INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
6.3 Requirement for Guarantee Fees Under Indian law, it is not mandatory for the bor- rower to pay a guarantee fee to the guarantor. However, a guarantee fee (if any) or commission is usually paid to comply with the requirement that the guarantee has been issued on an arm’s length basis. Prior approval of the RBI may be required for payment of any guarantee fees by a person in India to a person outside India in rela- tion to a guarantee issued by that person for an Indian rupee loan. Guarantees provided for the benefit of related parties are subject to goods and services tax. 7. Lender Liability 7.1 Equitable Subordination Rules The IBC provides for a payment waterfall for the creditors in the event of the liquidation of a company. The priority waterfall for distribution of liquidation proceeds, prescribed under the IBC, is as follows: • the costs of the insolvency resolution (includ- ing any interim finance); • secured creditors (who are not enforcing their security outside the liquidation), together with workmen’s dues for the preceding 24 months; • any unpaid dues owed to employees other than workmen and wages for 12 months pre- ceding the liquidation commencement date; • financial debts owed to unsecured creditors; • amounts payable to the central and state governments for the preceding 24 months, and unrealised dues of secured creditors outside the liquidation; • any remaining debts and dues; • preference shareholders, if any; and • equity shareholders or partners, as the case may be.
The National Company Law Tribunal (NCLT), in one of the cases under the CIRP, has also held that the unsecured intra-group debt from a relat- ed party should be treated as an equity contribu- tion rather than an intra-group loan. These intra- group loans should rank lower in priority than the same obligations between unrelated parties. Further, the Supreme Court has held that there is no provision under the IBC which mandates that a related party should be paid in parity with an unrelated party, and a differential payment to different classes of creditors in the resolution plan is subject to the commercial wisdom of the Committee of Creditors (CoC). 7.2 Claw-Back Risk The different preference periods or reasons for claw-back during insolvency or the CIRP of an Indian company are set out as follows. Preferential Transaction Under the IBC, a corporate debtor shall be deemed to have been given preference if: • there is a transfer of property or an interest therein of the corporate debtor for the benefit of a creditor, a surety or a guarantor, or other liabilities owed by the corporate debtor; and • that transfer has the effect of putting the creditor, a surety or a guarantor in a more beneficial position than it would have been in the event of distribution of assets being made in liquidation of the corporate debtor. However, the following are not considered as preferential transactions. • Transfer in the ordinary course of business or financial affairs of the corporate debtor and the transferee. • Any transfer creating a security interest in property acquired by the corporate debtor, if:
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