Legal Eagle     

Published: June 15, 2023
Updated: June 15, 2023

No clarity on Corporate Guarantees

However, under GST as per Section 7 (1) (c) specified in Schedule I – “made or agreed to be made without consideration” are considered within the scope of supply. This includes the supply of goods or services or both between the related or distinct persons specified, when made in the furtherance of business. Also, there is Circular No. 154/10/2021 - GST dated 17.6.21, which clarifies that the services related to the guaranteeing of loans by the Central or state governments for undertakings or PSUs from banking companies and financial institutions are exempt as per Notification No. 12/2017 (rate) dated 28.6.2017. This may mean that the other entities attract GST.

Therefore, in my view, there is still no clarity and a clarification is needed for the complexities surrounding Corporate Guarantees.

CIRP limits in debt case

Ravikant Dubey, New Delhi: Can CIRP (Corporate Insovency Resolution Process) be initiated/triggered solely on the basis of the amount of interest when the entire principal amount of debt has been discharged by the Corporate Debtor?

SS: In a recent case in the NCLT at New Delhi, in the case of Rashtriya Polymers and Solvents vs Kanodia Technoplast Limited, an order was passed on July 12, 2023 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).

IBC -- Interest amount: A Section 9 application was filed by Rashtriya Polymers against the corporate debtor for default of payment, which included the principal amount and the interest amount against invoices raised from time to time to the Corporate Debtor, which were also duly accepted by the Corporate Debtor. In this matter, pending the application filed under Section 9 of the IBC, the Corporate Debtor paid the entire principal amount to the applicant.

The NCLT states that when by the date of admission, the operational debt which does not include interest stands discharged and the interest alone remains, the claim amount does not qualify for an operational debt, for the default of which alone CIRP can be ordered. It is further stated that when the principal amount is paid, the operational debt ceases to be in existence and consequently the Section 9 application becomes invalid.

There are various rulings passed on a similar subject, that declaring the Corporate Debtor as insolvent by ordering CIRP only because of the default in paying interest claimed for the period mentioned, which was accounted by the Applicant in its ledger by issuing debit notes, would be against the letter and spirit of the IBC.

Therefore, the applicants can certainly be permitted to claim interest by moving the appropriate forum.

Advocate Shilpa Sharma is a founder of Counsel & Council, a boutique collaboration law firm, a unique concept in India.

Shilpa has spent several years in managing corporate legal affairs with a large business group in India as corporate legal head, in addition to being in a partner position in various law firms, including the Big 4, and an independent practitioner.

During her career, she has handled nonlitigation including advisory, negotiations, compliance, etc as well as litigation matters for more than 200 companies comprising manufacturing as well as service industries.

She holds strong credentials in conducting an entire range of civil, criminal, indirect tax and IPR matters with a remarkable rate of success in securing the prayed-for relief.

Shilpa has won many awards during her career, including Forbes and CCAI. She has been a speaker at various forums.