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Simultaneous application against Debtor and its Guarantor under I & B Code

IN THE MATTER OF Bijay Kumar Agarwal, Ex-Director of M/s Genegrow Commercial Pvt. Ltd. Vs. State Bank of India and Anr., appeal was filed by the Applicant/Appellant on the ground that the Learned Adjudicating Authority while admitting the claim had failed to appreciate that the liability of the ‘Principal Borrower’ and the ‘Guarantor’ is co-extensive for the purpose of recovery.

The NCLAT observed that it is not in dispute that the ‘Corporate Debtor’ (Being Corporate Guarantor of the Principal Borrower ‘Gee Pee Infotech Pvt. Ltd.) had executed the Guarantee Deed on 05.10.2011 in respect of overall Limit and sanctioned in favour of the ‘Financial Creditor’. Also that a supplementary Guarantee Deed was executed between ‘Corporate Guarantor’ & and the ‘Financial Creditor’.

As per Section 145 of the Indian Contract Act, 1872 in every ‘contract of ‘Guarantee’, there is an implied promise by the ‘Principal Debtor’ to indemnify the ‘Surety’. This court pertinently points out that a ‘Financial Debtor’ includes Debt owed to the Creditor by both the Principal and the Guarantor. Section 3(11) of ‘I&B’ Code refers to a sum that it is due from any person including ‘Corporate Debtor’. A mere failure of the Guarantor to pay the ‘Financial Creditor’ when the principal sum is demanded will come within the purview of default u/s 3(12) of the Code. A ‘Financial Creditor’ who has a ‘Guarantee’ on the Debt due can commence proceedings u/s 7 of ‘I&B’ Code against the ‘Guarantor’ for failure to repay the sum borrowed by the Principal Borrower.

It is to be remembered that if the ‘Contract of Guarantee’ itself mentions that the liability of a Guarantor will be independent and separate than that of ‘Principal Debtor’s liability, then an application against the Guarantor as per Section 7 is maintainable. The only rider will be that a Creditor is not permitted to do the same, sue the principal Debtor and claim in the Guarantor’s Insolvency at the same time.

It may not be necessary to start ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ before initiating against the ‘Corporate Debtor’. Even without resorting to ‘Corporate Insolvency Resolution Process’ against the ‘Principal Borrower’ it is always open to the ‘Financial Creditor’ to commence ‘Corporate Insolvency Resolution Process’ u/s 7 of the ‘I&B’ Code against the ‘Corporate Debtor’ / Guarantor.

There is no two opinion of a prime fact that there is no fetter in ‘I&B’ for projecting simultaneously two applications u/s 7 of IBC against (i) the Principal Borrower as well as (ii) the Corporate Guarantor(s) or against both the Guarantors but if, for the same set of claim, when an Application filed by the ‘Financial Creditor’ is admitted against one of the ‘Corporate Debtor’/’Principal Borrower’ or Corporate Guarantor, the second application filed by the same ‘Financial Creditor’ for the same set of claim and default is not to be admitted against the other ‘Corporate Debtor’ (The Corporate Guarantor(s) or the Principal Borrower.

As far as the present case is concerned, the Learned Adjudicating Authority had admitted the application u/s 7 of the ‘I&B’ filed by the Principal Borrower on 02.08.2019 in CP(IB)No.353/KB/2018. Also, on 02.08.2019 itself, the Learned Adjudicating Authority had admitted an application filed u/s 7 of the ‘I&B’ Code filed by the ‘Financial Creditor’ against the ‘Corporate Debtor’ ‘Gengrow Commercial Pvt. Ltd. being the ‘Corporate Guarantor’ of the ‘Principal Borrower’ viz. ‘Gee Pee Infotech Pvt. Ltd.’ for the very same debt/claim it is impermissible. Viewed in that perspective, this Tribunal comes to a consequent conclusion that the Application u/s 7 of the ‘I&B’ Code filed by the 1st Respondent/Bank/’Financial Creditor’ against the ‘Corporate Debtor’ Gengrow Commercial Pvt. Ltd. is not maintainable in law and the same is accordingly dismissed but without costs.


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