2024 (4) TMI 826 - AT - Insolvency and Bankruptcy

Admission of Section 7 Application of the Financial Creditor - commission of default or not - Corporate Debtor / Guarantor failed to fulfil obligations - existence of debt and default or not - HELD THAT - Admittedly in the instant case on hand the Loans were given by the Financial Creditor / Bank to the Principal Borrower (Coastal Energen Private Limited) and the Corporate Debtor (Fossil Logistics Private Limited) is the Corporate Guarantor for the Loans availed by the Coastal Energen Private Limited as against the Coastal Energen Private Limited / Principal Borrower an Application for initiating CIRP was filed by the 1st Respondent / Bank before the Adjudicating Authority / Tribunal and an Order of Admission was passed on 04.02.2022 and later as against the above Order the Company Appeal filed by the Shareholder Cum Investor before this Appellate Tribunal came to be dismissed. In the present Appeal on hand before this Tribunal although a plea is taken by the Appellant that Corporate Insolvency Resolution Process cannot be initiated against the Guarantor if CIRP against the Principal Borrower was already initiated by the same Financial Creditor for the same set of Claim / Default this Tribunal unhesitatingly points out that the Liability of the Corporate Debtor / Guarantor is coextensive and that the Corporate Debtor having executed a Deed of Guarantee dated 05.07.2016 to and in favour of the 1st Respondent / Bank (Financial Creditor) is bound to act as per terms and conditions of the Guarantee. In reality the Corporate Debtor / Guarantor having not repaid the obligations of the Principal Borrower (M/s. Coastal Energen Private Ltd.) in Law is deemed to have committed Default. In the instant Appeal as per Clause 22 of the Deed of Guarantee dated 05.07.2016 executed by the Corporate Debtor / Corporate Guarantor (Fossil Logistics Private Ltd.) and the SBICAP Trustee Company Ltd. the Respondent / Corporate Debtor (Corporate Guarantor) in unequivocal terms had guaranteed to discharge and fulfill the obligations of the Guarantee - it cannot be brushed aside that Clause 3 5 of the Deed of Guarantee dated 05.07.2016 unerringly mentions that the Guarantor (Corporate Debtor) shall Indemnify and keep indemnified the Secured Parties Viz. 1st Respondent / Bank against Losses Damages Costs Claims and Expenses whatsoever which the Secured Parties would suffer. As on date there is no embargo under the I B Code 2016 to initiate simultaneous / independent proceedings under Section 7 of the I B Code 2016 by a Financial Creditor against the Principal Borrower and the Corporate Debtor / Guarantor in the considered opinion of this Tribunal. The Impugned Order of the Adjudicating Authority / Tribunal in admitting the Section 7 Application of the 1st Respondent / Bank for initiating Corporate Insolvency Resolution Process against the Corporate Debtor (Guarantor) is perfectly in order - Accordingly the instant Appeal sans merits and it fails. Appeal dismissed.

Summary

Issues Involved:
1. Legal Infirmity in the Impugned Order
2. Initiation of Corporate Insolvency Resolution Process (CIRP) against Corporate Guarantor
3. Liability of Corporate Debtor as Guarantor
4. Discretionary Power of Adjudicating Authority
5. Simultaneous Proceedings against Principal Borrower and Guarantor

Summary:

1. Legal Infirmity in the Impugned Order:
The Appellant, a suspended director of the Corporate Debtor, challenged the order dated 15.06.2023, passed by the National Company Law Tribunal (NCLT), Chennai, admitting the Section 7 application filed by the Financial Creditor (State Bank of India) and appointing an Interim Resolution Professional. The Appellant contended that the order suffers from "Legal Infirmity" and overlooked the judgment in Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd., which held that a second application under Section 7 for the same claim cannot be admitted against another Corporate Debtor.

2. Initiation of Corporate Insolvency Resolution Process (CIRP) against Corporate Guarantor:
The Appellant argued that CIRP cannot be initiated against a Corporate Guarantor if CIRP has already been initiated against the Principal Borrower by the same Financial Creditor for the same claim. The Appellant also claimed that the amount in default is incorrect and that the Corporate Debtor has not committed any default on its own.

3. Liability of Corporate Debtor as Guarantor:
The Appellant pointed out that the Corporate Debtor's liability was limited to the value of lands provided as security, as per the Deed of Guarantee dated 05.07.2016. The Financial Creditor argued that the liability of the Guarantor is co-extensive with that of the Principal Borrower, and CIRP can be initiated simultaneously against both. The Financial Creditor cited multiple judgments, including Laxmi Pat Surana v. Union of India, to support this claim.

4. Discretionary Power of Adjudicating Authority:
The Appellant cited the Supreme Court judgment in Vidarbha Industries Power Limited v. Axis Bank Limited, emphasizing that the IBC is not meant to penalize solvent companies capable of repaying their debts. The Appellant argued that the Adjudicating Authority has discretionary power to admit or reject a Section 7 application based on the facts and circumstances of the case.

5. Simultaneous Proceedings against Principal Borrower and Guarantor:
The Financial Creditor and the Resolution Professional contended that there is no prohibition under the IBC to initiate simultaneous CIRP proceedings against both the Principal Borrower and the Corporate Guarantor. They cited judgments, including the one in Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Ltd., which allowed for such simultaneous proceedings.

Conclusion:
The Tribunal concluded that the liability of the Corporate Debtor as a Guarantor is co-extensive with that of the Principal Borrower. It found no legal infirmities in the NCLT's order admitting the Section 7 application against the Corporate Debtor. The appeal was dismissed, and the NCLT's order was affirmed.