NCLT Orders Admittance of FC’s Claim as Debt u/s 5(8) for Corporate Guarantee

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Case Details: AVJ Heights Apartment Owners Association v. India Infoline Finance Ltd. – [2023] 149 taxmann.com 62 (NCLAT-New Delhi)

Judiciary and Counsel Details

Dr Ashok Kumar Mishra, Technical Member & Rakesh Kumar, Judicial Member
Shashank Agarwal, Aadil Khan & Bharya Khatreja, Advs. for the Appellant.
Amit Singh Chadha, Sr. Adv., Suresh Dobhal, Shikhar Kumar, Ms Mani Gupta, Ms Sonali Jain, Ms Saumya Upadhyay & Aman Choudhary, Advs. Advs. for the Respondent.

Facts of the Case

In the instant case, the Respondent (i.e. financial creditor) had sanctioned loan facilities in favour of the appellant (i.e. suspended director of the corporate debtor), wherein the corporate debtor had given a corporate guarantee.

Thereafter, the corporate debtor was admitted into the CIRP and a Resolution Professional (RP) was appointed and invited claims. The Respondent submitted its claim, however the same was rejected by RP on the ground that it could not be verified as per the books of account and documents available with the corporate debtor.

Consequently, aggrieved by the action of RP, the respondent filed an application before the Adjudicating Authority (NCLT) seeking directions for the RP to admit its claim and to include it in the Committee of Creditors (CoC) of the corporate debtor as a financial creditor.

The NCLT by the impugned order directed the RP to admit the claim of the respondent as a financial creditor, holding that if the guarantee is given over the money borrowed by the principal debtor from the creditor and the same is supported by the guarantee agreement, it will suffice to admit the claim as ‘financial debt’.

Further, since the respondent had not only filed the documents reflecting the transfer of money, and creation of obligation by way of Corporate Guarantee, but also furnished security by way of mortgage, therefore, the RP should have admitted the respondent’s claim as ‘financial debt’.

Thereafter, the appellant challenged the said order before the National Company Law Appellate Tribunal (NCLAT).

The appellant contended that the corporate guarantee was not given by the corporate debtor for the loan amount taken by the director as the same was barred u/s 185 of the Companies Act, 2013 and hence invalid under the law.

NCLAT Held

The NCLAT observed that the available record reflects that the board resolution had been passed guaranteeing/mortgaging the property.

The NCLAT held that, in view of facts and circumstances including law available on the subject, no error was found in the impugned order passed by the NCLT. Therefore, the appeal was to be dismissed.

List of Cases Reviewed

India Infoline Finance Ltd. v. AVJ Developers (India) (P.) Ltd. [2023] 149 taxmann.com 61 (NCLT – New Delhi) (para 37) affirmed [See Annex].

List of Cases Referred to

J. Daniel v. State of Kerala 2005 SCC Online Ker. 366 (para 12)
Avil Menezes, Resolution Professional of AMW Auto Component Ltd. v. Shah Coal (P.) Ltd. [2021] 131 taxmann.com 146 (NCLAT – New Delhi) (para 25).

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