# In the matter of Ferro Alloys Corporation Limited C. P. (I.B) No. 251-KB-2017

> NCLT judgment dated 2017-07-06. Citation: TCN-2017-NCLT-00760. Rural Electrification Corporation Limited (RECL) filed a Company Petition under Section 7 of…

- **Court:** NCLT
- **Order date:** 6 Jul 2017
- **Citation:** TCN-2017-NCLT-00760
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/nclt-chandigarh/ferro-alloys-corporation-limited-c-p-ib-no-251-kb-2017-6f75aad5

## Summary

### Background

Rural Electrification Corporation Limited (RECL) filed a Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, against Ferro Alloys Corporation Limited (FACOR) to initiate Corporate Insolvency Resolution Process (CIRP). RECL, a financial creditor, had sanctioned loans to FACOR Power Limited, for which FACOR provided a corporate guarantee. FACOR Power Limited defaulted on repayments, leading to its account being classified as a Non-Performing Asset (NPA). RECL invoked the corporate guarantee and initiated proceedings under the IBC against FACOR.

## Facts

Rural Electrification Corporation Limited (RECL) sanctioned loans aggregating Rs. 517.90 crores to FACOR Power Limited. Ferro Alloys Corporation Limited (FACOR) provided a corporate guarantee for the loan. FACOR Power Limited defaulted on repayments, and its account was classified as a Non-Performing Asset (NPA). RECL recalled the loan facility on October 1, 2015, and demanded the entire amount due. FACOR Power Limited admitted its liability to the extent of Rs. 604,99,91,539 as on March 31, 2016. FACOR pledged 19,80,59,930 shares of FACOR Power Limited in favor of RECL. RECL invoked the corporate guarantee of FACOR and demanded payment of Rs. 564,63,50,544 as on September 30, 2015, along with future interest. FACOR failed to pay the amount. RECL initiated proceedings

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## Issues and analysis

### Issue 1: Whether the petition filed by the Financial Creditor under Section 7 of the Insolvency and …

**Ratio:** The liability of the guarantor is co-extensive with that of the principal debtor, unless

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**Reasoning:** The court relied on the Supreme Court's judgments in Industrial Investment Bank of India

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**Interpretation:** Section 7 of the IBC allows a financial creditor to initiate CIRP against a

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**Application:** The court found that FACOR had provided a corporate guarantee for the loan

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## Parties

- **Judges:** V. P. S…
- **Appellants:** Rural Electrificat…
- **Respondents:** Ferro Alloys…; Ferror A…

## Timeline

- **2009-05-22 — Loan Agreeme…**: Loan Agreement dated 22nd May, 2009 (Rs.140…
- **2009-08-24 — Corporate Guarantee…**: Corporate Guarantee agreement was signed and executed guarantee documents in favour of…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 14 — Moratorium](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-14)

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