NCLAT New Delhi: CIRP Cannot Be Initiated For Defaults During The Excluded Timeline Under Section 10A Of IBC
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, New Delhi comprising of Justice Anant Bijay Singh (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), dismissed an appeal filed in Vikram Kumar, Proprietor, Sourya Containers Leasing Company vs. Aranca (Mumbai) Pvt. Ltd. against the National Company Law Tribunal (“NCLT”) Mumbai’s order by...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, New Delhi comprising of Justice Anant Bijay Singh (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), dismissed an appeal filed in Vikram Kumar, Proprietor, Sourya Containers Leasing Company vs. Aranca (Mumbai) Pvt. Ltd. against the National Company Law Tribunal (“NCLT”) Mumbai’s order by Vikram Kumar (Financial Creditor), the proprietor of Sourya Containers Leasing Company against Aranca (Mumbai) Pvt. Ltd. (Corporate Guarantor).
The Appellate Tribunal held that since the invocation of bank guarantee for default was within the excluded period specified in Section 10-A of the Code, CIRP cannot be initiated since the default occurred within a 12-month period starting from 25.03.2020.
Background Facts:
The Corporate Guarantor issued an irrevocable Deed of Guarantee in favor of the Financial Creditor for a loan obtained by Meher Miracles Pvt. Ltd. (Debtor). The Debtor had borrowed funds for organizing a 'Celebrity Football Match' in Dubai but failed to repay the loan. Consequently, the Financial Creditor invoked the Guarantee to seek repayment from the Guarantor. Since the Guarantor did not make the payment following the invocation of the Guarantee, he filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Guarantor.
NCLT Mumbai in its order dated dismissed the application on the grounds of non-maintainability and determined that the Financial Creditor invoked the Corporate Guarantee on 25.08.2020, which falls within the period specified under Section 10-A of the IBC, 2016, making it ineligible for initiating CIRP.
The Financial Creditor contended that the NCLT made an error in considering the date of the Guarantee's invocation. The Guarantee was invoked via a letter dated 11.06.2019.
Contentions of the Corporate Guarantor:
The Corporate Guarantor argued that the Deed of Guarantee was invoked on 25.08.2020. It also pointed out Point No. (ix), where the Financial Creditor had stated that he issued a Notice for invocation of the Deed of Guarantee on 25.08.2020, demanding repayment of the loan amount, commitment charges, interest charges, and taxes. It also provided evidences of the calculations of the Claim, including interest accrued until 24.08.2020. Additionally, it was highlighted that the letter was addressed to Mr. Hemendra Aran and Mrs. Gitanjali Sinha and was not addressed to the Corporate Guarantor. Further, the Corporate Guarantor highlighted that that Mr. Hemendra Aran and Mrs. Gitanjali Sinha were not its directors implying that the letter could not be considered as an invocation of the Guarantee provided by the Corporate Guarantor.
NCLAT Verdict:
The NCLAT New Delhi Bench dismissed the appeal and held that the default falls within the excluded period specified in Section 10-A of the Code as the Notice for invoking the Bank Guarantee addressed to the Corporate Guarantor was issued on 25.08.2020. According to the provisions of Section 10-A of the Code, CIRP cannot be initiated for defaults that occurred within a 12-month period starting from 25.03.2020.
The NCLAT highlighted that the said Notice did not make any reference to the earlier letter dated 11.06.2019. Further, the letter dated 11.06.2019 was addressed to Mr. Hemendra Aran and Mrs. Gitanjali Sinha in their personal names as Directors of Aranca Mumbai Pvt. Limited. However, neither of them held such positions in Aranca Mumbai Pvt. Limited on that date and the same cannot be considered as a valid invocation of the Deed of Guarantee.
The Tribunal pointed out that in the CIRP Application under Section 7 of the Code before the NCLT Mumbai, the Financial Creditor clearly stated that the Bank Guarantee was invoked on 25.08.2020. Since the Corporate Guarantee was indeed invoked on 25.08.2020, the debt became due for payment after that date.
In conclusion, the NCLAT rightly upheld the decision that the default falls within the timeframe defined by Section 10-A of the IBC, 2016, and as a result, the Application under Section 7 of the IBC, 2016, is not maintainable.
Case Title: Vikram Kumar, Proprietor, Sourya Containers Leasing Company vs. Aranca (Mumbai) Private Limited.
Case No.: Company Appeal (AT) (Insolvency) No. 836 of 2023
Counsel for Financial Creditor: Mr. Dilip Kumar Niranjan, Mr. Amandeep Singh and Mr. Karmveer, Advocates.
Counsel for Corporate Guarantor: Mr. Krishnendu Datta, Sr. Advocate with Mr. Dhiraj Mehtre, Mr. Manpreet Lamba, Ms. Shivani Sharma, Ms. Neha Aggarwal, Advocates.