Corporate guarantee creates valid financial debt for insolvency proceedings despite RBI approval and stamping challenges under Section 7

The NCLT Mumbai admitted an insolvency resolution petition against a corporate debtor based on a corporate guarantee. The debtor challenged the guarantee's validity, claiming it lacked RBI approval, was unstamped, and that parallel proceedings in Mauritius Court barred the petition. The Tribunal held that sufficient evidence proved the guarantee's execution, RBI approval absence didn't invalidate the transaction as the debtor failed to seek approval, unstamped instruments are curable defects, and parallel proceedings don't bar insolvency proceedings under Section 7 of the IBC. The guarantee liability constituted financial debt under the Code, warranting admission.

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Issues Involved:
1. Denial of execution of Corporate Guarantee.
2. Validity of Corporate Guarantee without RBI approval.
3. Multiple legal proceedings in different jurisdictions.
4. Unstamped Corporate Guarantee Agreement.

Issue-wise Detailed Analysis:

1. Denial of Execution of Corporate Guarantee:
The Corporate Debtor denied executing the Corporate Guarantee. However, the Tribunal found this to be a bare denial. The same individual who signed the loan agreement on behalf of RPML also signed the Corporate Guarantee. The Corporate Debtor had passed a resolution to stand as a guarantor and had acknowledged this in its annual reports and financial statements. The Tribunal concluded that the Corporate Debtor stood as a guarantor for the USD 30 million loan taken by RPML from the Creditor Bank.

2. Validity of Corporate Guarantee without RBI Approval:
The Corporate Debtor argued that the Corporate Guarantee was invalid due to the lack of post facto RBI approval and because the guarantee exceeded 400% of the Corporate Debtor's net worth, violating RBI guidelines. The Tribunal held that the Corporate Debtor, being responsible for obtaining RBI approval, could not benefit from its failure to do so. The Tribunal emphasized that non-compliance with post facto intimation requirements did not invalidate the transaction or the creditor's rights. The Tribunal found no merit in the argument that the lack of RBI approval rendered the guarantee unenforceable.

3. Multiple Legal Proceedings in Different Jurisdictions:
The Corporate Debtor contended that the Creditor should not proceed before the Tribunal after pursuing legal actions in Mauritius. The Tribunal referred to Section 5(8) of the Insolvency & Bankruptcy Code, which includes guarantees within the definition of financial debt. The Tribunal clarified that pending disputes in other forums do not bar the initiation of Insolvency Resolution Process under Section 7. The Tribunal noted that the decree against RPML had not been satisfied, thus the proceedings could continue.

4. Unstamped Corporate Guarantee Agreement:
The Corporate Debtor argued that the unstamped guarantee agreement could not be admitted without impounding. The Tribunal acknowledged this but noted that the defect was curable. The Tribunal directed the Creditor to impound the guarantee agreement as per law and held that this did not impede the initiation of the Insolvency Resolution Process. The Tribunal cited precedents where unstamped documents were admitted for interim relief, with the deficiency addressed at the evidence stage.

Conclusion:
The Tribunal admitted the Company Petition, finding that the principal borrower defaulted, crystallizing the contingent liability against the guarantor into a definite financial debt. The Tribunal issued a moratorium prohibiting suits, proceedings, and actions against the Corporate Debtor, ensuring the continuation of essential goods and services, and appointed an interim resolution professional to carry out the functions under the Insolvency & Bankruptcy Code. The Registry was directed to communicate the order to both parties.

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