A security provider cannot be held liable for a principal borrower's debt unless explicitly stated in a guarantee. Under the IBC, financial debt requires a disbursal of funds, which was absent in this case.

Per: Bidisha Banerjee, Member (Judicial)

1. This Court congregated through a hybrid mode.

2. We have heard the Learned Counsels for both parties in full.

3. This petition has been preferred under Section 7 of the Insolvency and Bankruptcy Code, 2016 , for brevity “I&B Code” by Refine Alloys Private Limited hereinafter referred to as “Petitioner”/ “Financial Creditor seeking to initiate a Corporate Insolvency Resolution Process (for brevity “CIRP”) against Navdisha Real Estate Private Limited, hereinafter referred to as “Respondent”/ “Corporate Debtor” for an alleged default of Rs. 16,70,26,882/- alongwith interest of Rs. 4,70,26,882/- on 31.02.2020.

4. The Petitioner has averred as under:

4.1 The applicant is a Financial Creditor (FC in short) who had advanced an amount of Rs. 15.00 Crores to M/s Balasore Alloys Ltd the ’Principal Borrower’. The said loan was disbursed pursuant to a Loan Agreement executed on 25.11.2019 by the Financial Creditor Refine Alloys Private Limited the Principal Borrower Balasore Alloys Ltd., and the Corporate Debtor (CD in short) Navdisha Real Estate Private Limited as the ‘Security Provider who had agreed inter alia to mortgage its properties towards the security of the said Loan.

4.2 A Separate Deed of Mortgage was executed by and between the Financial Creditor Refine Alloys Private Limited and the respondent Navdisha Real Estate Private Limited the purported Corporate Debtor herein as the Mortgagor, on 25.11.2019 under which the Corporate Debtor Navdisha Real Estate Private Limited became liable to repay the debt in case of default by the Principal Borrower, Balasore Alloys Ltd.

4.3 The Principal Borrower defaulted after payment of Rs. 3.00 crore on 12.03.2021. The Principal Borrower also did not pay any interest on the said loan as agreed. In terms of the Deed of Mortgage, the Corporate Debtor Navdisha Real Estate Private Limited became liable to repay the dues of the Financial Creditor.

4.4 A Demand notice was issued to the Corporate Debtor on 30.09.2021 to repay the dues which fell due on the default of the Principal Borrower. In response to the said notice, the Corporate Debtor admitted its default to the Financial Creditor.

4.5 The Financial Creditor has already filed an application under section 7 of the Code before NCLT, Cuttack Bench against the Principal Borrower Balasore Alloys Ltd. being numbered as CP (IB) 33 of 2022 (Refine Alloy Pvt Ltd vs. Balasore Alloys Pvt ltd).

5. Submissions of the Ld. Counsel for the Financial Creditor:

At hearing Ld. Counsel Ms. Aparajita Rao would take us through the following to substantiate her contention:

5.1 The Loan agreement dated 5.11.2019 annexed to the petition entered between Refile Alloys Ltd. the Lender, Balasore Alloys Ltd. the Principal Borrower and Navdisha Real Estate Private Limited the Security Provider (or SP), as extracted hereunder to the extent relevant and germane to the lis; with supplied emphasis for clarify:

1. LOAN AGREEMENT

THIS LOAN AGREEMENT ("Agreement") is made on this 25^th day of November, 2019 at Kolkata BY AND BETWEEN REFINE ALLOY PRIVATE LIMITED, a company within the meaning of the Companies Act, 2013, having its office at Trishul Apartment, 35, Rowland Road, Ground Floor, Kolkata - 700 020, herein after referred to as the "Lender"

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AND

BALASORE ALLOYS LIMITED, a company within the meaning of the Companies Act, 2013 having its office at Park Plaza, 71 Park Street, Kolkata - 700 016, herein after referred to as the "Borrower"

AND

NAVDISHA REAL ESTATE PRIVATE LIMITED, a company within the meaning of the Companies Act, 2013 having its office at Park Plaza, 71 Park Street, Kolkata-700 016, hereinafter referred to as the "Security Provider” or “SP”

XXX

WHEREAS: