NCLT Dismisses Insolvency Petition Against Rattanindia Enterprises Limited

Tribunal Finds Absence of Financial Debt Due to Lack of Enforceable Guarantee; Application by Canara Bank Rejected

In a significant ruling, the National Company Law Tribunal (NCLT), New Delhi Bench, has dismissed an application filed by Canara Bank seeking the initiation of a Corporate Insolvency Resolution Process (CIRP) against Rattanindia Enterprises Limited. The tribunal, presided over by Member (Judicial) Shri Manni Sankariah Shanmuga Sundaram and Member (Technical) Shri Atul Chaturvedi, found that the absence of a valid Deed of Guarantee or any enforceable instrument establishing a financial obligation negated the existence of financial debt.

The case revolves around a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by Canara Bank, alleging a default in payment of financial debt amounting to over Rs.372 crores by Rattanindia, purportedly acting as a corporate guarantor for Sinnar Thermal Power Limited. However, the tribunal concluded that documents such as Cost Overrun Undertakings and Promoters' Undertakings did not constitute financial guarantees under the Code.

Canara Bank argued that Rattanindia had assumed the role of a corporate guarantor through various undertakings related to credit facilities availed by Sinnar Thermal Power Limited. These included the Cost Overrun Deed of Undertaking and Deed of Indemnity-cum-Undertaking. The bank claimed these documents imposed obligations on Rattanindia to ensure repayment of the credit facilities.

Contrarily, Rattanindia contested these assertions, stating that no Deed of Guarantee was executed, and the documents cited were not contracts of guarantee as defined under the Indian Contract Act, 1872. The tribunal concurred, emphasizing that a contract of guarantee requires a tripartite agreement involving the creditor, principal debtor, and surety, which was absent in this case.

The tribunal also noted the proceedings against Sinnar Thermal Power Limited, which is already undergoing CIRP, and Canara Bank's claims have been admitted in that process. Furthermore, the tribunal remarked that the procedural requirements under the Master Intercreditor Agreement had not been fulfilled, prohibiting unilateral proceedings by individual lenders.

In conclusion, the NCLT held that Canara Bank failed to establish the existence of a financial debt and default, as required under Section 7 of the Insolvency and Bankruptcy Code. The application was dismissed, with the tribunal stating that the proceedings were not maintainable in law. The ruling underscores the necessity of clear and enforceable documentation when asserting financial obligations in insolvency proceedings.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Section 7 Petition dismissed due to absence of a valid and enforceable Deed of Guarantee - Corporate Debtor's undertakings and indemnity documents do not constitute financial guarantees and cannot be treated as "financial debt."

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 7

Canara Bank (E-Syndicate Bank) v. Rattanindia Enterprises Limited, (NCLT)(New Delhi Bench) : Law Finder Doc Id # 2820399