Date of Default of Corporate Guarantor is Independent of Principal Borrower's Date of Default: NCLT [Read Order]

The Mumbai Bench of the National Company Law Tribunal ( NCLT ) ruled that the date of default of corporate guarantor is independent of the principal borrower's date of default.

The Company Petition is filed under section 7 ( “the Petition” ) of the Insolvency and Bankruptcy Code, 2016 ( IBC ) by Central Bank of India ( "the Financial Creditor" ), seeking to initiate Corporate Insolvency Resolution Process ( CIRP ) against Superfine Profile and Extrusions Private Limited ( "the Corporate Debtor" ).

The present Petition was filed before the Tribunal for claiming a sum for a Secured Loan for a sum of INR 66,21,05,008/- ( Rupees Sixty-Six Crore Twenty-One Lakh Five Thousand and Eight Rupees only ) vide a Corporate Guarantee Agreement dated 22.08.2015 and 18.11.2016 for the Aggregate debt of INR 73,61,00,000/- ( Seventy-Three Crore and Sixty-One Lakh Only ) including the outstanding principal and interest. The Date of Default as per part IV was on 06.03.2023.

The financial creditor submitted that since, there was no response received from the Corporate Debtor nor any repayment made, the Financial Creditor filed Section 7 of the Insolvency & Bankruptcy Code,2016 against the Corporate Debtor for initiating Corporate Insolvency Resolution Process.

The Respondent submitted that this Petition is for default of 4 facilities i.e. Cash Credit, Term Loan, Funded Interest Term Loan ( FITL ) and Cash Credit Ad-hoc and this Petition is filed on the basis of 2 guarantee documents viz. 22nd August 2015 and 18th November 2016 and invocation of aforesaid Guarantees vide notice dated 06.03.2023.

The Respondent further submitted that the guarantee has not been rightly invoked by the Petitioner as the guarantee deed only entitles the consortium to demand from the Respondent the amount due to the consortium. However, the Petitioner has issued the demand letter to the Respondent invoking guarantee only in relation to its own debt and not on behalf of the consortium, which is therefore contrary to the guarantee deed.

A Two-Member Bench comprising Anu Jagmohan Singh, Technical Member and Kishore Vemulapalli, Judicial Member observed that “This Bench takes note that the present petition is not barred by section 10A of IBC ( as claimed by the Respondent ) as it is a settled position of law that in case of a corporate guarantee which is payable on demand, the default occurs when a demand is made by the financial creditor and there is a failure to pay the amount under the guarantee. It is also settled that the date of default by the principal borrower is not relevant to determine the date of default by the guarantor and that the demand notice was issued on 06.03.2023 which is outside section 10A period.”

To Read the full text of the Order CLICK HERE

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