NCLT Mumbai Bench Upholds Admissibility of Claims Based on Uninvoked Corporate Guarantees

Resolution Professional Directed to Re-evaluate L&T Finance’s Claim in Light of Supreme Court Ruling

In a significant decision, the National Company Law Tribunal (NCLT) Mumbai Bench has ruled in favor of L&T Finance Limited, allowing their claim of approximately Rs. 209.96 Crores against Rajesh Estates and Nirman Private Limited based on an uninvoked corporate guarantee. The tribunal directed the Resolution Professional (RP) to verify the claim in accordance with the law, emphasizing that the RP's role is administrative rather than adjudicatory.

The case arose from the RP's earlier rejection of L&T Finance's claim, citing that the corporate guarantee was uninvoked prior to the insolvency commencement date. The RP's rejection was based on previous judicial interpretations that an uninvoked guarantee does not constitute a matured claim.

The NCLT, however, referred to the Supreme Court's judgment in the case of China Development Bank v. Doha Bank Q.P.S.C., which clarified that claims arising from uninvoked guarantees are admissible under the Insolvency and Bankruptcy Code (IBC). The tribunal underscored that contingent claims are recognized under Regulation 14 of the CIRP Regulations, and the moratorium under Section 14 does not extinguish such claims.

The judgment highlights the limited powers of the RP, stating that while the RP can verify and collate claims, they cannot unilaterally reject an already admitted claim. This decision reinforces the principle that the RP's function is non-adjudicatory, safeguarding creditors' rights to have their claims verified based on available information.

The tribunal's ruling is expected to have a significant impact on the interpretation of contingent claims under the IBC, especially concerning corporate guarantees that have not been invoked before the insolvency commencement. Legal experts suggest that this could lead to a broader recognition of contingent liabilities in insolvency proceedings, providing more security to creditors holding corporate guarantees.

Bottom Line:

Insolvency and Bankruptcy Code - Claim based on uninvoked corporate guarantee is admissible - Resolution Professional (RP) cannot unilaterally reject an already admitted claim - RP's role is administrative, not adjudicatory.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 3(6), 5(7), 5(8), 14(1)(c), 238; Regulation 14 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

L & T Finance Limited v. Divyesh Desa, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2796752