NCLT Admits Section 7 Petition Against Corporate Guarantor, Holds IBC Proceedings Distinct from Recovery Actions

NCLT Admits Section 7 Petition Against Corporate Guarantor, Holds IBC Proceedings Distinct from Recovery Actions

Introduction

The National Company Law Tribunal (NCLT) Kolkata bench of Smt. Bidisha Banerjee (Judicial Member) and Cmde Siddharth Mishra (Technical Member) has admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Vasupujya Enterprises Pvt. Ltd., a corporate guarantor of Ankit Metal & Power Ltd.

Factual Background

UCO Bank had extended various capital facilities to Ankit Metal & Power Ltd. (AMPL) which were secured by a corporate guarantee given by Vasupujya Enterprises. After repeated defaults, the account of the corporate debtor was classified as Non-Performing Assets (NPA) in 2014. AMPL defaulted even after execution of a Master Restructuring Agreement in 2014.

Procedural Background

The Bank issued a notice under SARFEASI Act and later initiated recovery proceedings before the Debt Recovery Tribunal (DRT). Thereafter, it filed a petition under Section 7 of the IBC seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Guarantor.

Contentions of Parties

Petitioner’s Contentions: The applicant submitted that the limitation period was extended through multiple acknowledgments and payments made by AMPL by which the corporate guarantor was equally bound as per clause 29 of the Deed. It relied on the Supreme Court's judgment in Laxmi Pat Surana.

Respondent's Contentions: The respondent submitted that the petition was time-barred as no fresh cause of action existed since the guarantee was invoked only in 2019. Multiplicity of proceedings against the borrower and the guarantor are not permissible.

Reasoning and Analysis

The Tribunal held that payments made by the corporate debtor till 23.08.2018, revival letter of 2017, audited balance sheets, and the Supreme Court's suo moto order during COVID collectively extended the period of limitation for the purpose of filing the present petition. It observed that the creditor is not mandated to exhaust all remedies against the borrower from moving against the guarantor.

Implications

The judgment highlights that there is no bar under the IBC from simultaneously filing two applications under Section 7 of the IBC against the borrower as well as the guarantor. However, once a petition is admitted against any of them for the same set of claims, the second petition under Section 7 of IBC cannot be admitted.

In this case the petitioner was represented by Mr. S.K. Ray, Ms. Zeba Khan, Ms. Muskan Saha and Ms. Ashmita Lohia, Advocates. Meanwhile the respondent was represented by Mr. Shaunak Mitra, Mr. Snehasish Sen and Ms. Mihika Roy, Advocates.