The National Company Law Appellate Tribunal (NCLAT), in its current ruling inside the case of Vishnu Kumar Agarwal v Piramal Enterprises Ltd, while analyzing the validity of an utility made under segment 7 of the Insolvency and Bankruptcy Code, 2016 (code), in opposition to company guarantors, held that: (1) there is no bar on submitting two simultaneous programs underneath segment 7 against the principal borrower as well as the corporate guarantors and against both guarantors; and (2) it is not necessary to initiate a corporate insolvency resolution technique (CIRP) towards the main borrower before initiating a CIRP in opposition to the corporate guarantors.
The NCLAT become hearing the appeal desired by using one of the shareholders against the order of the National Company Law Tribunal, New Delhi, initiating CIRP against the company guarantors.
The CIRP court cases have been initiated as the major debtor, being a society, turned into now not amenable to the insolvency lawsuits underneath the code.
Moreover, separate insolvency packages had been filed through the creditor and admitted simultaneously against the 2 corporate guarantors for the identical claim quantity and default.
The NCLAT held that the liability of the corporate guarantors is coextensive with the fundamental debtor, and consequently there may be no requirement underneath the code to exhaust the treatments against the main debtor earlier than initiating court cases towards the corporate guarantors, as laid down by using the Supreme Court within the case of Bank of Bihar v Damodar Prasad and Anr (1969) and State Bank of India v Indexport Registered and Ors (1992).
Further, it held that once, for the identical set of claims, an utility beneath phase 7 filed by means of the monetary creditor is admitted against one of the corporate debtors (major borrower or company guarantors, the monetary creditor can not eventually provoke a CIRP towards the alternative company debtor (the corporate guarantors or the main borrower) for the equal set of claims and default.
This case additionally follows the Supreme Court’s judgment inside the case of State Bank of India v V Ramakrishnan (applicability of moratorium to the company guarantors), denying the corporate guarantors the choice of insulating themselves from the healing proceedings as against the default by using the main borrowers or debtors.
By upholding the standards of the law of guarantee to insolvency applications made under the code, the above ruling over again provides an perception into the concepts of interpretation of the provisions of the code in consonance with the provisions of the Indian Contract Act, 1872 (act).
However, the tribunal did now not address situations in which the creditor may additionally pick to claim the simplest part of the debt from one of the company guarantors. This question continues to be open to interpretation. In this regard, it can be pertinent to do not forget sections 146 and 147 of the act, which affords for the limit of legal responsibility of the guarantors according to to the settlement of guarantee. Hence, the validity of packages filed concurrently in such situations stays a contentious problem.
The above ruling is in comparison with an in advance order of the NCLAT in the case of Export-Import Bank of India v CHL Limited. In this case, the tribunal held that in which the reconciliation of the declared quantity is pending with the most important borrower, the creditor can’t continue to problem lawsuits towards company guarantors.
Only while the foremost borrower fails to pay the reconciled amount, might the creditor be entitled to invoke the company guarantee against the company guarantors. The linked question, however, is if there are reconciliation issues pending with regards to the claim amount, might the equal quality as a dispute beneath the code?
The ruling within the CHL Limited case may be outstanding from the Vishnu Agarwal case judgment in as tons as the amount claimed was not settled with the essential borrower, and the reconciliation of the interest turned into pending.
However, leaving apart the difference in the actual matrix it is going to be thrilling to peer how those conflicting judgments may be implemented inside the future. At the time of publication, the Vishnu Agarwal judgment has been appealed within the Supreme Court and is pending admission. Hence, it’d be applicable to look the Supreme Court’s view on this.