2020 (1) TMI 1251 - Tri - Insolvency and Bankruptcy

Court clarifies CIRP rules on Corporate Guarantors' rights and access to Resolution Plans

Axis Bank Ltd. Versus Avantha Power & Infrastructure Ltd.

The court addressed two main issues in this case: the permissibility of initiating Corporate Insolvency Resolution Process (CIRP) against a Corporate ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - production of copy of resolution plan or its authorized text/relevant extract to a third Party (being guarantor) - HELD THAT:- This being a debatable issue, an appropriate decision on the point whether it is permissible under the I&B Code to provide a copy of resolution plan or its authorized text/relevant extract to a third Party (being guarantor) needs to be taken in accordance with law and in the light of judicial precedents. The Registry is of this Bench is directed to place on record of this matter a certified copy of resolution plan as available on record of this Court in sealed cover for perusal and to examine the relevancy of non-disclosure clause - List the matter on 17.02.2020. Issues:1. Permissibility of initiating Corporate Insolvency Resolution Process (CIRP) against a Corporate Guarantor after the principal borrower's debts have been discharged.2. Requirement of providing a copy of the Resolution Plan to the Corporate Guarantor for initiating CIRP.Analysis:Issue 1:The main issue in this judgment revolves around the permissibility of initiating CIRP against a Corporate Guarantor after the principal borrower's debts have been discharged through the approval of a Resolution Plan. The Financial Creditor contends that the remaining debts of the principal borrower, not written off or extinguished, are recoverable from the corporate guarantor as per the approved Resolution Plan. The Financial Creditor seeks to recover the outstanding debts from the Corporate Guarantor, who had furnished a guarantee for the loan liability of the principal borrower. On the contrary, the Corporate Debtor argues that CIRP is not permissible against a Corporate Guarantor once the principal borrower's debts have been discharged through a Resolution Plan. The Corporate Debtor's counsel cites legal precedents and argues that the guarantee furnished for the debts stands extinguished along with the principal borrower's discharge. The issue is deemed sub judice as per the Supreme Court's intervention in a related matter.Issue 2:The second issue pertains to the necessity of providing a copy of the Resolution Plan to the Corporate Guarantor before initiating CIRP against them. The Corporate Debtor asserts that without access to the Resolution Plan approved by the Committee of Creditors and the Adjudicating Authority, they cannot be held liable for the debts of the principal borrower. The Financial Creditor, citing confidentiality obligations, refrains from sharing the entire Resolution Plan but agrees to provide relevant extracts pertaining to the Corporate Guarantor. The Corporate Debtor emphasizes the principles of natural justice and the need for a fair opportunity to respond to the allegations. The Tribunal acknowledges the importance of this issue and directs the Registry to examine the relevancy of non-disclosure clauses and provide a certified copy of the Resolution Plan for further consideration.In conclusion, the judgment delves into the complexities of initiating CIRP against a Corporate Guarantor post the discharge of the principal borrower's debts and underscores the significance of providing access to relevant documents for ensuring a fair adjudication process. The Tribunal's decision to review the Resolution Plan and address the concerns raised by both parties reflects a commitment to upholding legal principles and procedural fairness in insolvency proceedings.