38.6c New Delhi, India, Thursday, March 28, 2024
Business

Creditor Can Proceed Against Corporate Guarantor Before Proceeding Against The Corporate Debtor: NCLAT [Read Order]

By LawStreet News Network      11 January, 2019 12:00 AM      0 Comments
Creditor Can Proceed Against Corporate Guarantor Before Proceeding Against The Corporate Debtor: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) on January 8, 2019, has held that financial creditor can proceed against corporate guarantor even before proceeding against the corporate debtor.

A Bench comprising of Chairperson Justice S.J. Mukhopadhaya and Member (Judicial) Justice Bansi Lal Bhat was hearing appeals filed by two companies - Sunrise Naturopathy and Resorts Pvt. Ltd. and Sunsystem Institute of Information Technology Pvt. Ltd.

The companies stood as guarantors to a loan amounting to Rs. 38,00,00,000/- advanced to All India Society for Advance Education and Research (Principal Borrower) by M/s. Piramal Enterprises Ltd (Financial Creditor).

When default occurred in repayment, the financial creditor filed applications for initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code against the two guarantors which NCLT admitted.

This action of NCLT was challenged by the two guarantors contending that Corporate Insolvency Resolution Process cannot be initiated against guarantors, without proceeding against the debtor.

It was also submitted that for the same set of claim amount and debt, two Corporate Insolvency Resolution Processes cannot be initiated against two different corporate guarantors.

The learned counsel appearing on behalf of the financial creditor controverted the argument and said that both guarantors being separate entity and both guarantors having guaranteed for the same set of amount, even in absence of initiation of CIRP against the principal borrower, two separate applications under Section 7 can be filed against respective guarantors.

The questions arisen for consideration in these appeals are:

  1. 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;
  2. Whether the ‘Corporate Insolvency Resolution Process’ can be initiated against two ‘Corporate Guarantors’ simultaneously for the same set of debt and default?

The Bench relying on several Supreme Court precedents held that the liability of guarantor is co-extensive with the liability of principal borrower. Thus answering the first question against the appellant.

The Bench said that “we hold that it is not necessary to initiate 'Corporate Insolvency Resolution Process' against the 'Principal Borrower' before initiating 'Corporate Insolvency Resolution Process' against the 'Corporate Guarantors'. Without initiating any 'Corporate Insolvency Resolution Process' against the 'Principal Borrower', it is always open to the 'Financial Creditor' to initiate 'Corporate Insolvency Resolution Process' under Section 7 against the 'Corporate Guarantors', as the creditor is also the 'Financial Creditor' qua 'Corporate Guarantor'.”

However, in regard to the second question, the Bench held that once an application under Section 7 is admitted, another application for the same debt cannot be filed. In this case, the applications under Section 7 were admitted against both the corporate guarantors. This was held to be an improper course of action by NCLT.

It was held that “Once for same claim the 'Corporate Insolvency Resolution Process' is initiated against one of the 'Corporate Debtor' after such initiation, the 'Financial Creditor' cannot trigger 'Corporate Insolvency Resolution Process' against the other 'Corporate Debtor(s)', for the same claim amount (debt).”

In view of the above, NCLAT quashed the Corporate Insolvency Resolution Process against the second corporate guarantor.



Share this article:

User Avatar
About:


Leave a feedback about this
TRENDING NEWS

sc-declines-to-reconsider-judgement-holding-conspiracy-to-be-scheduled-offence-under-pmla-only-if-offence-specifically-mentioned
Trending Judiciary
SC declines to reconsider judgement holding conspiracy to be scheduled offence under PMLA only if offence specifically mentioned [Read Order]

Supreme Court declines review, confirms conspiracy must relate to a scheduled offence under PMLA, dismissing appeal on money laundering charges.

27 March, 2024 07:40 PM
arvind-kejriwals-plea-for-interim-release-rejected-by-delhi-high-court
Trending Judiciary
Arvind Kejriwal's plea for interim release rejected by Delhi High Court [Read Order]

Delhi High Court rejects Arvind Kejriwal's plea for interim release in money laundering case related to liquor policy scam, pending ED's response.

28 March, 2024 10:50 AM

TOP STORIES

global-entertainment-giants-warner-bros-netflix-amazon-get-relief-from-delhi-hc-in-copyright-protection-case
Trending Business
Global entertainment giants Warner Bros, Netflix, Amazon get relief from Delhi HC in copyright protection case

Delhi HC grants relief to global entertainment giants like Netflix, Amazon, Warner Bros, ordering takedown of copyrighted content on rogue websites.

22 March, 2024 12:13 PM
arvind-kejriwal-arrested-can-cm-administer-a-region-while-being-in-jail
Trending Top Stories
Arvind Kejriwal Arrested | Can CM administer a region while being in jail?

Will President's rule be imposed in Delhi after Kejriwal’s arrest? Read the full article to know more.

22 March, 2024 03:16 PM
merely-because-you-are-politician-cant-bypass-statutory-remedies-procedure-sc-refuses-to-consider-bail-by-kavitha
Trending Judiciary
'Merely because you are politician, can't bypass statutory remedies, procedure,' SC refuses to consider bail by Kavitha

Supreme Court denies bail to politician Kavitha in Delhi Liquor Policy Scam; ED alleges Rs 100 crore illegal gratification.

22 March, 2024 03:34 PM
ponmudi-to-be-sworn-in-as-minister-tn-governor-relents-before-sc
Trending Judiciary
Ponmudi to be sworn in as Minister, TN Governor relents before SC

Tamil Nadu Governor relents to Supreme Court's order, agrees to swear in DMK leader K Ponmudi as Minister after court's rap.

22 March, 2024 03:54 PM

ADVERTISEMENT


Join Group

Signup for Our Newsletter

Get Exclusive access to members only content by email