NCLAT: Financial Creditor can simultaneously initiate CIRP against Principal Borrower and Corporate Guarantor
In this case, the National Company Law Appellate Tribunal (NCLAT) posed with the question of law as to whether for the debt due, is it admissible for the Financial Creditor to file separate claims:- (i) In the CIRP of the Corporate Guarantor; and (ii) In the CIRP of the Principal Borrower.
The Tribunal answered in the affirmative and ruled that a creditor can file two separate claims in the Corporate Insolvency Resolution Process ("CIRP") of both the Principal Borrower and Guarantor/Surety at the same time under Section 60 of Insolvency and Bankruptcy Code, 2016 (IBC).
As to the facts of the case, the State Bank of India (Appellant) had granted Term Loan to Purple Advertising Services Pvt. Ltd. (Principal Borrower) which subsequently became Non-Performing Asset (NPA) including the present Respondent No.1 (Corporate Guarantor) as their liability being co-extensive, they became liable to pay outstanding dues for an amount of Rs. 29 crore.
Later, the United Bank of India filed an application with the National Company Law Appellate Tribunal (NCLT) for initiation of CIRP against the Principal Borrower. The SBI has filed its claim before the Resolution Professional (RP) according to the Appellant Bank, it may not get any substantial sum (approx. less than 10% of the dues) in the CIRP of the Principal Borrower even if any resolution is found.
However, after discussing the claim with the CoC, the RP intimated the Appellant bank that the claim appears to be "not tenable in the eye of law" and that the "onus on the admissibility" of the claim is with the CoC. Aggrieved, the Bank approached the NCLT for accepting its claim and for reconstitution of the CoC by including the Appellant as a member of CoC.
However, the Adjudicating Authority held that the claim of the Appellant Bank against the Corporate Guarantor was not admissible as Appellant had filed claim in the CIRP which was filed against the Principal Borrower also. The Adjudicating Authority dismissed the case without discussing the provisions as appearing in Section 60 of the IBC which have been amended.
On appeal, the NCLAT held that till the payment is received in one CIRP, claim can be maintained in both CIRPs, for same amount and representation in CoC in both CIRPs to the extent of amount due will be justified. The Tribunal also held that Section 60(3) of the IBC provides for transfer of proceeding to Adjudicating Authority where already there is a pending proceeding.
The Tribunal stated, "There is no question of looking into Judgments when Section 60 of IBC is clear and makes the two CIRPs maintainable in such matters. If they are maintainable, claim in both (subject to adjustments on receipts) would also be maintainable."
The Tribunal relied on its earlier judgment in "Edelweiss Asset Reconstruction Company Ltd. V. Sachet Infrastructure Ltd." wherein it was held that the Financial Creditor can proceed against the Principal Borrower as well as Corporate Guarantor at the same time, either in CIRPs or file claims in both CIRPs.
The Tribunal directed the Respondent to consider the claim of the Appellant Borrower and appropriately deal with the Appellant as Financial Creditor in the CoC.