Is time barred corporate guarantee enforceable - ?

This query is : Resolved 
 


Querist : Anonymous (Querist)
13 May 2021

An Indian Holding Company, provided Corporate Guarantee for its Foreign Wholly Owned Subsidiary, to the Lender, registered in another foreign country. After few years, the Lender was barred by the Regulatory Authorities of the Foreign Country to continue their operations. Since then, the Foreign Wholly Owned Subsidiary has stopped payment of interest, citing the legality of the Lender, after being banned by the Government Authority, in question. Further, the Indian Holding Company had divested the entire holding from the Wholly Owned Subsidiary, ceasing the Holding Subsidiary relation.

Now, please provide clarifications for the following queries:

1. Is the Indian Holding Company held liable for non-payment of interest by the Foreign Wholly Owned Subsidiary, even after ceasing the Holding Subsidiary Relation?

2. As per the Limitation Act, a debt which is time barred, is not enforceable in the Court. Here, the Corporate Guarantee issued by the then Indian Holding Company, can be enforced in any Court, even after the debt is barred for long time and during this time, there had been no correspondences or serving of Demand / Legal Notice by the Lender?

Thanks in advance


SHIRISH PAWAR, 7738990900Online (Expert)
13 May 2021

Hello,

Indian Holding Company is liable to the lender for non-payment by Foreign wholly Owned Subsidy. Out of limitation debt is not enforceable before any court. It all depends on the documents executed and the terms and conditions mentioned therein.

Pradipta Nath (Expert)
13 May 2021

1. The answer depends upon many circumstances and varies from facts to facts. There cannot be any straight cut jacket formula to decide the liability of a Holding Company for his wholly owned subsidiary Company.
2. For forming opinion on this need to go through the loan documents and any related documents between the Holding and subsidiary Company. Aside not to forget that the Company is a judicial person distinct from its shareholders. The Shareholders are not owners of the Company.


Querist : Anonymous (Querist)
13 May 2021

Thank you for your prompt response. My query is that, if the Corporate Guarantee issued, is time barred as per the Limitation Act, can the same be enforceable in Court or before any Regulatory Authority? Will it impact the Holding Company, even after the cessation of the Holding Subsidiary relationship?

Pradipta Nath (Expert)
13 May 2021

In case time is an issue, it will be barred as per the Limitation Act. However it can be enforced upon filing a petition for condonation of delay and the Court allows it.
The clauses of the contract should be referred for this purpose. In case it is silent, 'Guarantee Contract' does not cease even after cessation of the holding subsidiary relationship. Like an Arbitration clause remains alive even after termination of the principal contract!

P. Venu Online (Expert)
14 May 2021

To my knowledge, there could be no condonation of delay in civil suit.

T. Kalaiselvan, Advocate Online (Expert)
15 May 2021

Your main question is that whether the corporate guarantee which is barred by limitation is enforceable in law or not.
If the claimant is claiming the dues from the borrower company and makes it liable for the dues then the corporate guarantee will come within the time limit for paying the dues of the company if the company has nothing to pay.
It is a tricky question of law, hence you may have to get your documents vetted, scrutinized properly by a lawyer dealing with this subject and proceed on the recommendation made by the chosen lawyer.



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