2024 (2) TMI 1618 - AT - IBC

Section 7 insolvency claim on same debt against corporate guarantor after borrower CIRP admitted-dismissal set aside, remanded

A dominant issue was whether a s.7 IBC application is maintainable against a corporate guarantor where CIRP against the principal borrower has already ... Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) r/w Rule 4 - initiation of Corporate Insolvency Resolution Process (‘CIRP’) for the alleged default - Whether the application filed under Section 7 of the Code is maintainable, having been filed by the Financial Creditor against the Corporate Debtor as well as the Corporate Guarantor simultaneously on the same set of debt ? - HELD THAT:- It is submitted that though the composition of the bench in the case of M/s CFM Asset Reconstruction Pvt. Ltd. Vs. M/s Nikhil Footwears Pvt. Ltd. was different but author of the judgment in both the cases was the same who has dismissed the application of the Appellant on 26.05.2023 after passing the order on 28.02.2023 in the case of M/s CFM Asset Reconstruction Pvt. Ltd. Vs. M/s Nikhil Footwears Pvt. Ltd. holding that the application filed under Section 7 is maintainable both against the borrower as well as guarantor on the same set of debt even is filed simultaneously. Respondent submitted that the CIRP against the borrower was admitted on 19.01.2023 and the Appellant has also filed its claim which was admitted to the tune of Rs. 15,99,37,500/- and the claim has also been filed and the said facts were not disclosed anywhere by the Appellant, therefore, the application has rightly been dismissed by the Adjudicating Authority. Answer to the question has already been given by the Hon’ble Supreme Court in the case of Laxmi Pat Surana [2021 (3) TMI 1179 - SUPREME COURT], which has been followed by this Court in the case of Naresh Kumar Aggarwal [2023 (5) TMI 817 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] in which this Court has held that “the scheme of IBC, in view of law laid down by the Hon’ble Supreme Court in ‘Laxmi Pat Surana Vs. Union of India & Anr. [2021 (3) TMI 1179 - SUPREME COURT], we are not persuaded to follow judgment of this Tribunal in Dr. Vishnu Kumar Agarwal [2019 (2) TMI 316 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI]”. Thus, the order passed by the Adjudicating Authority is patently illegal and the same is set aside. Thus, the original applications in both the appeals filed by the Appellant are hereby restored and the matter is remanded back to the Tribunal to decide it again in accordance with law. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is maintainable when filed against the principal borrower and also against the corporate guarantor simultaneously on the same set of debt and default, and whether dismissal solely on the basis that only one such application can be maintained is legally sustainable. (ii) Whether the Adjudicating Authority's order dismissing the Section 7 applications only by relying on the Tribunal's earlier view (that a second Section 7 application on the same debt cannot be admitted against the guarantor once filed/admitted against the principal borrower) was contrary to the binding position accepted and applied by the Court. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Maintainability of simultaneous Section 7 proceedings against principal borrower and corporate guarantor for the same debt Legal framework (as discussed/applied by the Court): The Court proceeded on the basis that Section 7 permits initiation of CIRP upon 'default', and applied the principle accepted in the decision relied upon by it that the guarantor's liability is coextensive with the principal borrower and that default by the principal borrower triggers a default by the guarantor for purposes of proceeding under the Code. Interpretation and reasoning: The Court treated the question as already conclusively answered by the Supreme Court decision it relied upon, which recognized that the lender has a right/cause of action to proceed against the principal borrower as well as the guarantor 'in equal measure' on a joint and several basis, and that the guarantor's obligation being coextensive makes it a case of default by the guarantor when the principal borrower does not pay. The Court further noted that this Tribunal had already followed that Supreme Court position in a later Tribunal decision and, in that later decision, expressly declined to follow the earlier Tribunal view which had been used to reject simultaneous proceedings. Conclusion: The Court held that there is no bar to maintainability of Section 7 proceedings against the principal borrower and the corporate guarantor simultaneously on the same set of debt and default. Accordingly, rejection of the applications on the premise that such simultaneous proceedings are not maintainable was unsustainable. Issue (ii): Legality of dismissal based solely on the earlier Tribunal view, despite binding/accepted position applied by the Court Legal framework (as discussed/applied by the Court): The Court applied the binding effect of the Supreme Court's position on the question of proceeding against principal borrower and guarantor, and applied its own later Tribunal decision which had followed that position and declined to follow the earlier Tribunal view. Interpretation and reasoning: The Court found that the Adjudicating Authority dismissed the applications only by relying upon the earlier Tribunal decision. The Court held that, since the Supreme Court's decision had already answered the maintainability question, and since the Tribunal had already followed that Supreme Court view (and declined to follow the earlier Tribunal view), the Adjudicating Authority's reliance on the earlier Tribunal decision rendered the dismissal legally erroneous. The Court therefore characterized the impugned dismissal as 'patently illegal'. Conclusion: The impugned order dismissing the Section 7 applications was set aside. The original applications were restored and remanded to the Tribunal for fresh decision in accordance with law.