Claim Based On An Uninvoked Bank Guarantee Liable To Be Rejected By RP: NCLT Mumbai

Background Facts

Mrs. Bhanu Navin Nisar ("Financial Creditor") had filed a petition under Section 7 of the Insolvency and Bankruptcy Act, 2016 ("IBC"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Vijay Group Realty LLP ("Corporate Debtor"). The Adjudicating Authority had initiated CIRP against the Corporate Debtor. Yes Bank Limited, being a financial creditor of the Corporate Debtor, had filed a claim before the Resolution Professional for Rs. 420,16,00,000/- due and payable on 07.10.2021. The Resolution Professional had rejected the Bank's claim and had not included Yes Bank Ltd. in the Committee of Creditors ("CoC") as well.

Yes Bank filed an application before the Adjudicating Authority challenging the action of the Resolution Professional. The Bank argued that the maturity of claim, or default of claim or invocation of guarantee for claiming the amount, has no nexus with filing of claim pursuant to public announcement made under Section 13(1)(b) of IBC read with Section 15(1)(c) of IBC.

The Resolution Professional filed a reply opposing the application while contending that the claim of Yes Bank was based upon an uninvoked Bank Guarantee and the Principle Borrower's account was standard account. The Resolution Professional placed reliance on the judgment of NCLAT in Edelweiss Assets Reconstruction Company v. Orrisa Manganese and Mineral Limited , Company Appeal (AT) (Insolvency) No. 437 of 2018 , wherein it was held that the uninvoked corporate guarantee cannot be considered as a claim as per the provisions of IBC. Hence, not to be included in the list of claims maintained and updated by the RP.

Issue

Whether the action of Resolution Professional in rejection of the claim of Yes Bank Ltd., basing on an uninvoked bank guarantee in respect of a standard account of a borrower is legally correct and sustainable?

Decision Of NCLT

The Bench observed that the NCLAT's decision in Edelweiss Assets Reconstruction Company v. Orrisa Manganese and Mineral Ltd. was challenged before the Supreme Court, whereby the Supreme Court passed a common judgment titled as Ghanshyam Mishra and Sons Private Limited v. Edelweiss Assets Reconstruction Company Limited, Civil Appeal No. 8129 of 2019. It was held by the Supreme Court as under:

"From the record placed before NCLT, it was clear that EARC had not invoked the corporate guarantee. NCLT, therefore posed a question to itself, as to whether an uninvoked corporate guarantee could be considered as matured claim of the appellant. NCLT found that once the moratorium was applied under Section 14 of the I&B Code, EARC was prevented from invoking the corporate guarantee. NCLT further found that the OMML's guarantee had not been invoked by EARC till the date of completion of CIRP process and once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found that there is no illegality or irregularity in not admitting the claim of EARC."

The Bench held that the Resolution Professional had not committed any illegality in rejecting the claim of Yes bank Ltd. (Financial Creditor) basing on an uninvoked guarantee in respect of standard account of principle borrower. The decision of the Resolution Professional was is in accordance with the law laid down by the Supreme Court in Ghanshyam Mishra case. The application was dismissed.

Case Title: Mrs. Bhanu Navin Nisar v Vijay Group Realty LLP

Case No.: C.P. 4359/I&B/MB/2019

Counsel for Applicant: Mr. Shyam Kapadia, Advocate.

Counsel for Respondent: Mr. Nausher Kohli, Advocate.

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