NCLAT upholds rejection of voluntary liquidation under Section 59 IBC for corporate guarantor with uninvoked guarantees

The NCLAT dismissed an appeal challenging rejection of a voluntary liquidation application under Section 59 of IBC. The appellant argued that since corporate guarantees had not been invoked by financial creditors and no claims were filed before the liquidator, there was no existing debt. The NCLAT held that non-invocation of guarantee does not absolve the corporate guarantor from debt liability. The court emphasized that guarantee liability is coextensive with lenders, who retain liberty to require performance of guarantor obligations. With 23 charges still showing against the company and corporate guarantees issued, the adjudicating authority correctly determined this was not an appropriate case for voluntary liquidation.

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Issues:
The judgment involves the dismissal of a liquidation application filed by the Liquidator under Section 59 of the Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017.

Issue 1: Invocation of Corporate Guarantee

The Adjudicating Authority dismissed the liquidation application on the grounds that the Corporate Guarantee had not been invoked by any financial creditors, and no claim had been filed before the liquidator. The Appellant argued that the guarantee should only arise when invoked, citing a Guarantee Deed and a previous judgment. The RoC reported multiple charges against the Company and the existence of Corporate Guarantee. The Appellant contended that the liquidation application should not be rejected based on the non-invocation of the guarantee.

Issue 2: Liability of Corporate Guarantor

The Appellant referred to specific clauses in the Guarantee Deed to support their argument that the guarantee remains in force even if not invoked. They highlighted that the Corporate Guarantor's liability is coextensive with the lenders and can be enforced regardless of the invocation of the guarantee. The Appellant relied on a previous judgment to emphasize that the default on the Guarantor occurs when the Corporate Guarantee is invoked.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision to dismiss the liquidation application. It emphasized that the Corporate Guarantor's liability persists irrespective of the invocation of the guarantee. The Tribunal found no error in the order, stating that the guarantee binds the Corporate Guarantor to discharge its obligations, and the non-invocation of the guarantee does not justify liquidation under Section 59 of the IBC. The appeal was consequently dismissed.

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