Limited project-support undertakings do not equal debt repayment guarantees; guarantor default arises on invocation and non-payment.

A limited equity-infusion or cost-overrun undertaking does not, by itself, create liability to repay the principal borrower's loan, and a corporate guarantor's default arises only on invocation of the guarantee and non-payment thereafter, not on the borrower's earlier NPA date. The later guarantee deed was treated as releasing the corporate debtor from its earlier guarantee obligations, subject only to limited contingent obligations. On that basis, a Section 7 petition based on a default alleged to have arisen during the Section 10A suspension period could not be maintained. The document also notes that an admission order was unsustainable where a connected Section 7 matter on the same recall notice had been rejected by the same Bench on the same facts.

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Issues: (i) Whether the corporate debtor's guarantee dated 30.06.2010 obliged it to discharge the principal borrower's debt, (ii) whether the subsequent guarantee dated 11.01.2012 discharged the corporate debtor and limited its obligations, (iii) whether the undertakings, including the cost overrun undertaking, created a liability to repay the principal borrower's financial debt, (iv) whether the Section 7 application was barred by Section 10A, and (v) whether the admission order could stand when a connected Section 7 application on the same recall notice had been rejected by the same Bench.

Issue (i): Whether the corporate debtor's guarantee dated 30.06.2010 obliged it to discharge the principal borrower's debt.

Analysis: The guarantee was examined along with the sanction letter and related clauses. The obligation undertaken by the corporate debtor was to infuse equity share capital and meet cost overrun funding from equity or sponsor funds, without recourse to the lenders or project assets. The document did not create an undertaking by the corporate debtor to repay the principal borrower's loan. The recall notice also proceeded on an incorrect premise by demanding repayment of the principal borrower's outstanding debt from the guarantor, rather than seeking only compliance with the limited guarantee obligations.

Conclusion: The guarantee dated 30.06.2010 did not oblige the corporate debtor to discharge the principal borrower's financial debt.

Issue (ii): Whether the subsequent guarantee dated 11.01.2012 discharged the corporate debtor and limited its obligations.

Analysis: The later deed expressly recorded that it was executed to release the corporate debtor from its earlier guarantee obligations and to substitute equivalent guarantees from the new guarantors. It further stated that, save as expressly preserved, no obligations were retained by the corporate debtor after the scheme, and its continuing responsibility was only conditional and secondary, arising if the substituted primary obligor failed to perform within the limited framework of the new arrangement.

Conclusion: The subsequent guarantee deed discharged the corporate debtor from the earlier guarantee, subject only to limited contingent obligations.

Issue (iii): Whether the undertakings, including the cost overrun undertaking, created a liability to repay the principal borrower's financial debt.

Analysis: The undertakings relied upon by the financial creditor related to equity infusion, maintenance of shareholding, management control, indemnity obligations, and funding of cost overruns. These instruments were distinct from a debt repayment guarantee and did not contain any clear covenant by the corporate debtor to repay the principal borrower's loan obligations. They could not be expanded to convert a limited project-support undertaking into a financial debt liability.

Conclusion: The undertakings did not oblige the corporate debtor to discharge the principal borrower's financial obligation.

Issue (iv): Whether the Section 7 application was barred by Section 10A.

Analysis: The date relevant to the guarantor's default was the invocation of guarantee on 30.09.2020, followed by a demand to pay within three days, which meant the alleged default arose on 04.10.2020. That date fell within the Section 10A suspension period. The date of NPA of the principal borrower in 2017 could not be treated as the default date of the corporate guarantor. The default of the guarantor arises only upon invocation and non-payment in response to the demand.

Conclusion: The Section 7 application was barred by Section 10A.

Issue (v): Whether the admission order could stand when a connected Section 7 application on the same recall notice had been rejected by the same Bench.

Analysis: A connected proceeding arising from the same debt, same recall notice, and materially identical facts had been dismissed by the same Bench on the same day. The impugned order, however, reached the opposite result without reconciling the earlier decision or addressing the common factual and legal matrix. This inconsistency showed non-application of mind and undermined the sustainability of the admission order.

Conclusion: The admission order could not be sustained in view of the contrary same-day decision on identical material.

Final Conclusion: The corporate debtor was not shown to owe a financial debt under the relied documents, the alleged default arose during the Section 10A period, and the admission order was vitiated by non-application of mind; the appeal succeeded and the Section 7 proceeding was set aside.

Ratio Decidendi: A limited equity-infusion or cost-overrun undertaking cannot be treated as a guarantee to repay the borrower's debt, and for a corporate guarantor the default occurs on invocation of the guarantee and non-payment thereafter, not on the principal borrower's earlier NPA date.

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