Petition u/s 7 of IBC against Corporate Guarantor Not allowable without Proper Establishment of Valid Delivery of Guarantee Invocation Notice: NCLT [Read Order]

The Mumbai bench of the National Company Law Tribunal (NCLT) has ruled that unless the receipt of the demand-cum-guarantee invocation notice is correctly demonstrated, an insolvency action under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) against the corporate guarantor of the corporate debtor cannot be granted. Read More: 14 Year Delay to Issue Tax Notice: Kerala HC Holds No Protection u/s 17D KGST Act on “Fast Track Assessments” In accordance with the Inter Corporate Deposit Agreement (ICD Agreement) made between the Principal Borrower and the Financial Creditor, Grevek Investments and Finance Private Limited, a company established under the Companies Act of 1956, serves as the Corporate Debtor and Corporate Guarantor for Starwort Engineers Pvt Ltd. ("Principal Borrower"). In a letter dated November 8, 2021, the Financial Creditor extended the due date for debt payback to November 10, 2022. But the Principal Borrower didn't pay back the loan. The Future of Tax and Finance: Upskill with Us - Click here In order to resolve the aforementioned debt in a friendly manner, the Principal Borrower and the Financial Creditor ultimately signed a settlement agreement on February 15, 2023 ("the Settlement Agreement"). The Principal Borrower and Corporate Guarantor failed to fulfill their responsibilities in spite of receiving the Demand cum Invocation Notice, which was considered a default under the Code. Additionally, this default was noted with NeSL, confirming the Corporate Debtor's status as a guarantor under the ICD Agreement. ₹500 Now Can Save You Lakhs Later! Read before it’s too late: Click Here On February 12, 2024, the Financial Creditor, Q West Infrastructure Pvt. Ltd., filed a Section 7 application against the Principal Borrower before the National Company Law Tribunal, Mumbai Bench. The application was admitted by a decision dated July 16, 2024. Given the foregoing, the Financial Creditor has submitted the current application against the Corporate Debtor, who serves as the Principal Borrower's corporate guarantor. According to the applicant, Clause 5.2 of the Settlement Agreement makes it abundantly evident that the borrower was still due under the ICD Agreement in the event of an Event of Default. The Settlement Agreement's execution did not release the CD from its guarantor duties under the terms of the Borrower's financial debt to the FC. In contrast, the Respondent argued that the aforementioned ICD Agreement was periodically extended and ultimately superseded, substituted, or absorbed in the Settlement Agreement dated February 15, 2023. The Settlement Agreement has been negotiated in full and final settlement of the ICD agreement, as is evident from a review of the agreement, particularly from Recital G. F.I.R to Trial—Know Your Rights! Don’t stay uninformed: Click Here After consulting the Guarantee's provisions, the Tribunal noted that the corporate debtor's guarantee is still in force until all outstanding debts owed to the financial creditor have been paid in full. The Settlement Agreement resulted from Clause 6, which allows changes to the ICD Agreement without involving the corporate guarantor as a party. As a result, even though the corporate debtor did not sign the Settlement Agreement, they are still accountable. The bench comprising of Reeta Kohli (Judicial Member) and Madhu Sinha (Technical Member) observed that since the guarantee is being invoked on demand in this instance, the default date would only be January 1, 2024, provided that the notice of invocation is legitimate under the law. The proof of delivery is covered in Clause 23 of the Guarantee, which states that it must be demonstrated by a postal record or a certificate from one of the lender's responsible executives. The Future of Tax and Finance: Upskill with Us - Click here Furthermore, it added that in its response or submissions to the corporate guarantor's argument, the Financial Creditor had not offered such proof or refuted this matter. As a result, the corporate promise dated November 10, 2020, is violated by the invocation. While dismissing the appeal, the bench held that “Since the demand notice was never purportedly delivered to the Corporate Guarantor , the corporate guarantee never got invoked by the financial creditor in terms of the guarantee agreement which forms the basis of this petition, the default by corporate guarantor cannot be established.” Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates

Petition u/s 7 of IBC against Corporate Guarantor Not allowable without Proper Establishment of Valid Delivery of Guarantee Invocation Notice: NCLT [Read Order]

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Petition u/s 7 of IBC against Corporate Guarantor Not allowable without Proper Establishment of Valid Delivery of Guarantee Invocation Notice: NCLT [Read Order]

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