Corporate Debtor Cannot Deny Liability as Co-Borrower and Corporate Guarantor When Evidenced by Loan Agreements, Financial Records, and Prior Admissions

NCLAT held that the Corporate Debtor cannot deny its liability as a co-borrower and corporate guarantor when such obligations are evidenced by loan agreements, financial records, and prior admissions.

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey, reviewed an appeal and connected IAs, holding that a Corporate Debtor that has expressly acknowledged its status as a co-borrower and corporate guarantor in loan agreements, financial records, and judicial proceedings cannot later dispute its liability to evade insolvency proceedings under Section 7 of the IBC. The Tribunal emphasized that when documentary evidence—such as sanction letters, mortgage deeds, and board resolutions—substantiates its obligations, inconsistent pleas regarding financial liability, especially when contradicted by prior admissions before the Supreme Court and official bank records, cannot form a valid ground to challenge the maintainability of insolvency proceedings.

The National Company Law Appellate Tribunal (NCLAT) adjudicated upon an appeal filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, by Amrit Rajani, erstwhile Director of Shri Balaji Entertainment Private Ltd., challenging the admission of an application under Section 7 of the Code. The financial creditor, M/s Pegasus Assets Reconstruction Private Limited, had initiated proceedings against the Corporate Debtor for an alleged default of ₹35,90,56,629/-. The Appellant contended that the Corporate Debtor was neither a borrower, co-borrower, nor a corporate guarantor for the principal borrower, Universal Textile Waterproof Co. India (UTWC), and that no legally enforceable financial debt existed. It was argued that the assignment of debt in favor of the financial creditor did not encompass any liability of the Corporate Debtor and that the financial arrangements were in contravention of RBI guidelines. Furthermore, the Appellant raised concerns regarding the authenticity of the documents relied upon by the financial creditor, alleging forgery and lack of due execution.

The financial creditor countered that the Corporate Debtor was both a co-borrower and a corporate guarantor under the loan agreement, highlighting that the default on repayment occurred on 01.06.2019, leading to the account’s classification as a Non-Performing Asset (NPA) on 02.12.2019. The Tribunal, upon reviewing the first sanction letter issued by SVC Bank on 18.06.2011, found explicit references to the Corporate Debtor’s role as a co-borrower and corporate guarantor. A second sanction letter dated 19.07.2018, addressed directly to the Corporate Debtor, reaffirmed this position, which was further corroborated by the execution of a mortgage deed. Additionally, the Tribunal noted that the Corporate Debtor, in a writ petition before the Supreme Court, had acknowledged its role as a co-borrower, thereby precluding any contrary stance in the present proceedings.

The Appellant’s argument regarding the non-membership of the Corporate Debtor in SVC Bank was also rejected, as ledger copies submitted by the financial creditor evidenced the holding of 100 shares and receipt of dividends. The Tribunal also relied on board resolutions and financial records, reinforcing the Corporate Debtor’s obligations under the loan agreement. Regarding the invocation of the corporate guarantee, the Tribunal observed that the financial creditor had issued a demand notice under the SARFAESI Act, 2002, explicitly seeking payment from the Corporate Debtor. The contention that the guarantee was not properly invoked was found to be without merit.

Addressing allegations of forgery and manipulation, the Tribunal noted that the Appellant failed to present any substantive proof. Documents submitted by the financial creditor and SVC Bank consistently established the Corporate Debtor’s liability. The Tribunal also permitted the introduction of additional documents under Rule 11 of the NCLAT Rules, 2016, as they were deemed relevant to determining the legitimacy of the Section 7 application. After a thorough analysis, the Tribunal upheld the findings of the Adjudicating Authority, dismissing the appeal and closing all pending interlocutory applications.

Mr. Umang Mehta and Mr. Harsh Jain, Advocates, represented the Appellant.

Mr. Dinkar Singh and Mr. Rohit Singh, Advocates, appeared for the Respondents.

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