On an application filed by a foreign financial creditor, the NCLT Chennai has initiated insolvency process against an Indian guarantor.
The foreign financial creditor, Stanbic Bank Ghana Limited, approached the NCLT upon a default by the principal borrower based in Ghana, Rajumar Impex Ghana Limited. Stanbic Bank has initiated proceedings at a Ghana Court against the principal borrower and has simultaneously obtained a decree from an English Court against the guarantor, Rajkumar Impex Private Limited, which is a company based in India.
The proceedings at the English Court are a result of the deed of indemnity and guarantee executed between Stanbic Bank and the guarantor where English law was agreed as the governing law for the deed.
While the proceedings at the Ghana Court are pending and haven’t reached conclusion, an ex-parte order has been passed by the English court which is based on merits. By this order, a decree was passed establishing the liability of the guarantor requiring it to pay the principal amount plus interest.
The guarantor sought to challenge the proceedings before the NCLT mostly on procedural grounds: claiming that Stanbic is not a company under Indian Companies Act, 2013 and hence cannot trigger Insolvency & Bankruptcy Code, and that application was filed by agent in Ghana.
It also challenged the very validity of the guarantee by arguing that permission of RBI wasn’t obtained as is required prior to signing of guarantee, under the Foreign Exchange Management (Guarantees) Regulations, 2000.
The guarantor also tried arguing that English order was ex-parte and wasn’t conclusive or based on merits.
The Court, however, observed that the Clause 2.3 of the deed which created a liability on Rajkumar Impex (Pvt Ltd) not only as a guarantor but also a principal obligator and indemnifier. It further noted conduct of the guarantor at the English Court where neither did it appear before the court to defend its stance and nor did it appeal the so called ex-parte order. The bench thus estopped the guarantor from contending that the order has been passed without merits.
At the same time while realising its limitation in terms of enforcement of a foreign decree, the bench also said that there was no bar on acknowledging the decree of a foreign court since English courts are recognised under Section 13 and 44A of the Civil Procedure Code.
Accordingly, based on the decree passed by the English Court where the debt was established, the NCLT initiated insolvency resolution process against the Indian guarantor of a foreign borrower and lender.
Anirudh Krishnan of AK Law Chambers appeared for the Stanbic Bank whereas S.R. Rajagopal appeared for the Rajkumar Impex (Pvt Ltd), the guarantor.
(Image taken from here)
(Read the order)