TaxTMI 
TaxTMI 
2026 (3) TMI 97
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....v., Ms. Pratiksha Mishra, Adv., Mr. Karun Mehta, AOR Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv., Ms. Shubhra Kapur, Adv., Ms. Mahima Kapur, Adv., Ms. Mansi Kapur, Adv., Ms. Santha Smruthi, Adv., Mr. Anuraj Mishra, Adv., Mr. Gopal Sankaranarayan, Sr. Adv., Mr. Abhijeet Sinha, Sr. Adv., Mr. Vipul Jai, Adv., Mr. Soayib Qureshi, AOR Mr. Saikat Sarkar, Adv., Mr. Vishal Sinha, Adv., Ms. Neha Nagpal, Adv., Mr. Puneet Singh Bindra, Adv., Mr. Anirudh Purshottaman, Adv., Ms. Saumya, Adv., M/S. Cyril Amarchand Mangaldas Aor, AOR Ms. Surabhi Khattar, Adv., Mr. Sriharsh Raj, Adv., Mr. Shivansh Vishwakarma, Adv., Ms. Pallavi Agarwal, Adv., Mr. Suresh Dutt Dobhal, AOR Mr. Shikhar Kumar, Adv., Mr. Abhinav Sharma, Adv., For the Respondent(s): Mr. Ankur Mittal, AOR Ms. Nidhi Mittal, Adv., Ms. Muskan Jain, Adv., Mr. Nithin Chowdary Pavuluri, Adv., Ms. Soubhagyavalli Vedantam, Adv., Mr. Vijaya Bhaskar Reddy Kandhala, Adv., Mr. Subham Saurabh, Adv., Mr. Gp. Capt. Karan Singh Bhati, AOR Mr. Devender Singh, Adv., Mr. Hitesh Kumar Sharma, Adv., Mr. Amit Kumar Chawla, Adv., Mr. Akhileshwar Jha, Adv., Mr. Varun Varma, Adv., Ms. Shreya Jha, Adv.,, Mr. Vaibhav Manu Srivastava, AOR Ms. Savita Nangare, Ad....
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....pugned order in Civil Appeal No. 2715 of 2020 12 G. Impugned order in Civil Appeal No. 4018 of 2023 13 H. Impugned order in Civil Appeal No. 7231 of 2024 14 III. Submissions by Counsel 15 A. Submissions opposing simultaneous proceedings 16 B. Submissions in support of simultaneous proceedings 20 IV. Analysis 23 A. History of laws relating to insolvency, reconstruction, recovery of dues, etc. and the objects/purposes of the Ibc 24 B. Re: simultaneous proceedings 31 C. Re: IBC as recovery proceedings 33 D. Re: Election of Claims 38 E. Re: double enrichment 40 F. The need for reform 41 V. Conclusion 46 I. INTRODUCTION The Judge is not to innovate at pleasure. He is not a knight errant roaming at will in pursuit of his own ideal of beauty or of goodness. [Eera v. State (NCT of Delhi), (2017) 15 SCC 133 (Nariman, J. quoting Cardozo, Nature of Judicial Process, p. 141)]. 1. These appeals, arising out of different orders of the National Company Law Appellate Tribunal [NCLAT] and the National Company Law Tribunal [NCLT], raise a common question of law....
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....n Purchase Agreement] with ICICI wherein, upon occurrence of a default by ERA Infrastructure (India) Limited, Era Infra Engineering Private Limited guaranteed payment to ICICI. Era Infra Engineering Private Limited also entered into a Non-Disposal Undertaking/Arrangement [NDU] whereby 30% shares of ERA Infrastructure (India) Limited were placed in a designated Non-Disposal Undertaking Account, along with a power of attorney in favor of ICICI, which allowed it sell, transfer, assign, dispose, or encumber these shares. 8. Pursuant to a default by ERA Infrastructure (India) Limited, a Joint Lenders' Forum [JLF] came to be formed by ICICI along with Yes Bank, which restructured the account while continuing the securities and guarantees. 9. ICICI claimed that, first, Era Infra Engineering Private Limited failed to comply with the NDU arrangement, despite being called upon to do so, and secondly, ERA Infrastructure (India) Limited and Era Infra Engineering Private Limited, both failed to comply with its payment obligations under the restructured facility. Thus, Era Infra Engineering Private Limited was declared Non-Performing Asset [NPA]. 10. Era Infra Engineering Private Limite....
