Embassy Developments sent to insolvency by NCLT; firm challenges order

The NCLT, in its order earlier this week, admitted Canara Bank's plea to initiate insolvency proceedings against Embassy Developments Ltd

The National Company Law Tribunal (NCLT) has admitted Canara Bank’s plea to initiate insolvency proceedings against Embassy Developments Ltd, ruling that the company remains liable as corporate guarantor for loans issued to Sinnar Thermal Power Ltd.

 

In a statement on Thursday, Embassy Developments said it has challenged the order before the National Company Law Appellate Tribunal (NCLAT).

 

The tribunal, in its order on Tuesday, appointed an interim resolution professional for Embassy Developments and directed the Interim Resolution Professional (IRP) to undertake all responsibilities under the Insolvency and Bankruptcy Code, 2016, Informist Media reported.

 

Embassy Developments, formerly Equinox India Developments Ltd., had guaranteed facilities granted to Sinnar Thermal. The deed of guarantee signed in 2012 stated that the company would step in if substituted guarantors defaulted.

 

 

According to an Informist Media report, the tribunal rejected Embassy Developments’ contention that its responsibilities were extinguished through a restructuring scheme involving RattanIndia Enterprises Ltd, Indiabulls Builders, RattanIndia Power Ltd. and Poena Power Supply Ltd.

 

The tribunal held that such restructuring arrangements do not nullify existing guarantees unless the creditor issues a written and unconditional release, adding that no such release was provided in this case.

 

Canara Bank informed the tribunal that Sinnar Thermal owed ₹372.35 crore, excluding interest and penalties. A consortium comprising Power Finance Corp Ltd, REC Ltd, Life Insurance Corp of India, Bank of India, Axis Bank Ltd and Punjab National Bank had sanctioned loans to the borrower in 2010, 2014 and 2016.

 

Following defaults, the account was declared a non-performing asset in 2017 and recall notices were issued.

 

Canara Bank argued that Embassy Developments remained responsible through several binding documents, including a corporate guarantee, cost-overrun deed of undertaking, deed of indemnity-cum-undertaking, share retention and management undertaking, and promoters’ undertakings. Taken together, these demonstrated a continuing obligation to ensure repayment under the IBC framework.

 

In its statement, Embassy Developments said the lender’s claim rested on “historical restructuring” arrangements related to equity infusion. “No obligations or liability under any such arrangements have arisen on part of the Company,” it said, adding that in a parallel proceeding involving the same lender, the NCLT had held that an equity infusion obligation does not amount to a financial guarantee or debt under the Code.

 

At the time of filing this report, the share price of Embassy Developments Limited (EMBDL) stood at ₹71.72 on the National Stock Exchange (NSE), slightly higher than its previous close of ₹70.46.