2024 (8) TMI 854 - AT - Insolvency and Bankruptcy

Admissibility of Section 7 application - novation of the contract - non-invocation of the subsequent guarantee - HELD THAT - In the sanction letter clause 4 clearly mentions that all existing securities in the captioned facilities will continue to be the security for the existing facilities with the revised repayment schedule. It was further mentioned that the said securities will also cover the fresh FITL facility opened to part the interest on the captioned working capital facilities. Thus the sanction letter dated 09.09.2020 was fully covered by existing securities which included the guarantees dated 22.08.2015 and 18.11.2016. Part-IV of the Section 7 Application Cash Credit Term Loan FITL and Cash Credit Adhoc are the facilities for which with regard to amount disbursed default was claimed. Admittedly for Cash Credit and Term Loan Guarantees dated 22.08.2015 and 18.11.2016 are very much covering the said Cash Credit Term Loan and for sanction of Adhoc Cash Credit and FITL. Sanction letter as extracted above clearly indicate that the existing securities shall cover. The Consortium Agreement which was executed on 06.11.2020 between the parties clearly mentions that it was not to affect existing securities. There are no novation of contract between the parties. Disbursement made pursuant to sanction made in the year 2013 and the guarantees issued by the corporate guarantor on 22.08.2015 and 18.11.2016 are still continuing and binds the corporate guarantor to discharge the debt. Subsequent to disbursement Adhoc Limit and FITL sanctioned on 26.12.2019 and 09.09.2020 are also covered by the existing securities - the invocation of guarantee on 06.03.2023 by the Bank was right invocation which obliges the corporate guarantor to clear the dues. It is relevant to notice that there is no submission of the Appellant that no amount is due. Debt and default is not even contested. Appellant sought to get over his liabilities on the ground that contract is novated and there is no liability of the corporate guarantor. There are no error in the order passed by the Adjudicating Authority admitting Section 7 application. There is no merit in the Appeal - appeal dismissed.

Summary

Issues Involved:
1. Admissibility of Section 7 application.
2. Invocation of corporate guarantees.
3. Alleged novation of contract.
4. Validity of restructuring proposal.

Detailed Analysis:

1. Admissibility of Section 7 Application:
The appeal was filed challenging the order dated 03.01.2024 by the National Company Law Tribunal (NCLT), Mumbai Bench-IV, which admitted the Section 7 application filed by the Central Bank of India. The application claimed a total debt and default of Rs. 94,71,23,119/- as on 06.03.2023. The Adjudicating Authority held that the application was filed within time after the invocation of the corporate guarantees on 06.03.2023 and was not barred by Section 10A.

2. Invocation of Corporate Guarantees:
The Central Bank of India invoked the corporate guarantees executed on 22.08.2015 and 18.11.2016 by the Corporate Debtor. The invocation notice dated 06.03.2023 demanded the repayment of outstanding loan amounts aggregating Rs. 94,71,23,119.18/-. The guarantees were invoked due to defaults committed by the principal borrower, Superfine Metals Pvt. Ltd., whose account was classified as a Non-Performing Asset (NPA) on 29.11.2020.

3. Alleged Novation of Contract:
The appellant argued that subsequent sanction letters dated 26.12.2019 and 09.09.2020, and the corporate guarantee dated 06.11.2020, resulted in the novation of the original contract. They contended that the original guarantees of 22.08.2015 and 18.11.2016 had come to an end and that without invoking the guarantee dated 06.11.2020, the Section 7 application was not maintainable. However, the Tribunal noted that the subsequent sanction letters clearly indicated that existing securities, including the earlier guarantees, would continue to cover the new facilities. Therefore, the invocation of the guarantees dated 22.08.2015 and 18.11.2016 was valid, and there was no novation of the contract.

4. Validity of Restructuring Proposal:
The appellant had submitted a restructuring proposal, which was under consideration. The Tribunal passed several interim orders to await the outcome of the restructuring proposal. However, despite multiple opportunities, the restructuring proposal could not be finalized. On 16.07.2024, it was informed that the lead bank was not in favor of restructuring the group, and the debt and default continued. Consequently, the Tribunal proceeded to address the submissions on merits.

Conclusion:
The Tribunal concluded that the invocation of the guarantees dated 22.08.2015 and 18.11.2016 was valid and that the guarantees were still binding on the Corporate Debtor. The argument of novation of the contract was rejected. It was also noted that the debt and default were not contested by the appellant. Hence, the order passed by the Adjudicating Authority admitting the Section 7 application was upheld, and the appeal was dismissed.