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....ar Agarwal (supra) on the ground that once a claim, based on the same facts and documents, was admitted, no such claim could have been made against another entity. 16. At this juncture, we may add that in civil appeal nos. 6093 of 2019 and 6094 of 2019 applications were filed by the respective respondents being interim application nos. 146714 of 2025 and 146674 of 2025, respectively. These applications by the respondents were filed to bring on record a settlement between them and ICICI. When the settlement was put to the counsel for ICICI during the course of hearing, she denied having such instructions on the settlement. We granted liberty to the parties to move the Court in case there was an agreement on the settlement, however, no such agreement has been brought forth. Thus, we have proceeded to adjudicate the matter on the presumption that no such settlement has been entered between the parties. C. IMPUGNED ORDER IN CIVIL APPEAL NOS. 827 - 828 OF 2021 17. Bank of India [BoI] filed an application under section 7 of IBC against RNA Corp. Pvt. Ltd. [RNA] before the NCLT, Mumbai Bench. NCLT, vide its order dated 26th November, 2019, allowed the application for initiation o....
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....r claims were not redressed by Mr. G.R.K. Reddy. NCLAT, however, vide the impugned order dated 30th September, 2019, allowed the limited prayer of ICICI to withdraw the section 7 application and set aside the CIRP initiated against Marg Limited. NCLAT permitted SREI Equipment Finance Limited and Phoenix Arc Limited to negotiate the matter with Marg Limited independently and directed it to grant the same treatment as was given to other financial creditors within 2 months. 25. Phoenix Arc Limited challenges this order on the ground that the NCLAT incorrectly permitted withdrawal of the application under section 7, IBC without properly examining whether 90% of the CoC had indeed assented to such withdrawal in terms of section 12A thereof. It is Phoenix's contention that the IRP incorrectly rejected its claim against Marg Limited which arose out of a Corporate Guarantee given to New Chennai Township Private Limited, which was already undergoing CIRP. Due to this rejection, its voting share in the CoC was reduced substantially and this led the CoC to approve the withdrawal of CIRP. Had its claim been allowed, it is contended, Phoenix would have had more than 10% voting share in the C....
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....ad not only acknowledged the debt within the existing limitation period (3 years from 1st June, 2015, ending on 1st June 2018) but had also proposed a settlement. Thus, the NCLAT held that the limitation period stood revived from 31st January, 2018 and the application was within time. 32. On the count of simultaneous proceedings, the NCLAT differentiated Vishnu Kumar Agarwal (supra) from the facts of the present case, in as much as in Vishnu Kumar Agarwal (supra) simultaneous proceedings were filed against two guarantors whereas, in the present case, simultaneous proceedings were filed against the debtor and the guarantor. To support this finding, reliance was placed on SBI v. Athena Energy Ventures (P) Ltd. (2021) 226 Comp Cas 744. The appeal was dismissed by the impugned order dated 31st May, 2023. H. IMPUGNED ORDER IN CIVIL APPEAL NO. 7231 OF 2024 33. SBI, as part of a consortium, granted certain loans and facilities to Coastal Energen Private Ltd of about Rs. 1,139.84 crore. Against the facilities granted to Coastal Energen Private Ltd., Fossil Logistics Private Ltd. extended corporate guarantees. When Coastal Energen Private Ltd defaulted on the loans, its account cam....
