2018 (9) TMI 2132 - Tri - Insolvency and Bankruptcy

Maintainability of application - Whether the Insolvency Application can be Admitted against the Co-obligor where the CIRP against the Principal Borrower is already commenced? - HELD THAT - This Petition/Application is filed much before the passing of Resolution Plan or any Order for Liquidation in the case of Principal Borrower hence as regards to the submissions made by the Learned Advocate for the Debtor/Co-obligor about Discharge of Surety it is worth to place on record the legal position that the surety is discharged as soon as the Principal Borrower is discharged from his liabilities. It is noticed that in the Insolvency Proceedings the discharge of the liabilities of Principal Borrower happens at the time of approval of Resolution Plan and the Debt of the Principal Borrower is not discharged in absence of the Resolution Plan in the case of Principal Borrower. And therefore the provisions of the S. 134 of the Indian Contract Act 1872 cannot be applied upon the Debtor/Co-obligor. If the Resolution Plan got approved in the case of Principal Borrower then in that case the Debt would have been Discharged. But here the case is not so. Since the Debtor/Co-obligor is a co-obligor to the VIL he is bound to fulfil an obligation of the VIL. Further VIL is not a Third Party to the Debtor/Co-obligor thus jointly to be called as Guarantor to the Principal Debtor/Co-obligor. The Bench is also acquainted with the decision of this very Bench in the case of Schweitzer Systemtek India Private Limited 2017 (8) TMI 1678 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI wherein it was held that the Moratorium is only applicable to the assets of the Debtor/Co-obligor and not to the assets of the Guarantors - And also with the decision of this very Bench in the case of Bell Finvest (India) Limited v. Asha s Hospitality and Management Facility Private Limited wherein this Bench has Admitted the Insolvency Application against the Corporate Guarantor and also against the Principal Borrower. There is no cause for dissenting from the co-ordinate Benches and therefore this Petition/Application deserves to be Admitted - Application admitted - commencement of the Corporate Insolvency Resolution Process shall be effective from the date of receipt of the certified copy of this Order.

Summary

Issues:
Admission of Insolvency Application against Co-obligor when CIRP against Principal Borrower is ongoing.

Analysis:

1. Admission of Insolvency Application:
The Petitioner, a Financial Creditor, filed an Insolvency Application under Section 7 of the Insolvency and Bankruptcy Code against the Debtor/Co-obligor, a co-obligor of the Principal Borrower, for a total debt amount of 456.90 Crores. The Financial Creditor argued that the Debtor/Co-obligor is jointly and severally liable to repay the loan amount, justifying the Admittance of the Application.

2. Submissions by Financial Creditor:
The Financial Creditor contended that the Debtor/Co-obligor is liable for the debt default as per the Code's provisions. They highlighted that the CIRP against the Principal Borrower had already commenced, indicating a default on the part of the Debtor/Co-obligor.

3. Submissions by Corporate Debtor/Co-obligor:
The Corporate Debtor/Co-obligor argued against the maintainability of the Application, claiming that the debt was not directly disbursed to them. They contended that since the CIRP against the Principal Borrower was ongoing, the debt was discharged, and initiating CIRP against them was unjust.

4. Findings and Decision:
The Tribunal analyzed the legal positions and definitions of co-obligor and contract of guarantee. It noted that the Debtor/Co-obligor is bound to fulfill the obligations of the Principal Borrower and is not a third party. Referring to similar cases, the Tribunal found no reason to dissent from previous decisions and admitted the Application against the Debtor/Co-obligor.

5. Appointment of Interim Resolution Professional:
The Tribunal appointed an Interim Resolution Professional to conduct the Insolvency Resolution Process and declared a Moratorium under Section 14 of the Code. Essential services to the Debtor/Co-obligor were to continue, and Public Announcement of the Insolvency Resolution Process was mandated.

6. Conclusion:
The Tribunal admitted the Insolvency Application against the Debtor/Co-obligor, effective upon receipt of the certified copy of the Order. The Interim Resolution Professional was tasked with reporting progress within 30 days. The Moratorium was to be in effect until the completion of the Resolution Plan process.

This detailed analysis outlines the key legal arguments, findings, and decisions made by the Tribunal regarding the admission of the Insolvency Application against the Co-obligor in the context of an ongoing CIRP against the Principal Borrower.