Can a Creditor claim a part amount of debt from Principal Borrower which was not received from resolution of Guarantor under IBC?
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On 11 May, 2021, in Kanwar Raj Bhagat (2021) ibclaw.in 228 NCLAT, NCLAT upheld decision of the Adjudicating Authority where AA had admitted second application against Principal Borrower and it held that the second Application under Section 7 of IBC is maintainable against the Corporate Debtor(Principal Borrow) as for the same debt and default, CIRP has already been taken place against the Corporate Guarantor and the Financial Creditor has accepted the amount in full and final settlement of all its dues.
NCLAT held that application under Section 7 of the IBC against the Corporate Debtor for the same debt and default is maintainable in the light of judgment of Athena Energy Ventures Pvt. Ltd. (2020) ibclaw.in 344 NCLAT. The right of recovery of debt of Financial Creditor available against the Corporate Guarantor has extinguished. It is useful to refer to the judgment passed by the Hon’ble High Court of Calcutta in the case of Gouri Shankar Jain Vs. Punjab National Bank & Anr. [2019] ibclaw.in 01 HC. In Gouri Shankar Jain, where the issue was that whether liability of the personal guarantor stand consequently reduced or extinguished on the secured financial creditor receiving the payments in terms of a Resolution Plan in respect of a company undergoing a process of CIRP under the provisions of the IBC, 2016. The Hon’ble High Court held that the issue is answered in the negative and liability of the personal guarantor is not extinguished upon approval of the resolution plan. In view of the answer to the issue being in the negative, no relief can be granted to the writ petitioner.
Author’s view:
Author's view is that in the above judgment, outcome from latest judgment of Hon’ble Supreme Court in Ghanashyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd. (2021) ibclaw.in 54 SC was not considered. The conclusions of the Supreme Court in para 95 that once the Resolution Plan is duly approved by the Adjudicating Authority, claims which form part of the Resolution Plan shall stand frozen and would be binding on the corporate debtor. More significantly, the Court opined that claims which are not part of the Resolution Plan shall stand extinguished and no person will be entitled to initiate or continue any proceeding in respect to a claim which is not a part of the Resolution Plan.
Further, in para 130, it held that when the resolution plan is approved by NCLT, the claims, which are not part of the resolution plan, shall stand extinguished and the proceedings related thereto shall stand terminated. Since the subject matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, in the light of the view taken by us, the same cannot be continued. Equally the claims, which are not part of the resolution plan, shall stand extinguished.
In para 67 of the landmark judgment of the Hon’ble Supreme Court in Essar Steel India Limited [2019] ibclaw.in 07 SC, it was held that the impugned NCLAT judgment in holding that claims that may exist apart from those decided on merits by the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in terms of Section 60(6) of the Code, also militates against the rationale of Section 31 of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who successfully take over the business of the corporate debtor. All claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate, as has been pointed out by us hereinabove.
Finally, we can say that the issue whether a Successful Resolution Applicant does on a fresh slate? is still debatable.