Tribunal upholds initiation of Corporate Insolvency Resolution Process against Corporate Debtor for guarantor liability.

The Tribunal upheld the Adjudicating Authority's order, affirming the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. It concluded that the Corporate Debtor's liability as a guarantor was not discharged by the Principal Borrower's resolution plan, and the Adjudicating Authority correctly determined the default. The appeal was dismissed, and the impugned order was affirmed.

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Issues Involved:
1. Admission of CIRP against Corporate Debtor under Section 7 of IBC.
2. Validity of Corporate Debtor's claim of malicious initiation of CIRP.
3. Determination of default and liability of Corporate Debtor as a guarantor.
4. Impact of Principal Borrower's resolution plan on Corporate Debtor's liability.
5. Examination of procedural fairness and adherence to principles of natural justice.

Detailed Analysis:

1. Admission of CIRP against Corporate Debtor under Section 7 of IBC:
The appeal was filed against the order dated 16.08.2021 by the Adjudicating Authority (NCLT, Ahmedabad Bench) which admitted the petition under Section 7 of the IBC filed by Respondent No. 1 (Axis Bank Limited) against the Corporate Debtor (APIL). The petition was based on the default of INR 521,27,66,012.95 under the Incremental Debt Facility and Rupee Loan Facility II, for which the Corporate Debtor had provided corporate guarantees.

2. Validity of Corporate Debtor's claim of malicious initiation of CIRP:
The Corporate Debtor contended that the initiation of CIRP was malicious and premature since the alleged default amount was already part of the resolution plan of the Principal Borrower. The Adjudicating Authority dismissed this contention, stating that the Financial Creditor was not seeking recovery of the already recovered amount under the resolution plan, and the petition was filed for the original default amount.

3. Determination of default and liability of Corporate Debtor as a guarantor:
The Corporate Debtor argued that its liability as a guarantor was extinguished upon the approval of the Principal Borrower's resolution plan. However, the Tribunal referred to the Supreme Court's judgment in "Lalit Kumar Jain v. Union of India, 2021 SCC Online SC 395," which clarified that the approval of a resolution plan does not discharge a guarantor's liability unless specified in the guarantee terms. The Deeds of Guarantee explicitly stated that the guarantor's obligations would not be affected by the insolvency or restructuring of the Principal Borrower.

4. Impact of Principal Borrower's resolution plan on Corporate Debtor's liability:
The resolution plan of the Principal Borrower included a clause that the restructuring or extinguishment of financial liabilities would not affect the claims against third-party guarantors. Thus, the Corporate Debtor's liability under the guarantees remained intact. The Tribunal found that the Corporate Debtor's argument that its liability was limited to the balance amount post-resolution plan was not substantiated since the balance amount was neither disclosed nor determined by Respondent No. 1.

5. Examination of procedural fairness and adherence to principles of natural justice:
The Corporate Debtor claimed that the Adjudicating Authority did not provide a fair hearing due to technical glitches and proceeded to reserve its judgment without considering its submissions. The Tribunal noted that the Corporate Debtor had ample opportunity to present its case and that the procedural history recorded by the Adjudicating Authority was accurate.

Conclusion:
The Tribunal upheld the Adjudicating Authority's order, affirming the initiation of CIRP against the Corporate Debtor. It concluded that the Corporate Debtor's liability as a guarantor was not discharged by the Principal Borrower's resolution plan and that the Adjudicating Authority had correctly determined the existence of default. The appeal was dismissed, and the impugned order was affirmed.

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