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....of the stakeholders. Reference is made to Mobilox Innovations v. Kirusa Software (2018) 1 SCC 353, Dena Bank v. C. Shivakumar Reddy (2021) 10 SCC 330, Ebix Singapore (P.) Ltd. v. Educomp Solutions Ltd. (CoC) (2022) 2 SCC 401, HPCL Bio Fuels Ltd v. Shahaji Bhanudas Bhad 2024 SCC OnLine 3190 and Transmission Corpn. Of A.P. Ltd. v. Equipment Conductors & Cables Ltd. (2019) 12 SCC 697. 40. Interpreting the word default as defined in sub-section (12) of section 3, and used in various provisions of the IBC, as well as its interpretation by this Court, it is argued that the default by a corporate debtor must be quantified. Without the default being crystalized, the CIRP cannot be initiated. Form C as mentioned in regulation 8 and set out in Schedule I of the Insolvency And Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [2016 Regulations] also provide that the specific amount of claim must be mentioned. 41. The financial creditor must exercise the doctrine of election at the time of filing an application for CIRP. Adopting the reasoning set out in Vishnu Kumar Agarwal (supra), it is argued that while the financial creditor has a co-e....
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.... looping of debts, (12) singleness of economics of units, (13) cross shareholding, (14) Inter dependence due to intertwined consolidated accounts, (15) Common pooling of resources, etc. This is not an exhaustive list and cannot be. These are the elementary governing factors, prima-facie to activate the process of 'consolidation'. At first glance the existence of these rudimentary points are required to be seen to examine whether in a particular case the question of 'consolidation' is worth consideration or not? It is also necessary to put it on record at this juncture when entering to start the investigation that it is a cumbersome exercise which require time and patience. Whether the case in hand can fit into these basic criterion is to be scrutinised in the following paragraphs. 45. Among other things, a direction is also sought for disclosure of claims to the Resolution Professional as well as to the debtor, to create a transparent process. Terming the penalty under section 235A, which shall not be less than Rs. 1 lakh but may extend to Rs. 2 crore, as insufficient, emphasis is laid for regulations to address the same and in the in....
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....reditor is to wait for the process against the principal debtor is over. The interpretation in that case would mean that the guarantor would be exempt, in the interregnum, from paying the debt, which the IBC does not provide for. 51. Countering the contention of election of claims, it has been contended that the law does not require the creditor to elect its claims. CIRP initiated at the behest of any creditor would require the financial creditor who is owed a financial debt, either under a guarantee or principal debt, to file entire of its claim. If the creditor does not file its entire claim, the right to recover that part of the debt would be lost forever. 52. In view of the 'clean slate' principle as postulated in Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) SCC 9 657 and Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta (2020) 8 SCC 531, no part of debt of the debtor can continue once the CIRP is completed. Thus, if claim is not submitted or a part of it is submitted, the creditor would be relinquishing its part of the claim against the corporate debtor. 53. It was also argued that the creditor cannot be asked to wait or defer ....
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....applicable. It was thus the contention that doctrine of election has no relevance in the present case. IV. ANALYSIS 57. Having heard and considered the submissions advanced by learned senior counsel/counsel for the parties, we now proceed to analyse the law at hand. 58. The common thread that runs through each of the impugned orders is one of guarantee. In all these orders, the NCLAT or the NCLT, has either rejected or permitted initiation of CIRP against the corporate debtor in question. The underlying corporate debtor is either the principal debtor in a guarantee or the surety/guarantor itself. Thus, all the issues herein run within the four corners of guarantee and the IBC. A. HISTORY OF LAWS RELATING TO INSOLVENCY, RECONSTRUCTION, RECOVERY OF DUES, ETC. AND THE OBJECTS/PURPOSES OF THE IBC 59. It would not be inapt at this stage to trace the objects/purposes the IBC seeks to achieve and the history of the laws in India in related fields. 60. IBC is a comprehensive legislation which has ushered in a regulatory regime governing all aspects of insolvency and bankruptcy and providing for insolvency resolution of all entities in India, be it corporate or individual.....
