Entity Issuing A 'Letter Of Comfort' Is Not A Corporate Debtor Or Guarantor Within Framework Of Law: NCLT Delhi

Background Facts

M/s Black Canyon SEZ Pvt. Ltd. ("BCSPL") and Shapoorji Pallonji and Company Pvt. Ltd. ("Petitioner") had entered into a contract wherein the Petitioner was obligated to deliver certain works to BCSPL and BCSPL was to release payments accordingly. M/s. ASF Insignia SEZ Pvt. Ltd. ("Respondent") had issued a Letter of Comfort to BCSPL, wherein it was stated that if BCSPL does not make payments with regard to works delivered by the Petitioner under the contract, then the Respondent shall ensure prompt payment of such dues by BCSPL.

After BCSPL had allegedly defaulted in payments, the Petitioner had issued a Demand Notice to the Respondent under Section 8 of the Insolvency and Bankruptcy Code, 2016 ("IBC"). The Respondent addressed a reply to the notice by stating that under the Letter of Comfort, it had never assumed any repayment obligations towards the Petitioner, not even in the capacity of a guarantor. Further, a contract of guarantee is a separate contract in itself whereby the Surety undertakes the repayment obligations; however, a Letter of Comfort cannot be equated with a 'Contract of Guarantee'.

Subsequently the Petitioner filed a petition under Section 9 of the IBC, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Respondent.

Decision Of The NCLT

The Bench opined that an entity which issues Letter of Comfort cannot be treated as a Corporate Debtor or Corporate Guarantor within framework of law. It was opined that the nature of transactions between the Petitioner and Respondent does not constitute an operational debt. The petition was rejected for not being maintainable, as neither there was any operational debt nor was the Respondent a Corporate Debtor or Guarantor.

Case Title: M/s. Shapoorji Pallonji and Company Pvt. Ltd. v M/s. ASF Insignia SEZ Pvt. Ltd., IB-197/ND/2022

Counsel for Petitioner: Ms. Akanksha Kaul, Mr. Manek Singh and Mr. Aman Sahani, Advocates.

Click Here To Read/Download Order