No Guarantee, No Insolvency – Supreme Court Judgment of 6.1.2026.
Interpretation of Clause 2.2 of the Deed of Undertaking dated 27.7.2011 between the original creditor, the borrower and the erstwhile promoter as to whether it is a contract of guarantee under Section 126 of the Contract Act by ECL as guarantor to SERI original creditor for the financial facilities availed by ESL from SREI.
ESL borrower had taken financial assistance of Rs.500 crores from original creditor SREI.
ECL being the promoter of borrower ESL was required to furnish undertaking for infusion of funds vide Deed of Undertaking on default of ESL in compliance with financial covenants.
An undertaking to infuse funds into a borrower, so that it may meet its obligations cannot, by itself be equated with the promise to discharge the borrower’s liability to the creditor. A mere Covenant to ensure financial discipline or infusion of funds does not satisfy the statutory requirements of Section 126 of the Act.
we concur with the concurrent findings of NCLT and NCLAT that Clause 2.2 of the Deed of Undertaking does not constitute a contract of guarantee and that ECL cannot be treated as guarantor for the financial facilities availed by ESL. We, therefore, do not find any infirmity in the impugned judgment warranting interference in this appeal.
Judgment dated 6.1.2026 of the Supreme Court of India in Civil Appeal No.9701 of 2024 of UV Asset Reconstruction Company Limited Vs. Electrosteel Castings Limited
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ESL had availed financial facility of Rs.500 crores from SREI original creditor. ECL being the promoter of ESL had given an undertaking for infusion of funds.
On 17.4.2018, the NCLT approved the Resolution Plan for acquisition of ESL.
Judgment dated 6.1.2026 of the Supreme Court of India in Civil Appeal No.12367 of 2025 of Electrosteel Castings Limited Vs. UV Asset Reconstruction Company Limited
