Export-Import Bank of India Vs CHL Limited (Company Appeal (AT) (Insolvency) No. 51 of 2018) - Synopsis
Team SoOLEGAL 9 Nov 2020

In the case of Export-Import Bank of India Vs CHL Limited (Company Appeal (AT) (Insolvency) No. 51 of 2018) an appeal against the order of the National Company Law Tribunal, which dismissed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was rejected by the National Company Law Appellate Tribunal.
The main issue in this particular case was that, whether an appeal may be accepted against a guarantor under Section 7 of the Insolvency and Bankruptcy Law, 2016 (IBC) where the loan arrangements performed by the principal creditor have been suspended awaiting court consideration.
The appellant filed an appeal against CHL Limited, the guarantor, under Section 7 of the IBC on the ground that the Respondent had failed to meet its duty under the Deed of Guarantee. In the present case, the Adjudicating Authority held that the Guarantor's responsibility was not consistent with that of the Principal Burrower, as Clause 4 of the Deed of Guarantee executed between the Appellant and the Respondent was contrary to the general law provided for in Section 128 of the Indian Contract Act, 1872. It was duly noted that the Economic Court in Dushanbe, Tajikistan, revoked the loan and mortgage arrangements between the Appellant and CJSC CHL International (Principal Borrower) pending further reconciliation, which had not taken place despite the appellant's representation by the Principal Borrower.
The NCLAT ruled that after the Economic Court in Dushanbe revoked the loan deal between the Principal Borrower and the Appellant, the Principal Borrower could not have 'default' and there is no debt due and payable by the Principal Borrower. It was held that the Guarantor's responsibility existed only when the Principal Creditor refused to refund the request made by the Lender and, accordingly, the Appellant had submitted an application pursuant to Section 7 of the IBC at an early point. Furthermore, the NCLAT acknowledged that since the IBC prosecutions are permanent and lead to extraordinary and severe effects, this appeal will be counterproductive to the Respondent or Guarantor's operating company. The appeal was rejected on those grounds by NCLAT.

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