NCLAT upholds order of liquidation against the guarantor

NCLAT upholds order of liquidation against the guarantor

The finance company had issued notices to the borrower and the backer on default of payment

The principal bench of the National Company Law Appellate Tribunal (NCLAT) recently held that the guarantor was obligated to pay the dues of the corporate debtor in case of default of payment. It upheld the order of liquidation passed by the Committee of Creditors (CoC) in favor of the financial creditor.

Infrastructure Leasing & Financial Services (the financial creditor) and the principal borrower had entered an agreement by which the financial facility of a rupee term loan of Rs.30 crores was extended to the borrower. A Letter of Guarantee was issued by the corporate debtor, Sadguru Krupa CHS Limited, guaranteeing repayment of the loan in pursuance of the agreement.

On default of payment, the financial creditor issued a demand notice asking the borrower for an overdue payment with reference to the term loan. Notices were issued both to the principal borrower as well as the personal guarantor and the pledgers.

In the absence of an interim order staying the Corporate Insolvency Resolution Process (CIRP), the CoC passed a resolution for the liquidation of the corporate debtor, G.C. Property Private Limited.

The appellants challenged the order of insolvency passed by the adjudicating authority consequent to the resolution and application under the Insolvency and Bankruptcy Code, 2016.

The major contention raised by the appellants was that the guarantor against whom the CIRP was passed could not be liquidated.

The Coram of Justice Ashok Bhushan (chairperson), Justice M Satyanarayana Murty (judicial member), and Barun Mitra (technical member) dismissed the appeal stating it was bereft of any merit.

The bench observed that no infirmity could be found in the resolution of liquidation passed by the CoC for liquidating the corporate debtor.