In a recent case before the NCLT, the financial creditor had filed an application to proceed against the corporate guarantors, who had guaranteed the repayment of a loan advanced by the financial creditor to the Corporate Debtor. The Judicial Tribunal, however, held that the nothing prevents the financial creditor from proceeding against the corporate guarantor. Therefore, Corporate Insolvency Resolution Process, under section 7 of the Insolvency and Bankruptcy Code, need not necessarily be initiated against the Corporate Debtor before proceeding against the Corporate Guarantor.
By citing some Supreme Court Judgements, the NCLT held that the liability of the Corporate Debtor is co-extensive with that of the Corporate Guarantor. The Hon’ble Bench also stated about the counter-indemnity obligation that exists on the Corporate Debtor’s part towards the Corporate Guarantor since the 'financial debt' in section 5(8)(h) of the IBC covers such obligation.
After hearing the contentions from both the sides, Chairperson Justice S J Mukhopadhyaya said that subsequent application for the same subject-matter under section 7 of the IBC could not be filed. In this case, the admission of application against the two corporate guarantors has been held as an improper course of action. The Tribunal said that once the CIRP is initiated against the Corporate Debtor for financial debt, another application against the same debt could not be filed. Hence, the CIRP against the second corporate guarantor was quashed to be invalid.
Courtesy/By: Sandeep G
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12 Jan 2019
