TaxTMI 
TaxTMI 
2021 (3) TMI 470
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....t Appeal. The issue involved in this matter is that if CIRP (Corporate Insolvency Resolution Process) has been initiated against the principal borrower, could the Appellant have filed claim in CIRP initiated against the Corporate Guarantor. 2. A few facts may be referred for the context. a) Adel Landmarks Ltd. (then Era Landmark Ltd.) - principal borrower had applied for loan on 24th September, 2013 to ECL Finance Ltd., a non-banking financial company, seeking financial assistance of INR 170 Crores. b) The loan was granted and interest was specified. Loan Agreement was executed on 07.10.2013. Principal borrower along with coguarantors executed security/transaction documents. c) There was default and account was declared NPA by the NBFC on 31.12.2015. d) The NBFC assigned the debt to the Appellant on 23rd March, 2017. e) Subsequently, the Corporate Debtor - Gwalior Bypass Projects Ltd. secured the debt of Adel Landmarks Ltd. by executing Guarantee Agreement dated 3rd May, 2018. Thus, it is guarantor. f) On 10th July, 2018, the Appellant by Notice dated 2nd July, 2018 recalled the loan seeking repayment from principal borrow....
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....October, 2020. It is added that the issue, however, is yet not decided before Adjudicating Authority. 5. Counsel for Appellant submitted that keeping the Appellant outside the COC (Committee of Creditors), Resolution Plan has been passed and it is pending for decision before the Adjudicating Authority. It is not denied that the Avoidance Application has been filed. We had after hearing parties on 8th February, 2021, passed Interim Orders requesting the Adjudicating Authority not to pronounce Orders regarding acceptance of the Resolution Plan, till decision of this Appeal. 6. Perusal of the Impugned Order shows that in the background of the facts as mentioned above, the Adjudicating Authority had in Impugned Order observed as under:- "16. Hon'ble NCLAT has settled the proposition of law in this respect in the case of Dr. Vishnu Kumar Agarwal Vs M/s. Piramal Enterprises Ltd. Company Appeal (AT) (Insolvency) No.346 of 2018 decided on 08.01.2019 with the following observations: "Admittedly, for same set of debts, claim cannot be filed by same 'Financial Creditor' in two separate 'Corporate Insolvency Resolution Processes'." 17. The finding of the Hon'bl....
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....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 Industries Ltd. vs. ICICI Bank" (2018 1 SCC 407) where scheme of the Code was discussed by the Hon'ble Supreme Court. This Court has then taken note of the definition of Financial Creditor and financial debt and in para - 29 of the Judgement, raised question whether for same very claim and for same very default, the Application under Section 7 against the other Corporate Debtor (Guarantor No.1) can be "initiated". It was then reasoned in para - 30 that moment the Application against Guarantor No.2 was admitted the Guarantor No.1 could say that debt in question was not d....
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....re 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 earlier words were "bankruptcy of a personal guarantor of such corporate debtor". These words were later on substituted by the words "liquidation or bankruptcy of a corporate guarantor or personal guarantor as the case may be, of such Corporate Debtor". These words were substituted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 Act 26 of 2018. This amendment was published in Government Gazette on 17th August, 2018 and this amendment was inserted with retrospective effect from 6th June, 2018. We have referred to these details as Ho....
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....LC. 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 to a contract of guarantee and where Principal Borrower and surety are undergoing CIRP, the Creditor should be able to file claims in CIRP of both of them. The IBC does not prevent this. We are unable to agree with the arguments of Learned Counsel for Respondent that when for same debt claim is made in CIRP against Borrower, in the CIRP against Guarantor the amount must be said to be not due or not payable in law. Under the Contract of Guarantee, it is only when the Creditor would receive amount, the questio....
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....ied 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 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him." 18. We have already mentioned that when Hon'ble Supreme Court was dealing with Section 60(2), it w....
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....e by the Appellant which was required to be considered by the IRP/RP. The Resolution Plan pending for approval before the Adjudicating Authority may be sent back to COC for reconsideration in view of the present Orders in Appeal. (B) It is made clear that the Adjudicating Authority may separately decide the Avoidance Application on its merits in accordance with law which is stated to have been filed. We have not expressed any view on the said controversy. (C) Appeal is disposed accordingly. No costs. ============= Document 17. 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 5. N. Plumbing Pvt. Ltd., (Through....
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....ny guarantor of that corporate debtor should also be initiated before the same Adjudicating Authority. Similarly, Section 60(3) requires transfer of any such proceeding 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 v Indexport Registered and Ors. AIR 1992 SC 1740, Jagannath Ganeshram Agarwala v Shionarayan Bhagirath AIR 1940 Bom 247 31 30 30 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 rec....
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....laim cannot be filed by same 'Financial Creditor' in two separate 'Corporate Insolvency Resolution Processes" However, as discussed above, the principal borrower and the surety being jointly and severally 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 d....