NCLAT Dismisses Financial Creditor Claim Due to Invalid Guarantee
The National Company Law Appellate Tribunal (NCLAT) has dismissed a financial creditor claim, stating that a valid and binding corporate guarantee was not executed by the corporate debtor.
NclatFinancial CreditorCorporate GuaranteeInsolvencyReal EstateReal EstateJul 15, 2025
In this case, the appeal was filed by Moneywise Financial Services Private Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016, at the National Company Law Tribunal, New Delhi Bench.
The appellant, Moneywise Financial Services Private Limited, is the Financial Creditor of the Corporate Debtor, M/s Dream Procon Pvt. Ltd. The appellant granted a loan of Rs. 5 crores to Dream Procon Pvt. Ltd. for the construction of a real estate project. Additionally, Indirapuram Habitat Centre Pvt. Ltd. (IHCPL), a group concern of the corporate debtor, received a Rs. 10 crore loan from the appellant for the construction of a commercial project in Ghaziabad.
The Corporate Debtor agreed to be held accountable for IHCPL's debt obligations by signing a corporate guarantee in favor of the Appellant. A Joint Declaration and Undertaking, signed by the Corporate Debtor and IHCPL, further formalized the guarantee by attesting to cross-collateralization and cross-guarantee agreements. Based on the corporate guarantee signed by the Corporate Debtor, the appellant filed a claim in Dream Procon Pvt. Ltd.'s Corporate Insolvency Resolution Process (CIRP) after IHCPL defaulted and a CIRP was initiated against it.
The Resolutional Professional rejected the Appellant’s claim, noting that the debt was not disbursed to the Corporate Debtor and hence did not qualify as “financial debt” under Section 5(8) of the IBC. There were three main issues before the bench, one of which was whether a valid and enforceable corporate guarantee had been executed by the corporate debtor and, if so, whether it had been invoked.
The tribunal noted that under Section 5(8)(i) of the Code, a financial debt includes “any liability in respect of a guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h).” The appellant claims the guarantee originated from a Master Loan Agreement (MLA) signed on 22.04.2016 between Moneywise Financial Services Pvt. Ltd. and Indirapuram, the borrower entity, and IHCPL and Dream Procon Pvt. Ltd., the corporate debtor. The Appellant cited Clause 28 of the MLA as evidence that Dream Procon provided a corporate guarantee to repay the Rs. 10 crore financing to IHCPL. The appellant argues that this clause, along with the MLA and the Joint Declaration dated 27.12.2017, constitutes a valid and enforceable guarantee contract, despite the lack of a standalone guarantee deed.
The appellant also relied on Section 128 of the Contract Act, 1872, to argue that the liability of the guarantor is co-extensive with that of the principal debtor and can be enforced without a requirement of direct disbursal to the guarantor.
The tribunal noted that the appellant failed to establish a valid and enforceable guarantee. The bench observed that Clause 28 of the MLA appeared to be an assurance by the corporate debtor to return the facilities given to IHCPL. However, it is part of a larger loan agreement that primarily records the loan extended to IHCPL. It also allows for invoking the guarantee. Clause 28's alleged assurance was never invoked. Dream Procon Pvt. Ltd.'s Board of Directors has not authorised or passed a corporate resolution to back up their pledge to guarantee, and the lack of such authorisation is fatal.
The tribunal held that a legally binding, valid guarantee had not been executed by the respondent, due to which the appellant did not qualify as a financial creditor of the corporate debtor on the strength of the alleged guarantee. The NCLAT, comprising Justice Rajesh Kumar Jain (Judicial Member), Naresh Salecha (Technical Member), and Indevar Pandey (Technical Member), dismissed the appeal.
Frequently Asked Questions
What is the National Company Law Appellate Tribunal (NCLAT)?
The National Company Law Appellate Tribunal (NCLAT) is a statutory body established under the Companies Act, 2013, to hear appeals against the orders of the National Company Law Tribunal (NCLT) and other specified authorities.
What is a corporate guarantee?
A corporate guarantee is a legal agreement in which one company agrees to be responsible for the debts or obligations of another company. It is often used to secure loans or other financial transactions.
What is the Insolvency and Bankruptcy Code (IBC)?
The Insolvency and Bankruptcy Code (IBC) is a law in India that provides a time-bound process for resolving insolvency and bankruptcy cases. It aims to protect the interests of creditors and promote entrepreneurship by ensuring a fair and efficient resolution process.
What is a Master Loan Agreement (MLA)?
A Master Loan Agreement (MLA) is a comprehensive legal document that outlines the terms and conditions of a loan between a lender and a borrower. It typically includes provisions for the amount of the loan, interest rates, repayment terms, and any guarantees or collateral.
What is the Corporate Insolvency Resolution Process (CIRP)?
The Corporate Insolvency Resolution Process (CIRP) is a procedure under the IBC to resolve the insolvency of a corporate debtor. It involves the appointment of a resolution professional to manage the debtor's affairs and find a viable resolution plan within a specified time frame.
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