Corporate Guarantor’s Plea that CIRP Plea was Rejected as its Liability Stems from Borrower’s Default

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  • Last Updated on 6 June, 2023

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Plea of Corporate guarantor

Case Details: State Bank of India v. Essel Infraprojects Ltd. - [2023] 150 taxmann.com 349 (NCLT-Mum.)

Judiciary and Counsel Details

    • Kuldip Kumar Kareer, Judicial Member & Smt. Anuradha Sanjay Bhatia, Technical Member
    • Ms Fatema Kachwalla & Virgil Braganza for the Petitioner.
    • Ashish Kamat, Harsh Moorjani, Tasneem Zariwala & Saurabh Nikalje, Advs. for the Respondent.

Facts of the Case

In the instant case, the financial creditor granted term loan facilities and working capital facilities to the principal borrower, which were secured by the corporate guarantees issued by the corporate debtor.

From the year 2019, the principal borrower started defaulting in making payments to the financial creditor and its account was declared as Non-Performing Assets (NPA) on 5-12-2019.

Later, on 01-10-2020, the financial creditor issued a demand notice to the principal borrower. However, despite the notice, the principal borrower and corporate debtor failed to cure the default.

Consequently, the financial creditor filed an instant application under section 7 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.

The corporate debtor argued that the invocation of the guarantee was made on 1-10-2020 and, therefore, the date of default was 1-10-2020, which was covered within the period provided under section 10A of the IBC. Thus, the corporate debtor claimed that the instant application was not maintainable.

NCLT Held

The National Company Law Tribunal (NCLT) observed that, as per the deed of guarantee, no demand notice was required to be given to the guarantor and the liability of the corporate guarantor came into play when a default was committed by the principal borrower i.e., 5-09-2019. Therefore, the date of notice dated 1-10-2020 was not the date of default.

The NCLT held that the instant application was not hit by section 10A and the same being complete, deserved admission.

List of Cases Referred to

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