Tribunal rules uninvoked guarantees not claims under Insolvency Code, appoints new RP for resolution process

The tribunal ruled that uninvoked corporate guarantees cannot be considered claims under the Insolvency & Bankruptcy Code. Such guarantees should not impact the determination of voting shares, which are based on financial debt owed. The tribunal found the Resolution Professional's inclusion of the uninvoked guarantee in determining voting shares inconsistent and appointed a new RP to ensure smooth implementation of the Corporate Insolvency Resolution Process. ICICI Bank's claim and voting share are to be recomputed, and all documents/assets are to be transferred to the new RP. No costs were awarded in the disposition of the application.

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Issues Involved:
1. Whether the amount of uninvoked corporate guarantee could be considered as a claim under the Insolvency & Bankruptcy Code, 2016.
2. Whether the uninvoked corporate guarantee can be taken into consideration for determining the voting share of a financial creditor.
3. Whether the decision of the Resolution Professional (RP) aligns with the scheme and objects of the Insolvency & Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Uninvoked Corporate Guarantee as a Claim:
The tribunal examined whether an uninvoked corporate guarantee could be considered a claim under the Insolvency & Bankruptcy Code, 2016. It was argued that the corporate debtor had given a corporate guarantee for a loan to Skipper Furnishings Pvt. Ltd., which had not been invoked, nor had the principal borrower defaulted. The tribunal referenced judicial decisions, noting that in the case of Export Import Bank of India, the guarantee had been invoked, making it factually different. The tribunal also considered the decision in Axis Bank Ltd. vs. Edu Smart Services Pvt. Ltd., which was overruled by a subsequent decision in Edelweiss Asset Reconstruction Company Ltd. vs. Orissa Manganese and Minerals Ltd., indicating that uninvoked guarantees do not qualify as claims. The tribunal concluded that a claim must be due to be considered a debt, and an uninvoked corporate guarantee does not meet this criterion.

2. Uninvoked Corporate Guarantee and Voting Share:
The tribunal then addressed whether an uninvoked corporate guarantee could be used to determine the voting share of a financial creditor. It was emphasized that voting rights are based on the financial debt owed to a creditor, not on claims. The tribunal referred to Section 5(28) of the Insolvency & Bankruptcy Code, 2016, which defines voting share based on the proportion of financial debt owed. Since an uninvoked guarantee is not a debt owed, it should not influence voting rights. The tribunal also rejected the argument based on the IBBI circular, stating that circulars cannot override substantive provisions of the Code. It was concluded that contingent claims like uninvoked guarantees should not impact voting shares as they are inferior to actual claims.

3. Decision of the RP and Scheme of the Code:
Finally, the tribunal assessed whether the RP's actions were consistent with the Code's objectives. The RP had included the uninvoked corporate guarantee in determining voting shares, which was contested by other financial creditors. The tribunal noted that the RP had not sought a legal opinion as agreed upon in a CoC meeting and had inconsistently treated similar claims from different creditors. The tribunal found this approach problematic and decided to replace the RP to ensure smooth implementation of the CIRP. The new RP was appointed, and the tribunal ordered the recomputation of ICICI Bank's claim and voting share.

Summary of Findings:
a) Uninvoked corporate guarantees cannot be considered claims under the Code.
b) Uninvoked corporate guarantees should not influence the determination of voting shares.
c) ICICI Bank's claim and voting share must be recomputed.
d) The current RP is to be replaced, and all documents/assets handed over to the new RP.

The tribunal disposed of the application accordingly, with no order as to costs.

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