NCLAT Rejects Financial Creditor Claim as No Valid Guarantee Was Executed or Invoked Under IBC [Read Order]
The tribunal held that a legally binding, valid guarantee had not been executed by the respondent, due to which the appellant did not qualify as a financial creditor of the corporate debtor
NCLAT Rejects Financial Creditor Claim as No Valid Guarantee
NCLAT Rejects Financial Creditor Claim as No Valid Guarantee
The Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) held that the appellant failed to prove that a valid and binding corporate guarantee was executed by the corporate debtor and thus rejected the financial credit claim made by the appellant.
In this case, the appeal was filed by Moneywise Financial Services Private Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016, National Company Law Tribunal, New Delhi Bench.
Coming to the facts of the case, the appellant is the Financial Creditor of the Corporate Debtor, M/s Dream Procon Pvt. Ltd., and granted a loan pf Rs. 5 crores to the latter for theconstruction of a real estate project. Indirapuram Habitat Centre Pvt. Ltd. (IHCPL), a group concern of the corporate debtor Dream Procon Pvt. Ltd., received a Rs. 10 crore loan from the appellant for the construction of a commercial project in Ghaziabad.
The Corporate Debtor agreed to be held accountable for IHCPL's debt obligations by signing a corporate guarantee in favour of the Appellant in order to ensure the loan's repayment. A Joint Declaration and Undertaking, signed by the Corporate Debtor and IHCPL, further formalised the guarantee by attesting to cross-collateralization and cross-guarantee agreements. Based on the corporate guarantee signed by the Corporate Debtor, the appellant filed a claim in Dream Procon Pvt. Ltd.'s CIRP after IHCPL defaulted and a CIRP was started against it.
The Resolutional Professional rejected the Appellant’s claim by noting that that the debt was not disbursed to the Corporate Debtor and hence did not qualify as “financial debt” under Section 5(8) of the IBC.
There were 3 main issues before the bench of consideration, and one of them was whether a valid and enforceable corporate guarantee had been executed by the corporate debtor, and if so, has it been invoked?
The tribunal noted that under Section 5(8)(i) of the Code, a financial debt includes “any liability in respect of a guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h).”
The appellant claims the guarantee originated from a Master Loan Agreement (MLA) signed on 22.04.2016 between Moneywise Financial Services Pvt. Ltd. and Indirapuram, the borrower entity.
The appellant contended that the guarantee originated from a Master Loan Agreement (MLA) signed on 22.04.2016 between Moneywise Financial Services Pvt. Ltd. and Indirapuram, the borrower entity, and IHCPL and Dream Procon Pvt. Ltd., the corporate debtor. The Appellant cited Clause 28 of the MLA as evidence that Dream Procon provided a corporate guarantee to repay the Rs. 10 crore financing to IHCPL. The appellant claims that this clause, along with the MLA and the Joint Declaration dated 27.12.2017, constitutes a valid and enforceable guarantee contract, despite the lack of a standalone guarantee deed.
The appellant also relied on Section 128 of the Contract Act, 1872, to argue that the liability of the guarantor is co-extensive with that of the principal debtor and can be enforced without a requirement of direct disbursal to the guarantor.
The tribunal noted that the appellant failed to establish a valid and enforceable guarantee.
The bench observed that Clause 28 of the MLA appeared to be an assurance by the corporate debtor to return the facilities given to IHCPL. However, it is part of a larger loan agreement that primarily records the loan extended to IHCPL. It also allows for invoking the guarantee. Clause 28's alleged assurance was never invoked. Dream Procon Pvt. Ltd.'s Board of Directors has not authorised or passed a corporate resolution to back up their pledge to guarantee, and that the lack of such authorisation is fatal.
The tribunal held that a legally binding, valid guarantee had not been executed by the respondent, due to which the appellant did not qualify as a financial creditor of the corporate debtor on the strength of the alleged guarantee.
The NCLAT, comprising Justice Rajesh Kumar Jain (Judicial Member), Naresh Salecha (Technical Member), and Indevar Pandey (Technical Member), dismissed the appeal.
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