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....f the earlier version of the Companies Act, i.e., the Act of 1956 governed proceedings for winding up and liquidation of companies. Yet another legislation called the Sick Industrial Companies (Special Provisions) Act, 1985 [SICA] was enacted with the stated purpose of timely detection of sick and potentially sick industrial companies and speedy determination of remedial and/or preventive measures. Though the repealing Act of SICA was enacted much earlier, it was notified upon the IBC coming into effect. 65. Two other legislations, viz. the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [DRT Act] and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI Act] were suitably amended to ensure that the provisions of the IBC held sway over the provisions thereof. Interestingly, the DRT Act was rechristened to Recovery of Debts and Bankruptcy Act, 1993 [RDB Act] symbolizing that recovery and bankruptcy (i.e., insolvency resolution) were to go hand in hand. In fact, Debt Recovery Tribunals have been specified or designated to be the Adjudicating Authorities in Part III of the IBC for insolvency resolution....
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.... that have touched upon the scheme of the IBC and provided an overview thereof. The same is, thus, not being repeated here again. 68. It has consistently been found that recovery is not the object of proceedings under the IBC. We propose to discuss this in some detail, in a later segment. Suffice to observe, the idea behind such a statement is that a proceeding under the IBC is primarily focused on insolvency resolution of the debtor (whether corporate or otherwise) and although recovery is incidentally effected, the proceeding is actually not meant to facilitate recovery of dues only of the person who initiated the proceeding. The expression "availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India" in the preamble indicates that only. In fact, it is a time bound composite process involving insolvency resolution and recovery upon shifting the control of the corporate debtor and its assets from the hands of its promoters/directors to a Resolution Professional, who is ultimately guided by the Committee of Creditors, such that the in....
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.... under section 7 or section 9 being admitted, the decision as regards the viability of the resolution plan which, inter alia, provides for payment of the dues of the creditors is taken by the CoC, which is constituted chiefly by the financial creditors. It is any body's guess that decision taken by the creditors would be in their best interest, i.e., to bolster recovery. In fact, it cannot be denied that maximization of the value of the corporate debtor's assets is also to enure to the benefit of creditors. B. RE: SIMULTANEOUS PROCEEDINGS 73. In cases where the application was rejected, reliance was chiefly placed on Vishnu Kumar Agarwal (supra). The relevant portion from such decision reads thus: 32. There is no bar in the 'I&B Code' for filing simultaneously two applications under Section 7 against the 'Principal Borrower' as well as the 'Corporate Guarantor(s)' or against both the 'Guarantors'. However, once for same set of claim application under Section 7 filed by the 'Financial Creditor' is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of cl....
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....which held as under: 28. Sub-section (2) of Section 60 contemplates separate or simultaneous insolvency proceedings against the corporate debtor and guarantor. Therefore, sub-section (3) of Section 60 provides that if CIRP in respect of the corporate guarantor is pending before an adjudicating authority and if the CIRP against the corporate debtor is pending before another adjudicating authority, CIRP proceedings against the corporate guarantor must be transferred to the adjudicating authority before whom CIRP in respect of the corporate debtor is pending. Thus, consistent with the basic principles of the Contract Act that the liability of the principal borrower and surety is coextensive, the IBC permits separate or simultaneous proceedings to be initiated under Section 7 by a financial creditor against the corporate debtor and the corporate guarantor. 78. Thus, the question, whether simultaneous proceedings against the corporate debtor and/or the guarantor(s) can be maintained or not, is no longer res integra. All the arguments that have been canvassed before us, including the interpretation of sub-section (8) of section 5 and sub-section (2) of section 60 of the IBC, ....
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....intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid operational debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor. 77. On the other hand, in the case of an application by a Financial Creditor who might even initiate proceedings in a representative capacity on behalf of all financial creditors, the Adjudicating Authority might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a F....
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....n under Section 7 of the IBC of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition. 88. The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation. The example is only illustrative. 83. Vidarbha Industries Power Ltd. (supra) is a decision which expounds the law in great detail, inter alia, by considering the modal verbs "may" and "shall" in sections 7(5)(a) an....
