A Petition Against A Corporate Guarantor Cannot Be Dismissed Simply Because A Resolution Plan For The Corporate Debtor Is Under Consideration: NCLT Mumbai
Udai Yashvir Singh
20 May 2023 9:30 AM IST
The National Company Law Tribunal, Mumbai Bench, comprising Shri Kuldip Kumar Kareer (Judicial Member) and Smt. Anuradha Sanjay Bhatia (Technical Member), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in M/s. Edelweiss Asset Reconstruction Company Limited vs Sadguru Multitrade Private Limited has held that insolvency...
The National Company Law Tribunal, Mumbai Bench, comprising Shri Kuldip Kumar Kareer (Judicial Member) and Smt. Anuradha Sanjay Bhatia (Technical Member), while adjudicating an application under Section 7 of Insolvency and Bankruptcy Code, 2016 (“IBC, 2016”) in M/s. Edelweiss Asset Reconstruction Company Limited vs Sadguru Multitrade Private Limited has held that insolvency proceedings can be initiated against both the Corporate Debtor and Corporate Guarantor simultaneously and a petition against a Corporate Guarantor cannot be dismissed simple on the ground that a Resolution Plan is under consideration.
Background Facts
ECL Finance Limited (“Original Lender”) extended financial assistance of Rs. 140,00,00,000/- by way of a Revolving Loan Facility (“Loan”) to Modella Textile Industries Ltd. & Ors. (“Borrower”) by executing a Loan Facility Agreement dated 17.11.2017. Sadguru Multitrade Private Limited (“Corporate Debtor”) executed a Debenture Trust Deed (“DTD”) dated 17.11.2017 in favour of Beacon Trusteeship Limited (“Debenture Trustee”) under which the Borrower issued 3100 secured, redeemable, non-convertible debentures having face value of Rs. 10,00,000/- each aggregating to Rs. 310,00,00,000/-. A Corporate Guarantee dated 17.11.2017 was also executed by the Corporate Debtor in favour of the Original Lender.
The account of the Borrower was classified as a Non-performing Asset on 25.06.2019. A Deed of Assignment dated 28.06.2019 was executed between the Original Lender and M/s. Edelweiss Asset Reconstruction Company Limited (“Financial Creditor”) whereby all rights, titles, interests and claims of the Original Lender with respect to the Loan and the DTD were assigned to the Financial Creditor. The Financial Creditor issued a notice dated 28.02.2020 for recalling the loan and invoking the Guarantee. However, the there was no reply from the end of the Corporate Debtor.
It was contended by Corporate Debtor that the Tribunal had already initiated Corporate Insolvency Resolution Process (“CIRP”) against the Borrower for disputes arising out of the same transaction. The said order had been appealed before the NCLAT and thus the petition should be kept in abeyance till the NCLAT decides the matter.
Findings of the Tribunal
It was observed by the Tribunal that the Borrower had availed a Loan Facility from the Original Lender and there was no dispute regarding the Deed of Guarantee or the Deed of Assignment. Financial Creditors can initiate insolvency proceedings against both the Corporate Debtor and the Corporate Guarantors. It was contended by the Corporate Debtor that since the Borrower was already in an advanced stage of CIRP and a Resolution plan was likely to be approved, the debt of the Borrower was likely to be resolved, following which the liability of the Corporate Debtor will be extinguished.
It was however, observed by the Tribunal that Financial Creditor can proceed simultaneously against the Principal Borrower and the Corporate Guarantor. A Petition filed against the Corporate Guarantor cannot be dismissed simply because CIRP was pending against the Principal Borrower or that some Resolution Plan was under consideration. Reliance was placed on the NCLAT judgment of State Bank of India Vs. Athena Energy Ventures Private Limited [Company Appeal (AT) (Insolvency) no. 633 of 2020] wherein it was held Financial Creditors can proceed against both the Principal Borrower and the Corporate Guarantors.
With the aforesaid observations, the Tribunal admitted the petition.
Case: M/s. Edelweiss Asset Reconstruction Company Limited vs Sadguru Multitrade Private Limited
Case No. ;C.P. 381 OF 2022
Counsels for the Applicants;Adv. Bhalchandra Palav
Counsel for the Respondent ;Adv. Rishabh Jain
