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2024 (7) TMI 1408 - SC - Insolvency and BankruptcyApplication u/s 7 of IBC is barred by limitation - maintainability of second Application under Section 7 of IBC, against the Corporate Debtor as for the same debt and default - CIRP has already been taken place against the Corporate Guarantor and the Financial Creditor has accepted the amount in full and final settlement of all its dues - HELD THAT - There is no dispute that the 1st respondent financial creditor had granted a loan of Rs.100 crores to the 2nd respondent corporate debtor. The loan was secured by the corporate guarantee furnished by ACIL, which is the holding company of the corporate debtor. There is no dispute that the 2nd respondent-corporate debtor committed a default in payment of the loan amount. Therefore, the guarantee was invoked by the 1st respondent-financial creditor, which led to the filing of an application under Section 7 of the IBC against ACIL. The CIRP of ACIL was completed, and the resolution plan was approved. The claim lodged by the 1st respondent-financial creditor was of Rs.241.27 crores. However, as per the resolution plan, the 1st respondent-financial creditor had to accept a haircut as it was provided therein that the 1st respondent-financial creditor would get only a sum of Rs.38.87 crores from the resolution applicant. Liability of Guarantor/surety - HELD THAT - The law is very well settled. The liability of the surety and the principal debtor is co-extensive. The creditor has remedies available to recover the amount payable by the principal borrower by proceeding against both or any of them. The creditor can proceed against the guarantor first without exhausting its remedies against the principal borrower. Chapter VIII of the Contract Act contains provisions regarding indemnity and guarantee. Section 137 lays down a settled principle that it is not necessary for the creditor to first sue the principal debtor or adopt a remedy against him. If the creditor omits to do that, unless there is a contract to the contrary, it will not amount to discharge of the surety. This means that without proceeding to recover the debt against the principal debtor, the creditor can proceed against the surety unless there is a contract to the contrary. Even if the creditor discharges one surety, it will not amount to the discharge of the other surety. There are two other contingencies provided under Sections 138 and 139 - if there is a compromise or settlement between the creditor and the surety to which the principal borrower is not a consenting party, the liability of the borrower qua the creditor will remain unaffected. The provisions regarding the discharge of the surety discussed above show that involuntary acts of the principal borrower or creditor do not result in the discharge of surety. In the case of Lalit Kumar Jain 2021 (5) TMI 743 - SUPREME COURT , this Court dealt with the legal effect of approving the resolution plan in CIRP of the corporate debtor on the liability of the surety. This is in the context of Section 135 of the Contract Act, which provides that if the creditor compounds with or gives time or agrees not to sue the principal debtor, it amounts to discharge of the surety. In such a loan transaction secured by a guarantee, the guarantor has an obligation to repay the loan amount to the creditor, and there is a separate and distinct obligation on the borrower to pay the amount to the creditor. Such a transaction creates a right in favour of the creditor to proceed against the guarantor and borrower for recovery. However, he has the right to recover the amount only to the extent of the loan amount payable by the borrower. Simultaneous proceedings under the IBC against the Corporate Debtor and Guarantor - HELD THAT - 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 co-extensive, 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. Whether the assets of the Corporate Debtor were part of CIRP in respect of ACIL, Corporate Guarantor - HELD THAT - There is a mandate of clause (d) of sub-section (4) of Section 36 of the IBC that the assets of an Indian subsidiary of the corporate debtor shall not be included in the liquidation estate assets and shall not be used for the recovery in liquidation. Section 18 entrusts several duties to the IRPs concerning the corporate debtor's assets. Consistent with the provisions of Section 36(4)(d), the explanation (b) to Section 18(1) provides that the term assets used in Section 18 shall not include the assets of any Indian subsidiary of the corporate debtor. Perhaps the reason for including these two provisions is that it is well-settled that a shareholder has no interest in the company's assets. A holding company and its subsidiary are always distinct legal entities. The holding company would own shares of the subsidiary company. That does not make the holding company the owner of the subsidiary's assets - the assets of the subsidiary company of the corporate debtor cannot be part of the resolution plan of the corporate debtor. By virtue of the CIRP process of ACIL (corporate guarantor), the 2nd respondent-corporate debtor does not get a discharge, and its liability to repay the loan amount to the extent to which it is not recovered from the corporate guarantor is not extinguished. Subrogation u/s 140 of the Contract Act - HELD THAT - The words used in Section 140 are upon payment or performance of all that he is liable for . When the principal debtor commits a default and when the liability under the deed of guarantee of the surety is not limited to a particular amount, its liability is in respect of the entire amount repayable by the principal debtor to the creditor. The words all that he is liable used under Section 140 cannot be ignored. The principal borrower must continuously indemnify the surety. Section 140 of the Contract Act may be founded on the said obligation - the surety gets invested with the rights of the creditor to recover from the principal debtor the amount which was paid as per the guarantee. If the surety pays only a part of the amount payable to the creditor, the equitable right the surety gets under Section 140 will be confined to the debt he cleared. Only the liability of ACIL under the corporate guarantee to repay the loan to the 1st respondent-financial creditor has been extinguished on the payment of Rs.38.87 crores. By the involuntary act of the creditor of accepting part of the amount from the surety in the discharge of the entire liability of the surety, even if Section 140 is attracted, it will confer on the guarantor or the appellant the right to recover only the amount mentioned above from the corporate debtor. The subrogation will be only to the extent of the amount recovered by the creditor from the surety. The view taken by NCLAT cannot be faulted. Accordingly, the appeal is hereby dismissed.
