Shortfall Undertakings As Financial Debt Through China Development Bank V Doha Bank And Other Judicial Precedents
- IJLLR Journal
- 14 hours ago
- 1 min read
Rishil Gotur Mahareddy, Jindal Global Law School
ABSTRACT
This paper explores the legal characterization of shortfall undertakings as "financial debt" under Section 5(8)(i) of the Insolvency and Bankruptcy Code, 2016 (IBC). It addresses a key issue in corporate insolvency law— whether undertakings by third parties, often stronger group entities or parent companies, to compensate for loan repayment deficiencies, qualify as financial debt. Drawing from jurisprudence, especially China Development Bank v. Doha Bank QPSC, the paper underscores a purposive interpretation by courts, prioritizing the substance of contractual obligations over their form or nomenclature. The analysis demonstrates that courts have consistently recognized that such undertakings, though not styled as formal guarantees, effectively meet the statutory requirements by assuming a clear obligation to discharge another’s debt upon default.
The paper delves into significant judgments including Phoenix ARC Pvt. Ltd. v. Ketulbhai Patel and IL&FS Infrastructure Debt Fund v. McLeod Russel, to highlight how courts distinguish mere security arrangements from enforceable guarantees. It evaluates the evolving standards for financial creditor status and emphasizes the necessity of time-value-of-money consideration, as affirmed in Anuj Jain v. Axis Bank and Phoenix ARC v. Spade Financial Services.
Ultimately, this study shows that Indian courts have reinforced a pragmatic, intention-driven approach to identifying financial liabilities, ensuring that genuine creditor rights are not thwarted by contractual technicalities. These developments have significant implications for structuring third-party security and repayment clauses, particularly in infrastructure and PPP projects.
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