Reliance Capital Insolvency: Dispute On Axis Bank's Status
Axis Bank Ltd. has approached the insolvency court against the decision of Reliance Capital Ltd.'s administrator of excluding the bank's claim as financial debt.
Anil Ambani-owned Reliance Capital was admitted to insolvency in December last year after the Reserve Bank of India superseded the board of directors of the company. The regulator had appointed Nageshwara Rao as the administrator, who in January this year, had rejected Axis Bank's claim as a financial creditor.
According to the bank, Reliance Capital had given an “obligor undertaking” for the repayment of commercial papers worth Rs 124 crore issued by Reliance Housing Finance Ltd. An obligor undertaking is a contractual promise to repay the obligation if the borrower fails to meet it.
The undertaking had specified that Reliance Capital will repay Axis Bank from the proceeds of sale of its stake in Reliance Nippon Life Management Shares Ltd. Reliance Capital failed to do so despite the sale of underlying assets back in September 2019.
Counsel for the administrator argued that an 'obligor undertaking' cannot be equated to a contract of guarantee. This is because the contract law requires an 'intention to pay on part of the guarantor' to constitute a contract of guarantee. The obligation, according to the administrator, fails to meet the definition of corporate guarantor as provided under the Insolvency and Bankruptcy Code, which defines ‘guarantor' as surety in a contract of guarantee. There is no absolute obligation to pay the complete claim amounting to Rs 124 crore. The company is liable to pay only the proceeds of the sale, the counsel for the administrator said.
Representing Axis Bank, Senior Advocate Vikram Nankani responded to this saying the difference between an 'obligor undertaking' and 'contract of guarantee' is a mere matter of semantics and does not differ in implication.
Contract Act doesn't prescribe a particular format for the contract of guarantee and therefore 'obligor undertaking' can be construed as one.Vikram Nankani, Counsel for Axis Bank
On Friday, the Mumbai bench of the National Company law Tribunal extended the deadline for Reliance Capital's insolvency to November 1. The tribunal allowed for it on account of time spent in litigation of Credit Suisse's claim. The insolvency process, as per the timelines under IBC, was due to end on Sept. 2.
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