TaxTMI 
TaxTMI 
2020 (11) TMI 800
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....nergy Ventures Private Limited - Corporate Debtor who was Corporate Guarantor for "Athena Chattisgarh Power Ltd." (The Principal Borrower hereafter referred as "Borrower"). The application was filed as Borrower committed default in repayment of the financial assistance provided to the Borrower. Athena Chattisgarh (Borrower) is joint Venture Company promoted by the Respondent - Corporate Debtor. The Borrower availed financial assistance from the Appellant Bank and other banks, in consortium and had executed necessary documents in favour of the Appellant and other consortium banks. When the need of the Borrower increased, the Respondent which is a joint venture and promoter of Borrower came forward and executed corporate guarantee and documents in favour of the Appellant and other consortium of banks. The Respondent was under obligation to see that amounts availed under the finance from the Appellant were repaid by the Borrower. The Appellant had sanctioned Rs. 3069, 68, 00, 000/- and had actually disbursed Rs. 2769, 19, 05, 767/- to the Borrower. The Borrower committed default and Appellant filed Application under Section 7 of IBC against the Borrower before the Adjudicating Authori....
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....te Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate Guarantor(s)' or the 'Principal Borrower'). Further, though there is a provision to file joint application under Section 7 by the 'Financial Creditors', no application can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors' on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors' combinedly are joint venture company." Relying on the above paragraph, the Adjudicating Authority discussed and concluded that the Principal Borrower and Respondent could not be called joint venture Company as they were independent Companies having independent Memorandum of Association. Then, relying on the above paragraph in the matter of Piramal, the Adjudicating Authority declined to admit the Application as it was on same set of facts, claim and default for which CIRP w....
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....nsel for Appellant and he has filed copies of Orders passed by Hon'ble Supreme Court in Appeals pending against Judgement in the matter of Piramal and other Judgements of this Tribunal which have followed Judgement of Piramal. It is submitted that the Hon'ble Supreme Court has in the matter of Piramal in the Interim Order directed maintaining of status quo and in other matters, stayed the Judgements of this Tribunal. 9. Learned Counsel for Appellant relied on the observations of the Insolvency Law Committee ((ILC - in short) in its Report of February, 2020 and argued on the lines of observations of the ILC. It is argued that in IBC, the IRP/RP only collates claims. What haircut is taken by the Creditors in the matter of Resolution Plan is what the Appellant would be able to recover in the Resolution Plan or liquidation against the Corporate Debtor. It is argued, that can then be adjusted in the other proceeding. The claims can be reduced and adjusted proportionately in the two CIRP proceedings depending on the liability under the Deeds of Guarantee. 10. Against this, the learned Counsel for Respondent has relied on Reply (Diary No.22427) and it is argued that the soul of the ....
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....t. Ltd. (Corporate Guarantor No.1) and Sun System Institute of Information Technology Pvt. Ltd. (Corporate Guarantor No.2). It appears that two separate Applications under Section 7 of IBC were filed against both the Guarantors and the Application against Guarantor No.2 was admitted on 24th May, 2018 and against Guarantor No.1 on 31st May, 2018. In both the proceedings, same amount was claimed and the debt amount and amount of default and date of default were same. 11.2. Thus, the issues raised in Para - 15 of the Judgement were:- "15. The questions arise for consideration in these appeals are: i. Whether the 'Corporate Insolvency Resolution Process' can be initiated against a 'Corporate Guarantor', if the 'Principal Borrower' is not a 'Corporate Debtor' or 'Corporate Person'? and; ii. Whether the 'Corporate Insolvency Resolution Process' can be initiated against two 'Corporate Guarantors' simultaneously for the same set of debt and default?" 11.3. The first issue was answered against the Appellant. We are concerned with the second issue. This Tribunal while dealing with the above second issue referred to Judgement in the matter of "Innoventive Indu....
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.... (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or [liquidation or bankruptcy of a corporate guarantor or personal guarantor of such corporate debtor] shall be filed before such National Company Law Tribunal. (3) An insolvency resolution process or [liquidation or bankruptcy proceeding of a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor] pending in any Court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor." In Sub-Section 2, the ea....
