Corporate guarantee capped at Rs. 75 lakh vs Rs. 1 crore IBC s.7 default threshold; admission set aside, CIRP ended.

A dominant issue was whether a s.7 IBC application against a corporate guarantor was maintainable despite s.4 IBC's Rs. 1 crore default threshold, given a guarantee deed capping liability at Rs. 75 lakhs. The NCLAT held that a guarantee deed must be construed strictly by its express terms, without invoking equity. Interpreting "not exceeding in the aggregate" and related phrases in Clauses 1 and 2, it found "aggregate" encompassed principal, interest, and all charges within a single ceiling of Rs. 75 lakhs, precluding any enlargement beyond that cap. As the capped default could not meet the Rs. 1 crore threshold, the s.7 admission suffered a jurisdictional defect; the appeal was allowed, the admission order set aside, and CIRP terminated against the corporate guarantor.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the admitted application for initiation of insolvency proceedings against a corporate guarantor was not maintainable for want of the minimum default threshold, where the invoked guarantee allegedly capped the guarantor's total liability below the statutory limit.

(ii) Whether, on the materials in the application itself, the financial creditor had proceeded only on one guarantee (and not another), and the maintainability had to be tested accordingly.

(iii) Whether the appellate forum could examine the jurisdictional objection of maintainability based on the statutory threshold, even though it was not raised before the adjudicating authority.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Maintainability in light of statutory threshold vis-à-vis capped guarantee liability

Legal framework (as considered by the Court): The Court treated satisfaction of the minimum default amount under Section 4 as a condition precedent to initiation of proceedings under Section 7. The maintainability of the proceeding therefore depended on whether the "default amount" attributable to the corporate guarantor met the statutory minimum.

Interpretation and reasoning: The Court held that the liability of the guarantor must be determined strictly from the written terms of the guarantee deed, as it is a contractual document; the Court rejected any approach that would effectively rewrite or vary the bargain by invoking equity. The Court interpreted the guarantee clauses and placed decisive weight on: (a) the phrase "upto but not exceeding in the aggregate" coupled with the capped sum; (b) the construction of "and also of all moneys" as being read conjointly with the cap rather than as an addition beyond it; and (c) the use of "wholesome due... together with interest and charges" and "as aforesaid the said sum" as reinforcing that the cap governed the composite liability inclusive of interest and charges. On this reading, "aggregate" was treated as indicating a complete whole, so the cap applied to principal, interest, and charges merged into one unified ceiling.

Conclusions: The Court concluded that the guarantee deed imposed an impenetrable ceiling of the stated sum for the "wholesome due together with interest and charges thereon," leaving no scope to claim amounts beyond that cap from the guarantor. Since the capped liability was below the statutory minimum default threshold, the Section 7 application against the corporate guarantor suffered from a jurisdictional defect and could not be entertained; the admission order was therefore set aside and the corporate guarantor was released from insolvency proceedings.

Issue (ii): Whether the proceeding was founded only on the invoked guarantee of the capped amount

Legal framework (as considered by the Court): The Court examined the particulars of financial debt and default stated in the application to identify the basis of invocation and the relevant "default amount" for threshold purposes.

Interpretation and reasoning: On examining the particulars of default in the application, the Court found that the default was pleaded with reference to only one guarantee and not the other. Accordingly, the Court confined the maintainability analysis to the invoked guarantee forming the foundation of the application, and did not treat the uninvoked guarantee as contributing to the default amount for threshold satisfaction.

Conclusions: The Court held that maintainability had to be tested on the invoked guarantee which was the subject matter of the application, and on that basis the default amount attributable to the guarantor remained below the statutory minimum.

Issue (iii): Entertaining a threshold-based jurisdictional objection at the appellate stage

Legal framework (as considered by the Court): The Court accepted that an objection going to maintainability/jurisdiction may be examined even if not urged before the adjudicating authority, where it concerns the tribunal's competence to entertain the proceeding.

Interpretation and reasoning: Although the maintainability point had not been raised before the adjudicating authority, the Court treated the Section 4 threshold requirement as a jurisdictional precondition and proceeded to decide it on merits, based on the application record and the guarantee terms.

Conclusions: The Court entertained and upheld the jurisdictional objection, allowed the appeal, set aside the admission order, and terminated the insolvency process against the corporate guarantor.

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