Issues Involved:
1. Whether the application under Section 7 of IBC is barred by limitation? 2. Whether the second application under Section 7 of IBC is maintainable against the Corporate Debtor after CIRP has already taken place against the Corporate Guarantor? Detailed Analysis: 1. Whether the application under Section 7 of IBC is barred by limitation? The appellant did not seriously press the issue of the bar of limitation in this appeal. The NCLAT rendered findings in favor of the respondents, confirming that the application under Section 7 of IBC was not barred by limitation. There is no dispute that the 1st respondent financial creditor had granted a loan of Rs.100 crores to the 2nd respondent corporate debtor, secured by a corporate guarantee furnished by ACIL. The 2nd respondent committed a default, leading to the invocation of the guarantee and subsequent CIRP against ACIL. The resolution plan was approved, and the financial creditor accepted a sum of Rs.38.87 crores from the resolution applicant. 2. Whether the second application under Section 7 of IBC is maintainable against the Corporate Debtor after CIRP has already taken place against the Corporate Guarantor? The NCLAT held that the second application under Section 7 of IBC was maintainable against the Corporate Debtor. The liability of the surety and the principal debtor is co-extensive, allowing the creditor to proceed against both or any of them. The creditor can recover the balance amount from the principal borrower even if a part of the debt is recovered from the surety. The approval of the resolution plan of the corporate guarantor (ACIL) does not discharge the principal borrower (2nd respondent) from its liability to repay the loan amount to the extent it is not recovered from the corporate guarantor. Liability of Guarantor / Surety: The liability of the surety is co-extensive with that of the principal debtor unless otherwise provided by the contract. Sections 133 to 139 of the Contract Act deal with the discharge of surety. The creditor can proceed against the guarantor without exhausting remedies against the principal borrower. The financial creditor's recovery of part of the amount from the surety does not extinguish the remaining debt payable by the principal borrower. Simultaneous Proceedings Under the IBC Against the Corporate Debtor and Guarantor: Section 60 of the IBC allows for separate or simultaneous insolvency proceedings against the corporate debtor and guarantor. Sub-section (2) of Section 60 contemplates separate or simultaneous insolvency proceedings against the corporate debtor and guarantor. 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. Whether the Assets of the Corporate Debtor Were Part of CIRP in Respect of ACIL - Corporate Guarantor: The assets of the 2nd respondent-corporate debtor were not part of the CIRP in respect of ACIL. The information memorandum published in accordance with Section 29 of the IBC indicates the business of ACIL and the 2nd respondent-corporate debtor. However, the assets of the subsidiary company cannot be part of the resolution plan of the holding company. Section 36(4)(d) of the IBC mandates that the assets of an Indian subsidiary of the corporate debtor shall not be included in the liquidation estate assets. Subrogation Under Section 140 of the Contract Act: Section 140 of the Contract Act provides that the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor. The surety's right of subrogation is confined to the debt he cleared. The appellant paid Rs.38.87 crores on behalf of ACIL, the corporate guarantor, and the subrogation right is limited to that amount. The financial creditor's right to recover the balance debt from the corporate debtor remains unaffected. Conclusion: 1. Liability of the Corporate Debtor: Payment of Rs.38.87 crores to the financial creditor under the resolution plan of the corporate guarantor-ACIL does not extinguish the liability of the 2nd respondent principal borrower/corporate debtor to pay the entire amount payable under the loan transaction after deducting the amount paid on behalf of the corporate guarantor. 2. Assets of Subsidiary: A holding company is not the owner of the assets of its subsidiary. Therefore, the assets of the subsidiaries cannot be included in the resolution plan of the holding company. 3. Simultaneous Applications: The financial creditor can file separate applications under Section 7 of the IBC against the corporate debtor and the corporate guarantor, and these applications can be filed simultaneously. The appeal is dismissed with no order as to costs.
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