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....g on the above observations of the ILC to argue that the Creditor cannot be restrained from initiating CIRP against both the Principal Borrower as well as the surety and also maintaining the same. The learned Counsel submitted that when remedy is available against both, Application can be maintained against both and only at the stage of disbursement, adjustment may have to be made. 16. We find substance in the arguments being made by the learned Counsel for Appellant which are in tune with the Report of ILC. The ILC in para - 7.5 rightly referred to subsequent Judgement of "Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd. and Ors." dated 20th September, 2019 which permitted simultaneously initiation of CIRPs against Principal Borrower and its Corporate Guarantors. In that matter Judgment in the matter of Pirmal was relied on but the larger Bench mooted the idea of group Corporate Insolvency Resolution Process in para - 34 of the Judgement. The ILC thus rightly observed that provisions are there in the form of Section 60(2) and (3) and no amendment or legal changes were required at the moment. We are also of the view that simultaneously remedy is central ....
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.... has also not been brought into force. It is thus clear that Section 2(e), which was brought into force on 23.11.2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpose contained in Section 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018. 25. Section 31 of the Act was also strongly relied upon by the Respondents. This Section only states that once a Resolution Plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Indian Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the Resolution Plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 con....
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....ority. The Adjudicating Authority is directed to admit the Application CP(IB)No.466/7/HDB/2019 and pass further necessary Orders as per provisions of IBC. The Adjudicating Authority is requested to appoint the same IRP/RP as has been appointed in CP(IB)616/7/HDB/2018 in the CIRP proceeding against M/s. Athena Chattisgarh Power Ltd. (Principal Borrower). The IRP/RP will act in accordance with law keeping observations in this Judgment in view. No Orders as to costs. ============= Document 1 7. ISSUES RELATED TO GUARANTORS 7.1. Under Section 128 of the Indian Contract Act, 1872, the liability of a surety towards a creditor is coextensive with that of the principal borrower. When a default is committed, the principal borrower and the surety are jointly and severally liable to the creditor, and the creditor has the right to recover its dues from either of them or from both of them simultaneously. The Committee discussed whether in light of this rule of co-extensive liability of the surety and the principal borrower, a creditor should be permitted to initiate CIRP against both the principal borrower 235, N. Plumbing Pvt. Ltd., (Through RP- Sanjay Kumar ....
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....ng which may be pending before any court or tribunal to the Adjudicating 27 Company Appeal (AT) (Insolvency) No. 346/2018, NCLAT. Decision Date-8 January 2019 28 Dr. Vishnu Kumar Agarwal v M/s. Piramal Enterprises Ltd, Company Appeal (AT) (Insolvency) No. 346/2018, NCLAT. Decision Date-8 January 2019 29 Bank of Bihar Ltd v Damodar Prasad & Another AIR 1969 SC 297 30 State Bank of India Indexport Registered and Ors. AIR 1992 SC 1740; Jagannath Ganeshram Agarwala v Shionarayan Bhagirath AIR 1940 Bom 247 Document 3 7.5. 7.6. 7.7. Authority dealing with the CIRP or liquidation process of the corporate debtor. Therefore, as the Code does require proceedings against a corporate debtor and its guarantors to be simultaneously heard by the same Adjudicating Authority, the Committee was of the view that the Code in fact, envisages initiation of concurrent proceedings against both a corporate debtor and its sureties. Given this, the Committee recommended that a creditor should not be prevented from proceeding against both the corporate debtor and its sureties under the Code. However, the Committee noted that the Appellate Authority....
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....y liable to the creditor is a key feature of a contract of guarantee. Therefore, the very object of a contract of guarantee would be prejudiced if the creditor is prohibited from filing claims in the CIRP of both the principal borrower and the surety. Even in the First ILC Report, this Committee, while discussing the scope of moratorium under Section 14 vis-Ã -vis the assets of a surety of the corporate debtor, had observed that the "characteristic of such contracts i.e. of having remedy against both the surety and the corporate debtor, without the obligation to exhaust the remedy against one of the parties before proceeding against the other, is of utmost important for the creditor and is the hallmark of a guarantee contract, and the availability of such remedy is in most cases the basis on which the loan may have been extended." If a creditor is denied the contractual right to proceed simultaneously against the corporate debtor and the surety, the ability of the creditor to recover its debt may be seriously impaired. As the right to simultaneous remedy is central to a contract of guarantee, the Committee suggested that in ca....