2022 (10) TMI 1013 - Tri - Insolvency and Bankruptcy

Initiation of CIRP - corporate guarantor - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - Contract of guarantee - surety - whether letter of comfort allegedly issued by the respondent/corporate debtor amounts to contract of guarantee? - HELD THAT - The said letter of comfort which is undated without seal and authorization on behalf of the respondent-company cannot be termed as letter or contract of guarantee particularly in presence of the corporate guarantee on behalf of Strawberry Star India P. Ltd. as mentioned in the sanction letter dated 22.08.2017. In a contract of guarantee there are three different entities i.e. i) surety ii) principal debtor and iii) creditor . In the case in hand the said letter of comfort cannot be termed as letter of contract of guarantee because it is neither signed by the creditor nor by the borrower and to the contrary the sanction letter dated 22.08.2017 is signed by all the three i.e. creditor borrower and guarantor. More so there is no evidence placed on record to show that the said letter of comfort was signed in pursuance of any resolution passed by the Board of Directors of the respondent/corporate debtor. Thus it can be safely said that the said letter of comfort if any issued is not in conformity with the provisions of Section 179(3)(f) and Section 185 of the Companies Act 2013. The present respondent/corporate debtor taken from any angle cannot be termed as a corporate guarantor on the basis of alleged letter of comfort. Therefore the present petition is not maintainable against the respondent/corporate debtor and the same is dismissed on the ground of maintainability - Petition dismissed.

Summary

Issues Involved:
1. Whether the letter of comfort issued by the respondent/corporate debtor amounts to a contract of guarantee.
2. Whether the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable against the respondent/corporate debtor.

Detailed Analysis:

Issue 1: Whether the letter of comfort amounts to a contract of guarantee.

Contentions of the Petitioner:
- The petitioner argued that the letter of comfort issued by the respondent amounts to a guarantee, particularly since it was admitted in the respondent's reply that the letter was issued to introduce the borrower to the financial creditor.
- The petitioner cited the Supreme Court decision in Laxmi Pat Surana vs. Union Bank of India and the Delhi High Court decision in Lucent Technologies vs. ICICI Bank to support their argument that the letter of comfort created a contractual obligation.
- The petitioner emphasized that under Section 26 of the Indian Contract Act, 1872, a guarantee may be either oral or written, and thus the petition is maintainable based on the letter of comfort.

Contentions of the Respondent:
- The respondent contended that it never stood as a corporate guarantor and that the letter of comfort, signed by an individual, was undated and not supported by a Board resolution.
- The respondent argued that the letter of comfort does not conform to the definition of a financial debt under the Insolvency and Bankruptcy Code, 2016.
- The respondent highlighted that the letter of comfort was not stamped as required by the Indian Stamp Act, and thus cannot be tendered as evidence.
- The respondent also pointed out that no resolution was passed by the Board of Directors authorizing the issuance of the letter of comfort, violating Section 179(3)(f) and Section 185 of the Companies Act, 2013.

Tribunal's Findings:
- The Tribunal noted that the letter of comfort was undated, lacked the company's seal, and was not authorized by a Board resolution, thus failing to meet the requirements of a contract of guarantee.
- The Tribunal referenced Section 126 of the Indian Contract Act, which defines a contract of guarantee as involving three entities: surety, principal debtor, and creditor. The letter of comfort did not meet these criteria as it was not signed by the creditor or the borrower.
- The Tribunal concluded that the letter of comfort, in the absence of a corporate guarantee from Strawberry Star India Pvt. Ltd., does not constitute a contract of guarantee.

Issue 2: Whether the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable against the respondent/corporate debtor.

Contentions of the Petitioner:
- The petitioner argued that the letter of comfort created a contractual obligation, making the respondent liable as a corporate guarantor.
- The petitioner cited the Supreme Court decision in Laxmi Pat Surana, which held that petitions under Section 7 are maintainable against corporate guarantors.

Contentions of the Respondent:
- The respondent argued that the petition is not maintainable as the letter of comfort cannot be treated as a contract of guarantee.
- The respondent emphasized that the letter of comfort was not properly stamped and lacked authorization from the Board of Directors.

Tribunal's Findings:
- The Tribunal acknowledged that while petitions under Section 7 are maintainable against corporate guarantors, the letter of comfort in this case does not constitute a contract of guarantee.
- The Tribunal referenced a recent order by a Coordinate Bench, which held that a letter of comfort cannot be treated as a letter of guarantee.
- The Tribunal concluded that the petition is not maintainable against the respondent/corporate debtor based on the alleged letter of comfort.

Conclusion:
The Tribunal dismissed the petition on the ground of maintainability, concluding that the letter of comfort does not amount to a contract of guarantee and thus cannot be the basis for initiating insolvency proceedings against the respondent/corporate debtor. There was no order as to costs.