Resolution Professional correctly rejected financial creditor's claim as agreement created additional security, not guarantee under Section 126 Indian Contract Act

NCLAT Principal Bench dismissed an appeal challenging the Resolution Professional's rejection of a financial creditor's claim. The appellant argued that an Agreement dated 29.03.2019 constituted a guarantee under Section 126 of the Indian Contract Act, 1872, making the corporate debtor liable for secured obligations. NCLAT held that the Agreement was executed merely to create additional security as per the Debenture Trust Deed, not as a guarantee. The document's nomenclature was not decisive; its true nature showed it was for additional security purposes only. The Resolution Professional correctly rejected the claim as it exceeded the scope of available security.

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Issues Involved:
1. Whether the Agreement dated 29.03.2019 can be considered a Deed of Guarantee.
2. Whether the Appellant should be admitted as a "Secured Financial Creditor" and included in the Committee of Creditors (CoC).
3. Whether the Committee of Creditors has jurisdiction to adjudicate the claim.

Issue 1: Nature of Agreement dated 29.03.2019
The primary issue was to determine if the Agreement dated 29.03.2019 could be read as a Deed of Guarantee. The Appellant argued that the Agreement constituted a contract of guarantee under Section 126 of the Indian Contract Act, 1872, citing Clause 4 which stated that the Corporate Debtor provided an expressed, unqualified, and unconditional undertaking to pay the secured obligations. However, the Tribunal found that the Agreement was executed as part of additional security under Clause 7.5(b) of the Debenture Trust Deed and was not a Deed of Guarantee. The Tribunal emphasized that the Agreement was meant for additional security and not for guaranteeing the repayment of the secured obligations by the Corporate Debtor. Therefore, the Agreement dated 29.03.2019 could not be read as a guarantee within the meaning of Section 126 of the Contract Act.

Issue 2: Admission as a "Secured Financial Creditor"
The Appellant sought to be declared as a "Secured Financial Creditor" and included in the CoC. The Tribunal noted that the Resolution Professional had rejected the Appellant's claim, which was communicated via email on 22.06.2022 and reaffirmed on 20.01.2023. The Tribunal held that the Resolution Professional did not err in refusing to admit the Appellant's claim, as the Agreement dated 29.03.2019 was not a Deed of Guarantee but an agreement for additional security. Consequently, the Appellant could not be admitted as a "Secured Financial Creditor" and included in the CoC.

Issue 3: Jurisdiction of the Committee of Creditors
The Appellant contended that the CoC had no jurisdiction to adjudicate the claim. The Tribunal noted that the Resolution Professional had already rejected the claim and that the CoC's decision was not the primary issue. The Tribunal emphasized that it is the Adjudicating Authority that has jurisdiction to adjudicate all issues arising out of the resolution process of a Corporate Debtor. Since the Adjudicating Authority had already approved the decision of the Resolution Professional, the Tribunal confined its consideration to whether the Adjudicating Authority had committed any error in rejecting the IA filed by the Appellant. The Tribunal found no error in the Adjudicating Authority's decision.

Conclusion
The Tribunal concluded that the Agreement dated 29.03.2019 was not a Deed of Guarantee but an agreement for additional security. Consequently, the Appellant could not be admitted as a "Secured Financial Creditor" and included in the CoC. The Tribunal upheld the decision of the Adjudicating Authority and dismissed the appeal.

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