National Skill Development Corporation Vs Surya Wires Private Limited & Ors. (Supreme Court of India)
Guarantee Cannot Borrow the Loan but Disown Its Arbitration Clause: Integrated Documents Form One Composite Transaction — Section 7(5) of Arbitration Act
Facts of the case
The Ministry of Skill Development & Entrepreneurship decided to establish Model Training Centres across the country under the Pradhan Mantri Kaushal Kendra Scheme. The National Skill Development Corporation, a not-for-profit company providing financial assistance to entities engaged in skill training, was appointed as the implementing agency.
Surya Wires Pvt. Ltd. and Disha Education Society jointly submitted their proposal and were allotted districts for establishing training centres. Shanti Finance and Property Development Pvt. Ltd. joined as a co-borrower and provided mortgage security.
On 20.12.2016, the parties executed a cluster of interconnected documents comprising a Service Level Agreement, a loan agreement for ₹7.17 crore, a deed of assignment, deed of hypothecation, irrevocable power of attorney, undertaking-cum-declaration and a personal guarantee furnished by the Managing Director of Surya Wires.
A second, substantially identical set of documents was executed in August 2017 for an additional loan of ₹2.13 crore, accompanied by another personal guarantee from the Managing Director.
Following defaults in repayment, NSDC recalled the loans and invoked arbitration before the Indian Council of Arbitration. Claims were made against the borrower entities as well as their directors and authorised representatives.
