

67.  A material increase in the amount of a demand loan facility is potentially prejudicial to the defendant guarantors. In Marubeni Hong Kong and South China Limited (A corporation registered under the laws of Hong Kong) v The Mongolian Government acting through The Ministry of Finance of Mongolia [2004] EWHC 472 (Comm), Cresswell J expressed the effect of the rule at §§206-207[26].

68.  If Gaia’s loan to Kay Dee represents the extension of further funds beyond those originally contemplated, it would have the effect of increasing the Applicant’s exposure under the oral guarantee[27]. It would arguably fall within the rule in Holme v Brunskill which would result in the discharge of the oral guarantee.

(B) The Loan extensions

69.  The term of the Loan was extended on 3 occasions with the assistance of the Applicant:

(a) an agreement dated 1 March 2019 extending the term until 4 January 2020 (“the 1^st extension”);

(b) an agreement dated 3 February 2020 extending the term until 30 June 2021 (“the 2^nd extension”); and

(c) an agreement dated 30 June 2021 extending the term to 31 March 2022 (“the 3^rd extension”).

70.  That the Applicant was aware of the extensions is not disputed. His evidence is that he rendered assistance by passing on requests from Mangal/Suresh to the Respondent.

71.  Each of the extensions involved a fresh loan agreement between the Respondent and Mangal. There is no mention of any oral guarantee and no evidence that the Applicant consented to the extensions in his capacity as guarantor.

72.  As stated in The Modern Contract of Guarantee at §7-075:

“A binding agreement by the creditor to extend the time for the performance by the principal of the principal’s obligations under the main contract releases the guarantor from liability.”

73.  As regards the 2^nd extension, the Respondent imposed conditions in its letter dated 17 December 2019 to Mangal[28] requiring, inter alia, a draft loan extension agreement including a specific reference to the Applicant guaranteeing the full amount of any part of the extended loan unpaid as at the extended repayment date and any unpaid interest due as well as the provision by the Applicant of a draft personal guarantee in favour of Harry of the full amount of any part of the extended loan unpaid and any unpaid interest. The 2^nd extension records no such guarantee and no personal guarantee was given by the Applicant to Harry.

74.  The Applicant submitted that if there had been an oral guarantee as alleged, it would have been discharged by the Loan extensions. Moreover, any oral guarantee given was deliberately not extended when the Loan was extended for the 2nd time, on 3 February 2020. That is obvious from the fact that the conditions imposed for the extension to be granted were never met.

75.  Finally, it should not be overlooked that even if the “admissions” the Respondent relied on and considered above are held to be admissions, they all pre-dated the 2^nd loan extension of 3 February 2020. Arguably, the admissions (if any) would have been discharged by the 2^nd loan extension.

Conclusion

76.  Having regard to the matters considered above, I have no hesitation in accepting that the Applicant has demonstrated that the debt is disputed on substantial grounds within rule 48 (5) (b). He has adduced sufficiently precise factual evidence which is believable.

77.  In my view, the statutory demand ought never to have been served. The Respondent’s case is the antithesis of a clear and obvious case that would warrant a bankruptcy order. The Respondent must first make good his claim in an action and obtain judgment which, if unmet, would be an appropriate basis for a statutory demand.

78.  Accordingly, the statutory demand must be set aside with a costs order nisi in favour of the Applicant, with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.

79.  It is further directed that the Applicant’s statement of costs be lodged within 7 days of this Decision, the Respondent’s objections within 14 days thereafter and the Applicant’s reply (if any) within 7 days thereafter.

80.  Summary assessment will take place in Chambers.