2023 (5) TMI 341 - AT - Insolvency and Bankruptcy

Tribunal dismisses Section 7 application post-10A period, emphasizing Guarantee Deed terms

J.C. Flowers Asset Reconstruction Pvt. Ltd Versus Deserve Exim Pvt. Ltd

The Tribunal upheld the rejection of a Section 7 application by the Adjudicating Authority, emphasizing that defaults falling within the Section 10A ... Rejection of Section 7 application filed by the Financial Creditor - rejection on the ground that application is barred by Section 10A - date of invocation of bank guarantee against the Corporate Debtor - Whether the default on the part of the Corporate Debtor i.e. Corporate Guarantor can be on any date prior to when the guarantee was invoked is the question to be considered? HELD THAT:- The question as to when the default on part of the Guarantor is to considered has been decided by this Tribunal in a recent judgment in POOJA RAMESH SINGH VERSUS STATE BANK OF INDIA, ESSEL INFRAPROJECTS LTD. THROUGH THE RESOLUTION PROFESSIONAL MR. KAIRAV ANIL TRIVEDI [2023 (5) TMI 17 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], where it has been held that default on the part of the Corporate Guarantor shall be held to have been committed only when guarantee was invoked, when Deed of Guarantee itself mentions issue of demand notice by the Bank. The issues which have been raised in the present appeal are fully covered by the judgment in “Pooja Ramesh Singh vs. State Bank of India”. The Guarantee Deed contemplates demand by the bank, hence, unless demand is made by the bank to the Corporate Debtor, no default can be said to have been committed by the Corporate Guarantor and in the present case, demands for payment were invoked in the period covered under Section 10A. The date of default by the Guarantor shall arise only when demand is issued by the Bank to the Corporate Guarantor. The fact that the Corporate Guarantor has given indemnity to the Bank also shall operate only after default is committed by the Guarantor. Indemnity can be enforced against the Corporate Guarantor but it cannot itself change the date of default on part of the Guarantor. When the invocation of the bank guarantee is admittedly within the period of 10A, the Application which is based on invocation of guarantee is clearly barred by 10A. One of the submission pressed by learned counsel for the Appellant is that even after 10A period was over, no payments were made and default still continues, hence, the application could not have been rejected - HELD THAT:- When application filed under Section 7 was based only on the default which was committed during the 10A period, the Adjudicating Authority did not commit any error in not entertaining the application. The application was not based on any default which is committed subsequent to 10A period, hence, such question does not arise. There is no good ground to entertain this Appeal - Appeal dismissed. Issues involved:The judgment deals with the rejection of a Section 7 application by the Adjudicating Authority on the grounds that the application is barred by Section 10A. The key issues include the interpretation of the Guarantee Deed terms, the dates of default, the invocation of the guarantee, and the applicability of Section 10A.Interpretation of Guarantee Deed Terms:The Appellant argued that the Adjudicating Authority did not consider the terms and conditions of the Guarantee Deed before rejecting the application. They highlighted that the default dates mentioned in the application were prior to the Section 10A period, emphasizing that the clauses of the Guarantee Deed, including indemnity, were not adequately addressed. Despite the lapse of the 10A period, no payments were made, and the default by the Corporate Debtor persisted.Invocation of Guarantee and Default Dates:The Corporate Debtor acted as a Guarantor for loans to two Principal Borrowers, with defaults occurring on specific dates. The Financial Creditor invoked the corporate guarantee within the Section 10A period, leading to the rejection of the application by the Adjudicating Authority. The dispute centered on whether the default by the Guarantor should be considered only upon the invocation of the guarantee.Legal Precedent and Guarantee Clauses:Referring to a recent judgment, the Tribunal clarified that default by the Corporate Guarantor is deemed to occur when the guarantee is invoked, as specified in the Guarantee Deed terms. Clauses in the Deed emphasized the necessity of a demand by the bank for default to be established, with the invocation of demands falling within the Section 10A period.Application Rejection and Continuing Default:The Appellant contended that since no payments were made even after the 10A period, the application should not have been dismissed. However, the Tribunal held that the application was solely based on defaults within the 10A period, warranting its rejection. The judgment concluded that the issues raised were adequately addressed in a previous ruling, leading to the dismissal of the Appeal.Conclusion:The judgment underscores the importance of the Guarantee Deed terms, the timing of default, and the invocation of guarantees in determining the validity of a Section 7 application. By aligning with legal precedent and analyzing the specific clauses of the Deed, the Tribunal upheld the rejection of the application based on defaults falling within the Section 10A period.