AA Rightly Admitted CIRP Plea Against Guarantor as FC Clearly Proved Existence of Financial Debt and Its Default by CD | NCLAT

Case Details: Tulip Hotel (P.) Ltd. v. JC Flowers Asset Reconstructions (P.) Ltd. - [2024] 162 taxmann.com 426 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Ashok Bhushan, Chairperson & Barun Mitra, Technical Member
  • Virender Ganda, Sr. Adv. Raghav Anand & Ayandeb Mitra, Advs. for the Appellant.
  • Abhishek Anand & Sajal Jain, Advs. for the Respondent.

Facts of the Case

In the instant case, the Bank (the original lender) sanctioned a Cash Credit Facility to Borrowers Nos. 1 and 2. To disburse the loan, the appellant, as corporate guarantor, executed a Deed of Guarantee in favour of the Bank to guarantee the loan facility.

Since the Borrowers defaulted on repayment, the bank invoked a Corporate Guarantee demanding the appellant pay the due amount. Meanwhile, the appellant assigned the debt to the respondent (i.e., the financial creditor). The Respondent then filed an application for substitution of their name in place of the Bank, which the NCLT allowed.

Subsequently, the respondent filed an application u/s 7 of the IBC, which was admitted by the NCLT vide the impugned order. Aggrieved by the NCLT’s order, an instant appeal was filed on the ground that the section 7 application filed by ‘R’ on behalf of the respondent based on Power of Attorney lacked a supporting Board Resolution of financial creditor and, thus, was not maintainable.

It was noted that R was duly authorised by the Bank via Power of Attorney pursuant to a Board Resolution to file necessary applications for the commencement of legal proceedings against Borrower and their Hypothecators/Mortgagors/Guarantors.

NCLAT Held

The NCLAT noted that the section 7 application was filed by a duly authorised person on the respondent’s behalf; thus, the appellant’s objections were misconceived and unsustainable.

The NCLAT held that when notice had been duly served upon the corporate guarantor demanding payment, and there was a clear default on the part of the corporate guarantor to clear outstanding due, the NCLT had rightly admitted the section 7 application for initiation of the CIRP process. Further, this decision was reached after establishing that Respondent No.1 had successfully proved financial debt and default on the part of the corporate debtor as Corporate Guarantor.

List of Cases Reviewed

• • J.C. Flowers Asset Reconstructions (P.) Ltd. v. Tulip Hotels (P.) Ltd. [2024] 162 taxmann.com 425 (NCLT-Mum.) (para 38) affirmed See annex.