Uninvoked Guarantees Are Not Admissible Claims Under CIRP: NCLAT Affirms Strict Cut-Off for Debt Maturity

NCLAT held that uninvoked corporate guarantees cannot form the basis of an admissible claim under the CIRP, affirming that only debts matured as on the insolvency commencement date are eligible for admission.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, held that a corporate guarantee not invoked prior to the commencement of the Corporate Insolvency Resolution Process (CIRP) does not give rise to a matured or enforceable debt and, therefore, cannot form the basis of an admissible claim under the Insolvency and Bankruptcy Code (IBC). Only claims that exist as of the insolvency commencement date are eligible for consideration within the CIRP framework.

The National Company Law Appellate Tribunal (NCLAT) adjudicated an appeal filed by the erstwhile Resolution Professional of Gangakhed Sugar & Energy Ltd., challenging the order passed by the National Company Law Tribunal (NCLT), Mumbai Bench, dated 17.02.2023 in IA No. 886 of 2022. The NCLT had allowed the application filed by Sustainable Agro-Commercial Finance Ltd., directing the Resolution Professional to accept and verify the respondent's belated claim under the Corporate Insolvency Resolution Process (CIRP). The dispute revolved around a corporate guarantee executed by the Corporate Debtor in 2014 for loans advanced to farmers, which was only invoked on 18.09.2020, nearly a year after CIRP commenced on 10.10.2019, and long after the claim submission deadline of 26.10.2019.

The Appellant argued that permitting a claim based on a guarantee invoked after the CIRP commencement date was contrary to Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), which imposes a moratorium on proceedings. It was also contended that the claim, being neither timely nor filed in the prescribed form, lacked legitimacy. The Respondent, however, maintained that procedural lapses should not defeat a genuine financial claim and further contended that the Resolution Professional had no adjudicatory authority to reject it. The NCLT, agreeing with this submission, held that invoking a guarantee did not amount to a legal proceeding and allowed the claim to be included.

Upon appeal, the NCLAT examined the question of whether a claim arising from a guarantee not invoked prior to the commencement of CIRP could be treated as a valid claim under the Code. It placed reliance on the Supreme Court’s judgment in Ghanashyam Mishra and Sons private Limited Through the Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director and Others, REEDLAW 2021 SC 04534 and its own decision in IDBI Trusteeship Services Ltd. v. Abhinav Mukherji, which clarified that only matured and enforceable debts as of the insolvency commencement date can be admitted into the CIRP. As the guarantee in question was invoked only after CIRP had commenced, the NCLAT held that no claim in respect of it could be admitted.

The Tribunal observed that the Adjudicating Authority had failed to consider the crucial fact that the corporate guarantee was not invoked until after the CIRP began, rendering the debt uncrystallised at the relevant time. It also found no merit in the argument that the letter dated 23.10.2020, sent by the Respondent prior to formal claim submission, could be construed as a valid or enforceable claim.

Accordingly, the NCLAT allowed the appeal, set aside the impugned NCLT order dated 17.02.2023, and dismissed IA No. 886 of 2022. The Appellate Tribunal reaffirmed that claims arising from guarantees invoked post-CIRP initiation are not maintainable under the IBC framework. Each party was directed to bear its own costs.

Mr. Shubhangda Singh and Mr. Anshuj Dhingra, Advocates, represented the Appellant.

Mr. Murtaza Najmi, Mr. Vinod Sharma, Ms. Aqsa Tajuddin and Mr. Vinod Sharma, Advocates, appeared for the Respondent.

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