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2020 (4) TMI 503 - Tri - Insolvency and BankruptcyApproval of Resolution Plan - CIRP - whether by virtue of approval of the resolution plan for Adhunik Alloys and Power Limited -(the Principal Debtor of State Bank of India) and State Bank of India has consented for approval of that plan, right to file this proceeding against Corporate Debtor who is the guarantor of Adhunik Alloys and Power Limited for any default? - HELD THAT - If we peruse the relevant portion of the resolution plan for Adhunik Alloys and Power Limited, approved by this Adjudicating Authority, we certainly come to know that the guarantor is not exonerated or discharged from its liability of paying balance outstanding though SBI - one of the members of the CoC in that proceeding gave consent for the approval of the plan. Under the I B Code, 2016, the debtor is discharged on approval and implementation of the resolution plan. The resolution plan is approved when the Adjudicating Authority is satisfied that the resolution plan is approved by CoC and its contents are in accordance with the law. Therefore, the principal debtor discharged under I B Code, 2016 not on the instance of a creditor but due to operation of law that is approval of the resolution plan. Hence, the Guarantor is not discharged of its liability towards the creditor on discharge of principal debtors liability under the I B Code, 2016. The application filed by the Financial Creditor under section 7 of the Insolvency Bankruptcy Code, 2016 for initiating Corporate Insolvency Resolution Process against the Corporate Debtor, M/s Sungrowth Share Stocks Ltd., is hereby admitted - Application admitted - moratorium declared.
Issues Involved:
1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016. 2. Liability of the Corporate Guarantor post-approval of the resolution plan for the principal debtor. 3. Application of Section 135 of the Indian Contract Act, 1872. Issue-wise Detailed Analysis: 1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016: The State Bank of India (Financial Creditor) filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against M/s Sungrowth Share & Stock Limited (Corporate Debtor) to initiate the Corporate Insolvency Resolution Process (CIRP) due to a default in paying a financial debt of ?63,04,53,226. The Corporate Debtor did not dispute its status as a guarantor but challenged the maintainability of the proceeding, arguing that the approval of the resolution plan for the principal debtor, M/s Adhunik Alloys and Power Limited, discharged its liability. The Tribunal found the application maintainable, noting that the debt amount exceeded the permissible limit under Section 4 of the IBC, 2016, and the Corporate Debtor had defaulted in paying the debt. 2. Liability of the Corporate Guarantor post-approval of the resolution plan for the principal debtor: The primary issue was whether the approval of the resolution plan for Adhunik Alloys and Power Limited discharged the guarantor, M/s Sungrowth Share & Stock Limited, from its liability. The Tribunal referred to the deed of guarantee, which explicitly stated that the guarantor's liability was independent and distinct from any security taken by the lender. The guarantee would not be prejudiced by any absorption or amalgamation of the lender and would remain enforceable regardless of any dispute between the lender and the borrower. The Tribunal concluded that the guarantor was not exonerated from its liability to pay the balance outstanding, even though the State Bank of India had consented to the resolution plan of the principal debtor. 3. Application of Section 135 of the Indian Contract Act, 1872: The Corporate Debtor argued that under Section 135 of the Indian Contract Act, 1872, it stood discharged because the Financial Creditor had entered into a compromise with the principal debtor by consenting to the resolution plan. Section 135 states that a surety is discharged if the creditor makes a composition with or promises not to sue the principal debtor unless the surety assents to such a contract. The Tribunal cited the judgment of the Hon'ble NCLAT in Lalit Mishra v. Sharon Bio Medicine Ltd., which held that proceedings under the IBC are not recovery proceedings but aim to revive the company and maximize the value of its assets. Therefore, the discharge of the principal debtor under the IBC, 2016, does not discharge the guarantor's liability. The Tribunal held that the guarantor could not claim discharge under Section 135 of the Indian Contract Act, 1872, as the discharge of the principal debtor was due to the operation of law, not at the instance of the creditor. Conclusion: The Tribunal admitted the application filed by the State Bank of India under Section 7 of the IBC, 2016, to initiate CIRP against M/s Sungrowth Share & Stock Limited. A moratorium was declared, and Mr. Kamal Nayan Jain was appointed as the Interim Resolution Professional. The Tribunal directed the Financial Creditor to pay an advance fee to the IRP and instructed the Registry to communicate the order to all concerned parties. The matter was listed for the filing of the progress report on 18-10-2019.
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