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J.C. Flowers Asset Reconstruction Pvt. Ltd. Vs. Deserve Exim Private Limited - (NATIONAL COMPANY LAW APPELLATE TRIBUNAL) (03 May 2023)

Dismissal of application filed under Section 7, for default committed during the period prescribed under Section 10A, justifiable



Present Appeal has been filed against order by which order the Adjudicating Authority has rejected the Section 7 application filed by the Financial Creditor on the ground that application is barred by Section 10A of Insolvency and Bankruptcy Code, 2016 (IBC). The Appellant challenging the order contends that, the Adjudicating Authority has not adverted to the terms and conditions of the Guarantee Deed before coming to the conclusion that application is barred by Section 10A of IBC.

The question as to when the default on part of the Guarantor is to considered has been decided by this Tribunal in a recent judgment in Pooja Ramesh Singh vs. State Bank of India", where it has been held that, default on the part of the Corporate Guarantor shall be held to have been committed only when guarantee was invoked, when Deed of Guarantee itself mentions issue of demand notice by the Bank.

Clauses in the deed of guarantee contemplate a demand by the Bank. The Guarantee Deed contemplates demand by the bank, hence, unless demand is made by the bank to the Corporate Debtor, no default can be said to have been committed by the Corporate Guarantor and in the present case, demands for payment were invoked in the period covered under Section 10A of IBC.

The date of default by the Guarantor shall arise only when demand is issued by the Bank to the Corporate Guarantor. The fact that the Corporate Guarantor has given indemnity to the Bank also shall operate only after default is committed by the Guarantor. Indemnity can be enforced against the Corporate Guarantor but it cannot itself change the date of default on part of the Guarantor. When the invocation of the bank guarantee is admittedly within the period of Section 10A, the Application which is based on invocation of guarantee is clearly barred by Section 10A.

When application filed under Section 7 was based only on the default which was committed during the period prescribed by Section 10A of Act, the Adjudicating Authority did not commit any error in not entertaining the application. There is no good ground to entertain this Appeal. The issues in present Appeal are fully covered by judgment of this Tribunal in "Pooja Ramesh Singh vs. State Bank of India". Appeal dismissed.


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