2020 (1) TMI 1422 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor is a Guarantor in respect of the loan given to the Principal Borrower - Principal Borrower defaulted in making payment - whether CIRP can be triggered against both the Principal Borrower (as Corporate Debtor) and Corporate Guarantor on same set of claim when CIRP on Principal Borrower is already started? - HELD THAT - Once it is alleged that the Principal Borrower has defaulted it cannot trigger against both the Principal Borrower (as Corporate Debtor) and Corporate Guarantor (as Corporate Debtor). For same set of claim two companies cannot go for liquidation which will be against the principles of I B Code. Reliance can be placed in the case of DR. VISHNU KUMAR AGARWAL VERSUS M/S. PIRAMAL ENTERPRISES LTD. 2019 (2) TMI 316 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI where it was held that once for same set of claim application under Section 7 filed by the Financial Creditor is admitted against one of the Corporate Debtor (Principal Borrower or Corporate Guarantor(s)) second application by the same Financial Creditor for same set of claim and default cannot be admitted against the other Corporate Debtor (the Corporate Guarantor(s) or the Principal Borrower). Also the Respondent has taken specific plea that the Corporate Debtor is Non-Banking Financial Company (NBFC) and do not come within the definition of Financial Services as defined under Section 3(16) or within the definition of Financial Service Provider as defined under Section 3(17) of the I B Code . Appeal dismissed.

Summary

Issues:
1. Condonation of delay in appeal filing.
2. Rejection of application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
3. Maintainability of application against Corporate Guarantor.
4. Simultaneous filing of applications against Principal Borrower and Corporate Guarantor.
5. Interpretation of provisions under the Insolvency and Bankruptcy Code.
6. Classification of Corporate Debtor as a Non-Banking Financial Company.

Condonation of Delay:
The judgment starts by addressing the delay of 14 days in filing the appeal and states that the delay is condoned after hearing the counsel for the Appellant and being satisfied with the grounds presented.

Rejection of Application under Section 7:
The Appellant, claiming to be a Financial Creditor of the Corporate Debtor, moved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, which was rejected by the Adjudicating Authority. The rejection was based on the ground that the Corporate Debtor acted as a Guarantor for a loan given to the Principal Borrower, against whom another application under Section 7 had already been admitted.

Maintainability of Application against Corporate Guarantor:
The Tribunal referred to a previous decision where it was held that once an application against the Principal Borrower is admitted, a second application against the Corporate Guarantor for the same set of claim and default cannot be admitted. The Tribunal did not accept the submission that the application against the Corporate Debtor is simultaneously maintainable.

Simultaneous Filing of Applications:
It was emphasized that for the same set of claim and default, a Financial Creditor can only initiate one proceeding against either the Principal Borrower or the Corporate Debtor under Section 7. Triggering proceedings against both entities for the same default is not permissible under the Insolvency and Bankruptcy Code.

Interpretation of Provisions under the Insolvency and Bankruptcy Code:
The judgment highlighted the interpretation of the Insolvency and Bankruptcy Code provisions regarding filing applications against Principal Borrowers and Corporate Guarantors. It was clarified that two companies cannot go for liquidation for the same set of claim, as it goes against the principles of the Code.

Classification of Corporate Debtor as a Non-Banking Financial Company:
The Respondent argued that the Corporate Debtor is a Non-Banking Financial Company (NBFC) and does not fall under the definition of Financial Services or Financial Service Provider as per the Insolvency and Bankruptcy Code. Based on this argument, the Tribunal did not interfere with the rejection of the application under Section 7.

In conclusion, the appeal was dismissed, and no costs were awarded. The judgment provided a detailed analysis of the issues involved, emphasizing the principles and interpretations of the Insolvency and Bankruptcy Code in the context of the specific case.