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ARTICLE · 27 FEBRUARY 2023

A Shortfall Undertaking Has Been Recognised As A Financial Debt Under IBC

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In the case of IL&FS Infrastructure Debt Fund v. McLeod Russel India Limited, the Kolkata bench of the National Company Law Tribunal held that in order to determine whether a shortfall undertaking will qualify as an instrument of guarantee ...

IndiaInsolvency/Bankruptcy/Re-Structuring
Aashit Shah
Aashit Shah
Malika Tiwari
Malika Tiwari
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In the case of IL&FS Infrastructure Debt Fund v. McLeod Russel India Limited,1 the Kolkata bench of the National Company Law Tribunal ("NCLT") held that in order to determine whether a shortfall undertaking will qualify as an instrument of guarantee as defined under Section 126 of the Indian Contract Act, 1872 ("Contract Act"), one has to look into the intention of the parties as reflected in the terms of such undertaking. Further, the NCLT observed that a guarantee given in respect of a financial debt will qualify to be a financial debt under Section 5(8)(i) of the Insolvency and Bankruptcy Code, 2016 ("IBC").

Brief Facts

  1. IL&FS Infrastructure Debt Fund ("Financial Creditor") subscribed to the non-convertible debentures ("Debentures") issued by Babcock Borsig Limited and Williamson Magor & Company Limited ("Borrowers") for an amount of INR 1,50,00,00,000 (Indian Rupees one hundred fifty crore) and INR 99,5,00,000 (Indian Rupees ninety nine crore five

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