Uninvoked Guarantee Constitutes a 'Claim'; Resolution Professional Cannot Unilaterally Reject an Admitted Claim: NCLT Mumbai - 2025-09-21

NCLT Mumbai Rules Claim on Uninvoked Guarantee Admissible, Curbs Resolution Professional's Power to Reverse Decisions

Mumbai: In a significant ruling, the National Company Law Tribunal (NCLT), Mumbai Bench, has held that a claim arising from an uninvoked corporate guarantee is admissible in an insolvency process. The tribunal also clarified that a Resolution Professional (RP) lacks the authority to unilaterally review and reject a claim after having admitted it, emphasizing that the RP's role is administrative, not adjudicatory.

The bench, comprising Sh. Hariharan Neelakanta Iyer (Member, Technical) and Ms. Lakshmi Gurung (Member, Judicial) , set aside the Resolution Professional's decision to reject a claim of nearly ₹210 crores filed by L & T Finance Limited (L&T) in the insolvency proceedings of Rajesh Estates and Nirman Private Limited.

Background of the Case

The dispute arose after Rajesh Estates and Nirman Private Limited ("Corporate Debtor") entered the Corporate Insolvency Resolution Process (CIRP) on March 24, 2023. L&T Finance had extended a loan of ₹212 crores to a third party, M/s Odeon Constructions, for which the Corporate Debtor had provided a corporate guarantee.

Following the initiation of CIRP, L&T filed its claim of ₹209.96 crore as a financial creditor based on this guarantee. The Resolution Professional (RP), Mr. Divyesh Desai, initially admitted the claim on April 23, 2024. However, just three days later, on April 26, 2024, the RP reversed his decision and rejected the claim, citing that the corporate guarantee had not been invoked before the commencement of insolvency.

Aggrieved by this reversal, L&T approached the NCLT.

Key Arguments Presented

L & T Finance Limited (Applicant):

- RP's Lack of Authority: L&T's counsel, Adv. Shyam Kapadia, argued that once a claim is admitted, an RP cannot review or reject it. Such an act amounts to adjudication, which is beyond the RP's powers under the Insolvency and Bankruptcy Code (IBC).

- Admissibility of Uninvoked Guarantee: The applicant contended that a "claim" under the IBC includes contingent liabilities. Relying on the recent Supreme Court judgment in China Development Bank vs. Doha Bank Q.P.S.C. , they argued that invocation of a guarantee is not a prerequisite for its admission as a claim in the CIRP.

Resolution Professional (Respondent):

- Legal Precedent: The RP, represented by Mr. Pulkit Sharma, justified the rejection by relying on the Supreme Court's three-judge bench decision in Ghanashyam Mishra and Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company , which was interpreted to mean that uninvoked guarantees are not matured claims. It was argued that this larger bench ruling should prevail over the two-judge bench decision in China Development Bank .

- Power to Correct Errors: The RP asserted that he has the authority to revise a decision if it is found to be contrary to law, arguing that retaining a legally untenable claim would be improper.

NCLT's Analysis and Findings

The Tribunal framed two primary issues for consideration: 1. Whether the RP can re-verify and reject an already admitted claim. 2. Whether a claim arising from an uninvoked guarantee is admissible.

On the Powers of the Resolution Professional: The NCLT decisively ruled against the RP's actions, stating his role is administrative and not adjudicatory. The bench observed:

"Once IRP had admitted the claims of the creditor, he could not have subsequently rejected it suo-moto in the garb of revision/ re-verification of the claims. This would amount to adjudication of the claims of the creditors which RP is not entitled to do."

Citing precedents from the National Company Law Appellate Tribunal (NCLAT), the NCLT concluded that the RP overstepped his authority and the rejection email was liable to be quashed on this ground alone.

On the Admissibility of an Uninvoked Guarantee: The tribunal undertook a detailed analysis of the conflicting Supreme Court judgments. It found that the Ghanashyam Mishra case did not lay down a binding legal principle on the non-admissibility of uninvoked guarantees, as the apex court's decision rested on the specific facts and conduct of the claimant in that case.

In contrast, the tribunal found the Supreme Court's ruling in China Development Bank to be comprehensive and directly on point. It highlighted the apex court's observation:

"...whether the cause of action for invoking the guarantee has arisen or not is not relevant for considering the definition of ‘claim’."

The NCLT also noted that the NCLAT, in a subsequent case, had followed the China Development Bank precedent. Harmonizing the judgments, the tribunal held that the ruling in China Development Bank was applicable.

Final Decision and Implications

The NCLT allowed L&T's application, setting aside the RP's rejection of the claim. It directed the RP to verify the claim in accordance with the law. The tribunal clarified, however, that the admission of the claim would be subject to the outcome of a pending application concerning preferential transactions related to the Corporate Debtor.

This judgment provides crucial clarity on two fronts: it reinforces the limited, non-adjudicatory role of Resolution Professionals in claim verification and solidifies the legal position that uninvoked guarantees represent a valid "claim" under the IBC, ensuring that such contingent creditors can participate in the insolvency resolution process.