29 May, 2018
On an application filed by a foreign financial creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the “Code”), the National Company Law Tribunal, Chennai (the “NCLT”) has admitted the petition and initiated corporate insolvency resolution process against an Indian guarantor, Rajkumar Impex Private Limited (the “guarantor”).
The foreign financial creditor, Stanbic Bank Ghana Limited (“Stanbic Bank”), approached the NCLT upon a default by Rajkumar Impex Ghana Limited (the “principal borrower”), based in Ghana. The foreign creditor had initiated proceedings at a Ghana Court against the principal borrower and had simultaneously obtained a decree from an English Court against the guarantor, which is a company based in India.
Stanbic Bank had entered into loan agreements with the principal borrower, a wholly owned subsidiary of the guarantor. The said loan agreements conferred exclusive jurisdiction upon the English Courts. Pursuant to the loan agreements, Stanbic Bank entered into an “on demand” deed of guarantee with the guarantor. The said deed of guarantee also provided for an indemnity issued by the guarantor in favour of Stanbic Bank. Though, the said deed conferred the exclusive jurisdiction upon the English Courts, it also provided Stanbic Bank a right to initiate legal proceedings against the guarantor in any other court of competent jurisdiction and further provided the right to Stanbic Bank to initiate legal proceedings simultaneously against the guarantor in competent jurisdictions. It is pertinent to note that the said guarantee was one of the security provided under the loan agreements.
Upon a default, Stanbic Bank initiated proceedings against the principal borrower in the Ghana Court and parallel proceedings against the guarantor in the English Court. While the proceedings before the Ghana Court are still pending, the English Court passed a reasoned ex-parte order against the guarantor establishing the liability of the guarantor requiring it to pay the principal amount plus interest. The said order is a proof of default by the guarantor. Basis, the said order, the present petition has been filed before the NCLT.
The guarantor objected to the present petition on the following grounds:
- The financial creditor not being an Indian company under the Companies Act, 2013 cannot invoke the provisions of the Code, and as such cannot initiate the insolvency proceedings against the guarantor;
- A constituted attorney/agent of the financial creditor is not entitled to verify the pleadings under the Code;
- Having failed to recover the outstanding amount from the principal borrower, the financial creditor cannot enforce the claim against the guarantor;
- The decree passed by the English Court is not conclusive and has not been passed on merits as provided under Section 13 of the Code of Civil Procedure, 1908;
- Under Foreign Exchange Management (Guarantee) Regulations, 2000 (the “FEMA Regulations”), permission is required by the Reserve Bank of India (the “RBI”) before execution of the guarantee. Since, no approval was sought by the RBI, the guarantee executed is not valid.
- Considering a civil proceeding against the principal borrower is pending before the Ghana Court, the present petition under the Code is not maintainable.
- The alleged liability of the principal borrower is secured by the fixed assets and the financial creditor has already invoked the provisions of the Ghana Lenders and Borrowers Act and taken possession of the principal borrower’s immovable properties;
Stanbic Bank in support of its petition submitted the following:
- The ex-parte decree is conclusive and has been passed on merits after appreciation of evidence on record;
- It is a settled law that the liability of the guarantor is co- extensive with that of the principal borrower;
- Creditor need not necessarily exhaust the liability against the principal borrower before legally proceeding against the guarantor;
- The guarantor’s right is protected by virtue of the right of subrogation;
- The guarantor is not only liable as a guarantor but as a principal obligator;
- The authorized representative as provided under the NCLT Rules include an authorized agent, as appointed by way of a power of attorney;
- FEMA Regulations 2000 is not applicable to the present case, as it is applicable if the principal borrower is an Indian;
After hearing the parties, the NCLT observed that the foreign ex- parte decree passed by the English Court is conclusive and has been passed on merits. Stanbic Bank has made out a prima facie case under the Code, and has proved that there is a debt due and payable by the principal borrower and that there is a decree drawn up against the guarantor. It further observed that although the NCLT does not have the jurisdiction to enforce the decree, it can certainly take cognizance of the said decree. It further rejected the objections raised by the guarantor. Accordingly, the NCLT admitted the petition, appointed interim resolution professional, ordered for commencement of corporate insolvency resolution process and declared the moratorium in accordance with the provisions of the Code.
For further information, please contact:
Vineet Aneja, Partner, Clasis Law
vineet.aneja@clasislaw.com
