Skip to main content

IBC : Creditor Can Proceed Against Guarantor Even Without Proceeding Against Borrower

In Company Appeal (AT) (Insolvency) No. 346 of 2018, Dr. Vishnu Kumar Agarwal vs M/s. Piramal Enterprises Ltd., the borrowing by All India Society for Advance Education and Research was guaranteed by 2 corporate guarantors. On default, the lender raised notice on both the guarantors for exactly the same amount, then went to NCLT by filling 2 separate applications against the guarantors .The Adjudicating Authority admitted the application against both the guarantors. The Appellants raised questions on maintainability on two important issues:-

1) Whether the ‘Corporate Insolvency Resolution Process’ can be initiated against a ‘Corporate Guarantor’, if the ‘Principal Borrower’ is not a ‘Corporate Debtor’ or ‘Corporate Person’?

2)  Whether the ‘Corporate Insolvency Resolution Process’ can be initiated against two ‘Corporate Guarantors’ simultaneously for the same set of debt and default?

The NCLAT, referring to the judgements of the Supreme Court in Bank of Bihar v. Damodar Prasad and Anr., Ram Bahadur Thakur vs. Sabu Jain Limited, State Bank of India v. Indexport Registered and Ors., held that it is not necessary to initiate ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Guarantors’. Without initiating any ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’, it is always open to the ‘Financial Creditor’ to initiate ‘Corporate Insolvency Resolution Process’ under Section 7 against the ‘Corporate Guarantors’, as the creditor is also the ‘Financial Creditor’ qua ‘Corporate Guarantor’.

For the second question, the NCLAT referring to the judgements of the Supreme Court in Innoventive Industries Ltd. v. ICICI Bank and Ors., decided that the moment the Adjudicating Authority admits an application against one guarantor, it is open to the other guarantor to say that the debt in question is not due as it is not payable in law, having shown the same debt payable by the another guarantor and ‘Corporate Insolvency Resolution Process’ having already been initiated against the said guarantor.

The NCLAT went on the opine that for same set of debt, claim cannot be filed by same ‘Financial Creditor’ in two separate ‘Corporate Insolvency Resolution Processes’. If same claim cannot be claimed from ‘Resolution Professionals’ of separate ‘Corporate Insolvency Resolution Processes’, for same claim amount and default, two applications under Section 7 cannot be admitted simultaneously. Once for same claim the ‘Corporate Insolvency Resolution Process’ is initiated against one of the ‘Corporate Debtor’ after such initiation, the ‘Financial Creditor’ cannot trigger ‘Corporate Insolvency
Resolution Process’ against the other ‘Corporate Debtor(s)’, for the same claim amount (debt). There is no bar in the ‘I&B Code’ for filing simultaneously two applications under Section 7 against the ‘Principal Borrower’ as well as the ‘Corporate Guarantor(s)’ or against both the ‘Guarantors’. However, once for same set of claim application under Section 7 filed by the ‘Financial Creditor’ is admitted against one of the ‘Corporate Debtor’ (‘Principal Borrower’ or ‘Corporate Guarantor(s)’), second application by the same ‘Financial Creditor’ for same set of claim and default cannot be admitted against the other ‘Corporate Debtor’ (the ‘Corporate Guarantor(s)’ or the ‘Principal Borrower’). Further, though there is a provision to file joint application under Section 7 by the ‘Financial Creditors’, no application can be filed by the ‘Financial Creditor’ against two or more ‘Corporate Debtors’ on the ground of joint liability (‘Principal Borrower’ and one ‘Corporate Guarantor’, or ‘Principal Borrower’ or two ‘Corporate Guarantors’ or one ‘Corporate Guarantor’ and other ‘Corporate Guarantor’), till it is shown that the ‘Corporate Debtors’ combinedly are joint venture company.



Comments

Post a Comment

Most viewed this month

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more

When debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company

In SHITAL FIBERS LTD.  vs  INDIAN ACRYLICS LIMITED, as per the respondent, appellant had made a payment of Rs.61,83,218/­. However, there was an outstanding balance of Rs.8,92,723/­ as on 28.7.2008. Since despite repeated requests, balance amount was not paid, the respondent issued a statutory notice to the appellant. The same was duly responded to. As the payment was not made despite notice being duly served on the appellant, the respondent filed the aforesaid Company Petition seeking winding up of the present appellant for its inability to pay admitted debts. The learned Company Judge vide order dated 28.9.2015 admitted the Company Petition. However, while doing so, the learned Company Judge observed, that since the appellant was an on­going concern, an opportunity should be granted to it to settle the accounts with the respondent by 31.12.2015. Only in case of failure of the settlement, the citation was directed to be published. On appeal, the Division Bench of the High Cou...
Post a Comment
Read more

Abusing in-laws a ground for divorce: SC

Abusing in-laws and not allowing them to reside in the matrimonial home by a woman amounts to cruelty to her spouse, ground enough for grant of divorce, the Supreme Court has ruled while allowing an NRI's plea for legal separation from his wife. A bench of Justices Vikaramajit Sen and A M Sapre said such incidents could not be termed as "wear and tear" of family life as held by Madras High Court which had said that a couple must be prepared to face such situations in matrimonial relationship. The NRI had filed a divorce petition alleging that his wife was abusive to his family members and did not allow his parents and siblings to stay in his house when they visited the US. Referring to an incident, the husband told the court that his wife had once locked him and his sister out of the house and abused them saying they belonged to a 'prostitute family'. She refused to allow her sister-in-law to enter the house and even lodged a police complaint against her hu...
4 comments
Read more