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.... the guarantor? 88. The argument before us has been that letting the creditor claim 100% of the debt from both the principal debtor and the guarantor would invariably allow the creditor two shots at recovery and voting rights in two CoCs. This is against the object of the IBC. 89. We are not impressed and find no reason to accept this argument. 90. Restricting the claim of a creditor against a debtor or a guarantor is likely to defeat the purpose of a guarantee. Since a guarantor's liability is co-extensive, forcing the creditor to elect would essentially make it sacrifice part of its claim. This is not how a guarantee works, particularly when the Code does not provide for such election. 91. Contentions were rightly advanced on the 'clean slate' doctrine under the IBC. Reliance was placed on Ghanshyam Mishra (supra) and Essar Steel (supra). If the argument is accepted that a creditor must elect which part of the debt to enforce against the debtor or the guarantor, the creditor might lose the right to claim the remaining debt from either party after the CIRP concludes. 92. When election of remedies or claims is intended by the statute, such a provision must be express....
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....inst guarantors solely on this ground would be an overextension of the principle. That apart, we are of the view that sufficient safeguards exist as on date to prevent such double enrichment. Regulation 12A of the 2016 Regulations sets up an obligation upon the creditor to update its claim as and when it is satisfied, either partly or fully, from any other source. Regulation 12A reads as under: 12A. Updation of claim. A creditor shall update its claim as and when the claim is satisfied, partly or fully, from any source in any manner, after the insolvency commencement date. 98. In addition to regulation 12A, obligation is also cast upon the resolution professional to independently assess and update the claims from time to time. Reference may be made to regulation 14 of the 2016 Regulations, which reads as under: 14. Determination of amount of claim: (1) Where the amount claimed by a creditor is not precise due to any contingency or other reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best estimate of the amount of the claim based on the information available with him. (2) ....
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....ad also noted the issue. The report was referred by the NCLAT in Athena Energy Ventures (supra). We find it apposite to refer to the relevant portion of the report as under: 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. [Pollock and Mulla, Indian Contract and Specific Relief Acts vol. II (12th edn., LexisNexis Butterworks 2006) p. 1814-1816]. 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 and its surety and whether it should be permitted to file its claims in the CIRPs of both the principal borrower and its surety. Initiation of Concurrent Proceedings against the Principal Borrower & the Guarantor 7.2. The Committee noted that the A....
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....s 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. 7.5. However, the Committee noted that the Appellate Authority has, in certain cases, taken a view contrary to its decision taken in the Piramal Enterprises Ltd. [Dr. Vishnu Kumar Agarwal v M/s. Piramal Enterprises Ltd., Company Appeal (AT) (Insolvency) No. 346/2018, NCLAT. Decision date - 8 January 2019] case. For example, in Edelweiss Asset Reconstruction Company Limited v Sachet Infrastructure Pvt. Ltd. & Ors. Company Appeal (AT) (Insolvency) No. 377/2019, NCLAT. Decision date - 20 September 2019, the Appellate Authority has permitted simultaneous initiation of CIRP against the principal borrower and its corporate guarantors. Further, the Appellate Authority has also admitted a petition to review its aforesaid judgement in the Piramal Enterprises Ltd. case....
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....ark of a guarantee contract, and the availability of such remedy is in most cases the basis on which the loan may have been extended." [Ministry of Corporate Affairs, Report of the Insolvency Law Committee (2018) para 5.9, accessed 26 November 2019] 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. 7.9. As the right to simultaneous remedy is central to a contract of guarantee, the Committee suggested that in cases were both the principal borrower and the surety are undergoing CIRP, the creditor should be permitted to file claims in the CIRP of both of them. Since, as the Code does not prevent this, the Committee recommended that no amendments were necessary in this regard. 7.10. It was brought to the Committee that this right may be misused by a creditor to unjustly enrich herself by recovering an amount greater that what is owed to her. However, the right to simultaneous remedy under a contract of guarantee does not entitle a creditor to recover more than what is due to her, and the Committee agreed that upon recovery of an....