2019 (3) TMI 193 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - default in repayment of the loan - existence of default in terms of the guarantee agreements executed by the corporate debtor - HELD THAT - By considering the demand made by the Applicant as per demand letter dated 13.12.2017 issued by the Applicant Bank requesting the corporate debtor to make payment of the amount mentioned in the notice in terms of the guarantee executed by the corporate debtor company; that the obligations to be discharged by the corporate debtor shall continue in full force and would be valid only till the happening of the events mentioned in Clause 24 of the guarantee agreement dated 28.03.2015; that the promoter borrowers discharged its obligations to be performed as per the terms of the guarantee agreements dated 19.12.2012 and 28.03.2015, that there is no further obligations to be performed by the corporate guarantor/corporate debtor. Non-acceptance of infusion of fund as per the terms of guarantee agreement by the Applicant is not legal or proper. So the Applicant has failed in proving existence of default in terms of the guarantee agreements executed by the corporate debtor. Corporate Debtor discharged the obligation as per the terms of the Guarantee and therefore there is no debt due as claimed by the Financial Creditor from the Corporate Debtor. The Applicant being failed in proving existence of a default in terms of the guarantee agreements, this application is liable to be rejected.

Summary

Issues Involved:
1. Whether the corporate debtor committed default in making the payment of the amount mentioned in the demand notice in terms of the guarantee executed by the corporate debtor?
2. Whether the debt to be repaid/obligation to be performed as per the terms of the guarantee executed by the corporate debtor has been discharged as alleged by the Corporate Debtor?

Detailed Analysis:

Issue 1: Default in Payment by Corporate Debtor
The Financial Creditor, State Bank of India, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Visa Infrastructure Limited, which stood as a corporate guarantor for the loans and credit facilities provided to Visa Steel Limited (VSL). The Financial Creditor claimed that the Corporate Debtor defaulted in repaying the principal amount and interest, amounting to ?982,82,01,341.70. The Corporate Debtor argued that the application was not maintainable, incomplete, and defective, asserting that there was no debt or default and that it was a conditional guarantor discharged from liability prior to the demand notice dated 13/12/2017. The Corporate Debtor also contended that the application suffered from suppression of material facts and that the proposed Interim Resolution Professional was not independent.

Issue 2: Discharge of Debt/Obligation
The Corporate Debtor argued that its obligation under the guarantee was conditional upon the promoters of VSL bringing in additional equity of ?125 Crores over and above ?325 Crores, as stipulated in the Corporate Debt Restructuring (CDR) package. The Corporate Debtor claimed that this condition had been fulfilled through the merger of Visa Bao Limited with Visa Steel Limited, resulting in the infusion of assets valued at over ?125 Crores. The Financial Creditor, however, did not accept this form of infusion, insisting that the additional equity should have been in the form of cash. The Tribunal examined the terms of the Master Restructuring Agreement, the Guarantee Agreement, and the revival letter dated 29/10/2015, which allowed the additional equity to be brought in various forms, including through mergers. The Tribunal found that the Corporate Debtor had fulfilled its obligation as per the terms of the guarantee agreements.

Conclusion:
The Tribunal concluded that the Corporate Debtor had discharged its obligation under the guarantee agreements by fulfilling the conditions stipulated in the CDR package. The Financial Creditor's refusal to accept the infusion of equity through the merger was found to be contrary to the terms of the guarantee. Consequently, the Tribunal held that there was no debt due from the Corporate Debtor and no default in terms of the guarantee agreements. The application filed by the Financial Creditor was rejected without any order of cost.