Tribunal rules Corporate Debtor not in default, no liability as guarantor under Insolvency & Bankruptcy Code

The tribunal dismissed the application, ruling that the Corporate Debtor could not be considered a defaulter under Section 7 of the Insolvency and Bankruptcy Code, 2016. The suspension of the loan agreements by the Economic Court of Dushanbe meant the principal debtor was not in default, thus the Corporate Debtor's liability as a guarantor did not arise. The tribunal emphasized Section 128 of the Indian Contract Act, 1872 and the terms of the Deed of Guarantee, which linked the guarantor's liability to the default of the principal debtor.

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Issues Involved:
1. Whether the Corporate Debtor can be considered a defaulter under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. The impact of the Economic Court of Dushanbe’s orders on the liability of the Corporate Debtor.
3. The applicability of Section 128 of the Indian Contract Act, 1872 to the Corporate Debtor's liability.
4. The jurisdiction and enforceability of the Economic Court of Dushanbe's orders in Indian legal proceedings.

Detailed Analysis:

1. Whether the Corporate Debtor can be considered a defaulter under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Financial Creditor, Export Import Bank of India, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor, CHL Limited, which guaranteed loans to its subsidiary, CHL International, Tajikistan. The Financial Creditor claimed that the Corporate Debtor guaranteed repayment of USD 32,500,000 along with interest and other charges, and defaulted on this guarantee, making the total amount due USD 36,543,693.76 as of 20 September 2017.

2. The impact of the Economic Court of Dushanbe’s orders on the liability of the Corporate Debtor:
The Corporate Debtor argued that the Economic Court of Dushanbe had suspended the operation of the loan agreements between the Financial Creditor and CHL International. Orders dated 06.01.2017, 07.07.2017, and 03.10.2017 from the Economic Court of Dushanbe suspended the loan agreements and prohibited coercive actions by the Financial Creditor against CHL International until the court's final decision. The Corporate Debtor contended that this suspension meant no default could be deemed to have occurred, and thus, the Corporate Debtor's liability as a guarantor could not be enforced.

3. The applicability of Section 128 of the Indian Contract Act, 1872 to the Corporate Debtor's liability:
Section 128 of the Indian Contract Act, 1872 states that the liability of the surety is co-extensive with that of the principal debtor unless otherwise provided by the contract. Clause 4 of the Deed of Guarantee specified that the guarantor would be liable only if the principal debtor defaulted. Given the suspension of the loan agreements by the Economic Court of Dushanbe, the principal debtor (CHL International) was not in default, and thus, the Corporate Debtor's liability as a guarantor did not arise.

4. The jurisdiction and enforceability of the Economic Court of Dushanbe's orders in Indian legal proceedings:
The Financial Creditor argued that the orders of the Economic Court of Dushanbe had no extra-territorial effect under Indian law and did not prevent the filing of the present application. However, the tribunal noted that the Financial Creditor had submitted to the jurisdiction of the Economic Court of Dushanbe and participated in the proceedings there. The tribunal concluded that the suspension of the loan agreements by the Economic Court of Dushanbe meant that the principal debtor was not in default, and therefore, the Corporate Debtor could not be considered a defaulter.

Conclusion:
The tribunal dismissed the application, concluding that the Corporate Debtor could not be regarded as a defaulter under Section 7 of the Insolvency and Bankruptcy Code, 2016, due to the suspension of the loan agreements by the Economic Court of Dushanbe. The liability of the Corporate Debtor as a guarantor did not arise as the principal debtor was not in default. The tribunal relied on Section 128 of the Indian Contract Act, 1872, and the specific terms of the Deed of Guarantee, which conditioned the guarantor's liability on the default of the principal debtor.

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