Bank guarantee invocation and unfulfilled settlement terms can establish debt and default for insolvency admission.

Unchallenged findings on bank guarantee invocation can support validity where the beneficiary's communications were treated as timely and the earlier DRT determination had attained finality. A later one-time settlement, part payment, and subsequent non-payment were treated as acknowledgment of the outstanding liability and as default. On that basis, the financial creditor was entitled to rely on debt and default for admission of a Section 7 insolvency application, and the appeal was found to lack merit.

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Issues: (i) Whether the bank guarantees were validly invoked before expiry and the earlier finding on invocation could be ignored in the present appeal; (ii) Whether the corporate debtor's one-time settlement and subsequent non-payment constituted acknowledgment of debt and default justifying admission of the Section 7 application.

Issue (i): Whether the bank guarantees were validly invoked before expiry and the earlier finding on invocation could be ignored in the present appeal.

Analysis: The dispute centred on whether the beneficiary's communications dated 22.05.2017 and 24.05.2017 amounted to a valid invocation before expiry of the guarantees. That question had already been examined by the DRT in proceedings arising out of the same transaction, and the DRT had held that the guarantees were invoked within time. The corporate debtor did not challenge that order further, and the finding attained finality. In these circumstances, the earlier unchallenged determination supported the conclusion that the invocation was valid.

Conclusion: The invocation of the bank guarantees was treated as valid, and the contrary challenge in appeal failed.

Issue (ii): Whether the corporate debtor's one-time settlement and subsequent non-payment constituted acknowledgment of debt and default justifying admission of the Section 7 application.

Analysis: After the bank had remitted the invoked amount to the beneficiary, the corporate debtor negotiated a one-time settlement and made part payment, but failed to honour the settled terms. The settlement was treated as a formal acknowledgment of the outstanding liability. Non-payment under the settlement terms amounted to default, and the financial creditor was entitled to rely on that default for initiation of insolvency proceedings. The finding was consistent with the admitted debt, the mortgage created in favour of the bank, and the statutory requirement of debt and default for admission under Section 7.

Conclusion: The one-time settlement and subsequent breach constituted acknowledgment of debt and default, so admission of the Section 7 application was upheld.

Final Conclusion: The appeal was devoid of merit because the invocation of the guarantees stood validated and the corporate debtor's settlement conduct established default, leaving no ground to interfere with admission of insolvency proceedings.

Ratio Decidendi: An unchallenged finding that bank guarantees were validly invoked, coupled with a later settlement that acknowledges the outstanding liability and is not honoured, is sufficient to establish default for admission of an insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

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