Notice issued by SBI to CD Recalling Loan Facility Not Amounts to Demand on Corporate Guarantor: NCLT [Read Order]

The Mumbai bench of the National Company Law Tribunal ( NCLT ) held that notice issued by the State Bank of India ( SBI ) , the Financial creditor to Corporate Debtor recalling loan facility not amounts to Demand on Corporate Guarantor.
The SBI extended various creditor facilities to Deogiri Infrastructure Private Limited (Principal Borrower). Navjeevan Tyres Private Limited, the Corporate Debtor extended a corporate guarantee to SBI for the repayment of total outstanding dues payable by the Principal Borrower.
Owing to default in payments, SBI classified the Principal Borrower's loan account as a Non-Performing Asset ( NPA ). A notice under Section 13(2) of the SARFAESI Act, 2002, was issued to the Principal Borrower, demanding the full repayment of Rs. 33.22 crores with a bank guarantee outstanding of Rs. 8.10 crores as of 31.03.2019 within sixty days.
SBI initiated a Corporate Insolvency Resolution Process ( CIRP ) against the Principal Borrower under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) which is still pending. SBI filed the CIRP application against Navjeevan Tyres Private Limited before NCLT.
A two member bench comprising Justice K. R. Saji Kumar (Judicial Member) and Mr. Sanjiv Dutt (Technical Member) viewed that the CIRP petition is not maintainable as the Financial Creditor had not made any demand for repayment of debt or invoked the guarantee towards the Corporate Debtor.
Further, relying on the Supreme Court's decision in Syndicate Bank vs. Channaveerappa Beleri & Ors., it was noted that a guarantor's liability depends on the terms of their contract. Presently, Clause 1 of the Guarantee Agreement indicated that the guarantee was unconditionally payable to the Financial Creditor upon demand. Thus, the Corporate Debtor's liability would only arise when a demand was made by the Financial Creditor.
The NCLT held that SBI's legal notice under Section 13(2) of the SARFAESI Act, 2002 was addressed only to the Principal Borrower and did not indicate an intention to invoke the corporate guarantee.
The Tribunal while concluding observed that there is no proof that SBI made a demand on the Corporate Debtor/Guarantor by invoking the guarantee or that the Corporate Debtor defaulted on its liability under the Guarantee Agreements. While dismissing the application, the NCLT held that since the pre-requisite condition for initiating CIRP under Section 7 of the IBC has not been satisfied, the CIRP application is not maintainable.

To Read the full text of the Order CLICK HERE 

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