Skip to main content

Guarantor cannot enjoy a right of subrogation under the Insolvency code

Cause Title : State Bank of India Vs Shri Ghanshyam Surajbali Kurmi, CP(IB) 297/95/HBD/2021, National Company Law Tribunal Bench-1, Hyderabad

Date of Judgment/Order : 07.07.2022

Corum : Dr. N. Venkata Ramakrishna Badarinath, Hon‟ble Member (Judicial), Shri Veera Brahma Rao Arekapudi, Hon‟ble Member (Technical)

Citied: Lalit Kumar Jain vs Union of India, Supreme Court

            Lalit Mishra & Ors. v. Sharon Bio Medicine Ltd, NCLAT


Background

The Financial Creditor/Applicant filed a Company petition before this Adjudicating Authority under Section 9 of the Code to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor vide CP (IB) No. 269/9/HDB/2018. The petition was admitted by this Adjudicating Authority on 06.09.2018.

With the framing of I & B (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 which came into effect from 01.12.2019,  permitting the Financial Creditor to institute insolvency resolution process against personal guarantors, the Financial Creditor had issued demand notice in Form B dated 16.08.2021 through RPAD on 01.09.2021 to the Personal Guarantor i.e. Shri. Ghanshyam Surajbali Kurmi demanding payment of the amount in default.

The Adjudicating Authority  granted interim-moratorium and appointed a Resolution Professional. The RP stated that the Personal Guarantor confirmed that no payment had been made to the Financial Creditor towards the default committed by the Corporate Debtor and lack of resources to pay the amount. Hence the Resolution Professional recommended the admission of the petition filed under Section 95 of the Code.

Clause F of the Resolution Plan states:
“Once the consideration as envisaged in the resolution plan is paid, all rights, security and interest including but not limited to mortgage, pledge, guarantee and hypothecation created shall stand satisfied in lieu of the said payment.”

Based on the above clause, the Personal Guarantor contended that any liability of Personal Guarantor herein was discharged upon approval of Resolution Plan and more so any rights of Financial Creditor herein against Respondent have been forfeited after according its approval to the said resolution plan and therefore the application of the Financial Creditor deserves to be dismissed in limine.


Judgment

Referring to judgments of Supreme Court in Lalit Kumar Jain vs Union of India and NCLAT in Lalit Mishra & Ors. v. Sharon Bio Medicine Ltd, the NCLT observed that :-

1) Conclusion of Corporate Insolvency Resolution Plan does not bar Financial Creditor against Guarantor, and Financial Creditor can always approach this Adjudicating Authority as envisaged under the Code.

2) Reliefs and Concessions (if any) which are part of a resolution plan is squarely applicable to Corporate Debtor only which is very much in line with clean slate theory or in line with aims and objectives of Code. Accepting the interpretation of the Clause -F as envisaged by the Personal Guarantor would create scenario which would have adverse cascading effects and would extinguish the Personal Guarantee of Personal Guarantor is not tune with objectives of the Code and would create a scenario which would have adverse cascading effects.

3) Guarantor cannot enjoy a right of subrogation when the payment is made by the guarantor with respect to the debt for which the guarantee is provided. under the Indian Contract Act, 1872 as proceedings under the Code are not recovery proceedings. The object of the proceedings under the Code is to revive the company and focus on maximization of value of its assets and not to ensure that credit is available to all stakeholders.

Comments

Post a Comment

Most viewed this month

Merits and the terms of contract are irrelevant for invoking of the bank guarantees

In Sabarkantha Annuity Pvt. Ltd. Vs. NHAI and Ors, the Petitioner filed before the Delhi High Court  petition under Section 9 of the Arbitration and Conciliation (Amendment) Act, 2015 with a prayer that, Respondents be restrained from acting upon the letter dated 15th September, 2017 or from invoking the Bid securities of the Petitioner to the tune of Rs. 10.93 Crores and also restraining the banks from honouring the invocation of said bank guarantees on behalf of Respondent No. 1 acting in terms of letter dated 3rd November, 2007. Petitioner has relied upon Clauses Nos. 9.1.1, 9.1.2 and 4.3 of the agreement dated 28th April, 2017 entered into between the parties to say the claim for damages since is not a claim for a sum presently due and payable and the respondent would be entitled to damages only on proof of loss, per Clause 4.3 of the agreement and hence is not entitle to the entire sum of bid security.  The Court found that Clause No. 9.1.2 speaks of an exclusiv...
Post a Comment
Read more

Right of pre-emption under West Bengal Land Reform Act

In Rabindra Nath Kundu & Anr vs Sudhir Hira, Bijoy Krishna Hira being the owner in the suit plot, gifted to Santosh Kumar Hira demarcated 11 decimals of land vide deed of gift dated 27.4.2004 and the latter sold 9 decimals out of 11 decimals of land to Sudhir Hira the preemptor/opposite party no. 1 and well demarcated 1.65 decimals of land in the said plot along with several other plots were sold, transferred and conveyed to the preemptees/petitioners herein by a registered deed of sale dated 10.8.2010, the subject matter of preemption. It is argued on behalf of the preemptees that  the present opposite party no. 1/preemptor Sudhir Hira has no relationship of co-sharership with Santosh Kumar Hira opposite party no. 2 as the demarcated portion of land has been purchased. It is settled principle of law that partial preemption is not permissible and this was what the view adopted by this Hon'ble High Court is Surendra Vs. Abhimannu reported in (1980) 1 Cal LJ 135 whe...
Post a Comment
Read more

CBI has no jurisdiction to probe affairs of medical college:HC

The Madras High Court has quashed charges against administrators of a medical college and dismissed CBI's petitions opposing discharge of officials of two other medical colleges, saying the investigation agency, or any other external agency for that matter, has no jurisdiction to probe the affairs of a medical college. Quashing the charges against the administrators of a medical college and dismissing CBI's petitions opposing the discharge of officials of two other medical colleges, Justice Aruna Jagadeesan said "contravention of rules and regulations may be an offence against the statute but is not a crime. There is no room or jurisdiction for any external agency to investigate the affairs of any medical institution coming within the purview of the Medical Council of India." In identical set of orders, all delivered on August 6, Justice Jagadeesan said "the shortfall in faculties and submissions of fake/forged documents would only disentitle the institution...
Post a Comment
Read more