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of <h1>NCLAT upholds rejection of voluntary liquidation under Section 59 IBC for corporate guarantor with uninvoked guarantees</h1> <h3>Iskon Infra Engineering Pvt. Ltd. Versus Central Bank of India</h3> The NCLAT dismissed an appeal challenging rejection of a voluntary liquidation application under Section 59 of IBC. The appellant argued that since ... Liability of Corporate Guarantor - Guarantee has not been invoked by any of the financial creditors nor any claim was filed before the liquidator - existence of debt or not - HELD THAT:- From the facts brought on record, especially by RoC that 23 charges are still showing against the Company and the Company has issued Corporate Guarantee. The submission which has been pressed by the Appellant is that since Corporate Guarantee has not been invoked and no claim has been filed that cannot be relied for rejecting the liquidation application. The fact that guarantee has not been invoked, does not absolve the Corporate Guarantor from debt. The debt which is Corporate Guarantor, the Company has been given corporate guarantee and undertaken to pay the debt. The judgment of MUDHIT MADANLAL GUPTA VERSUS SUPREME CONSTRUCTIONS AND DEVELOPERS PVT. LTD. [2023 (7) TMI 1397 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] was a case where this court took a view that default occurred between 10A period and it was held that default on the Guarantor shall be on the date when the Corporate Guarantee has been invoked. The above was a case arising out of Section 7 application which was rejected on the ground of 10A which order was upheld. The above judgment in no manner support the submission of the Appellant. The liability of Corporate Guarantor is coextensive with the Lenders and the Lenders are at liberty to require the performance by the Guarantor of its obligation. The Adjudicating Authority after noticing the fact which was brought by the RoC as well as Central Bank of India and has rightly taken the view that the present in the not case for liquidating the Company under the process of voluntary liquidation. The submission of the Appellant that since guarantee has not been invoked there is no debt, cannot be accepted. Guarantee continues to bind the Corporate Guarantor to discharge its liability and the fact that as on date, guarantee has not been invoked, cannot be a ground for Appellant to be liquidated under Section 59 of the IBC. There are no error in the impugned order - appeal dismissed. 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 GuaranteeThe 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 GuarantorThe 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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