2020 (2) TMI 1562 - AT - Insolvency and Bankruptcy

Allowance of same claim twice - duplicity of claims - application dismissed on the ground that since claim lodged by the Financial Creditor before Resolution Professional in CIRP against the Principal Borrower has already been collated and admitted it is not permissible to allow the same claim to be again - HELD THAT - Once the Financial Creditor s claim has been collated and admitted by the IRP in its entirety invoking of jurisdiction of the Adjudicating Authority at its instance for triggering a fresh Corporate Insolvency Resolution Process against the Corporate Guarantor would amount to duplicity of claims being pressed. The fact that the Resolution Plan is yet to be approved by the Adjudicating Authority and the Financial Creditor may be faced with the prospect of taking a haircut is no ground to trigger a fresh resolution process against the Corporate Guarantor. Assuming but not holding that the Corporate Guarantors liability is coextensive with that of the Principal Borrower in the instant case with no proof of record that there is no contract to the contrary within the meaning of Section 128 of the Indian Contract Act and there has been no subsequent variance in terms of contract between the Financial Creditor and the Principal Borrower apprehension of Financial Creditor that in the resolution process initiated against the Principal Borrower which is still underway its total claim will not be satisfied has to be termed as speculative and a figment of imagination. This being a second application for same set of claim and arising out of the same default cannot be admitted against the Corporate Guarantor while CIRP initiated against the Principal Borrower is still subsisting. Appeal dismissed - decided against appellant.

Summary

Issues:
Application under Section 7 of Insolvency and Bankruptcy Code, 2016; Triggering Corporate Insolvency Resolution Process against Corporate Debtor; Liability of Corporate Guarantor; Duplicity of Claims in Insolvency Proceedings.

Analysis:
1. The Appellant, a Financial Creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code seeking to trigger the Corporate Insolvency Resolution Process against the Corporate Debtor, a Corporate Guarantor for a defaulted loan. The Adjudicating Authority dismissed the application citing duplicity of claims, as the Financial Creditor had already lodged a claim against the Principal Borrower in a separate proceeding. The appeal was filed against this decision.

2. The Appellant argued that the liability of the Corporate Debtor as a Corporate Guarantor is joint and coextensive with that of the Principal Borrower, emphasizing that the Guarantor cannot escape its obligation to repay the debt unless there is a specific contract stating otherwise.

3. Referring to Section 128 of the Indian Contract Act, it was highlighted that the Guarantor's liability is generally coextensive with that of the Principal Debtor unless there is an explicit provision in the contract stating otherwise. Any changes made to the contract without the Surety's consent can discharge the Surety from further liability, as per Section 133 of the Indian Contract Act.

4. The factual background revealed that the Corporate Debtor guaranteed a loan to the Principal Borrower, and the Financial Creditor sought to trigger the Corporate Insolvency Resolution Process against the Corporate Debtor after the Principal Borrower defaulted on the loan. The Financial Creditor had already initiated proceedings against the Principal Borrower separately.

5. The Adjudicating Authority noted that the Financial Creditor's claim had been admitted in the proceedings against the Principal Borrower, and initiating a fresh process against the Corporate Guarantor would amount to duplicity of claims. The Authority relied on a previous judgment to support this decision.

6. The Tribunal upheld the Adjudicating Authority's decision, stating that triggering a new resolution process against the Corporate Guarantor while the process against the Principal Borrower was ongoing would be duplicative. The Tribunal emphasized that unless there was evidence of a contract stating otherwise, the Guarantor's liability remains tied to that of the Principal Borrower.

7. The appeal was dismissed, concluding that the Financial Creditor's concerns about the resolution process against the Principal Borrower were speculative, and initiating a new process against the Corporate Guarantor was unwarranted. The judgment reaffirmed the principle that a second application for the same claim arising from the same default cannot be entertained when proceedings against the Principal Borrower are active.