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

Amendment of plaint under Order VI Rule 17 of the CPC explained

Cause Title :  Ganesh Prasad vs Rajeshwar Prasad, SLP (C) NO. 28377 OF 2018, Supreme Court Of India Date of Judgment/Order : 14/3/2023 Corum : J. B. Pardiwala, J. Citied:  Revajeetu Builders and Developers v. Narayanaswamy & Sons and Others reported in (2009) 10 SCC 84 North Eastern Railway Administration, Gorakhpur v. Bhagwan Das reported in (2008) 8 SCC 511 P.A. Jayalakshmi v. H. Saradha and Others reported in (2009) 14 SCC 525 B.K. Narayana Pillai v. Parameswaran Pillai and Another reported in (2000) 1 SCC 712 A.K. Gupta and Sons Ltd. v. Damodar Valley Corporation reported in AIR 1967 SC 96 Life Insurance Corporation of India v. Sanjeev Builders Private Limited and Another, Civil Appeal No. 5909 of 2022 dated 01.09.2022 Firm Sriniwas Ram Kumar v. Mahabir Prasad and Others reported in AIR 1951 SC 177 G. Nagamma and Another v. Siromanamma and Another reported in (1996) 2 SCC 25 Praful Manohar Rele v. Krishnabai Narayan Ghosalkar and Others reported in (2014...
Post a Comment
Read more

Owner of vehicle is not expected to verify the genuineness of the driving license before appointing a driver

Cause Title : Rishi Pal Singh Versus New India Assurance Co. Ltd & Ors., Civil Appeal No. 4919 Of 2022, The Supreme Court Of India Date of Judgment/Order : July 26, 2022 Corum : Hemant Gupta; J., Vikram Nath; J. Background the truck owned by the appellant met with an accident. The owner deposed before the court that before employing the driver, he had taken his driving test and that he was driving the vehicle satisfactorily and  that the driver was employed with him for 3 years before the date of the accident. He produced his driving license. This was reaffirmed by the driver who deposed that the driving license was obtained from the driver and it was issued from Nagaland, but no such license was produced on record. Both the Motor Accident Claims Tribunal and the High Court have held that the owner has alleged that the driver had a driving license from Nagaland but the same was not produced and therefore, the Insurance Company is entitled to recover the awarded amount...
Post a Comment
Read more

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