[IBC] If two borrowers fall within ambit of corporate debtors, CIRP proceedings can be initiated against both: Top Court

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Court while drawing parity from the principle that approval of resolution plan against a corporate debtor does not discharge its guarantor, held that approval of a resolution in respect of one borrower cannot certainly discharge a co-borrower.

If there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC) cannot be initiated against both the Corporate Debtors, the Supreme Court held on Thursday.

"Needless to mention, the same amount cannot be realised from both the Corporate Debtors. If the dues are realised in part from one Corporate Debtor, the balance may be realised from the other Corporate Debtor being the co-borrower. However, once the claim of the Financial Creditor is discharged, there can be no question of recovery of the claim twice over", further clarified a bench of Justices Indira Banerjee and JK Maheshwari.

Court made these observations while upholding the order passed by the National Company Law Appellate Authority whereby it had upheld the order of admission of the petition under Section 7 of the IBC against two corporate debtors for the same set of loans arising out of the same loan documents.

In the case before Court, Anand Rathi Global Finance Limited as Financial Creditor, disbursed a loan to the tune of Rs.6 Crores to M/s Premier Limited, (“Premier”) under three separate Loan-cum-Pledge Agreements. One Doshi Holdings pledged shares held by it in Premier, in favour of the Financial Creditor, by way of security for the loan.

Premier failed to make repayments in terms of the Loan-cum-Pledge Agreements. The Financial Creditor filed a petition under Section 7 of the IBC for initiation of CIRP against Premier for default in repayment of Rs. 8,35,25,398. On the same day, a petition was filed for initiation of CIRP against Doshi Holdings in respect of the same claim of Rs. 8,35,25,398, based on the same loan documents.

The NCLT admitted both the applications, and this order was confirmed by NCLAT in the impugned judgment.

The Top Court held that the mere fact that Doshi Holdings was a pledgor was wholly irrelevant and did not in any manner disentitle Anand Rathi to initiate proceedings under Section 7 of the IBC against such a co-borrower.

"Doshi Holdings has been referred to in the agreement as borrower and pledgor. Prima facie, it appears that Doshi Holdings was a party to the Loan-cum-Pledge Agreement in its dual capacity of borrower and pledgor of shares. The Appellate Authority has arrived at the factual finding that Doshi Holdings is also a borrower under the Loan-cum-Pledge Agreement. The factual finding of the Appellate Authority which was the final fact finding authority ought not to be interfered in this appeal", the bench held.

While referring to Lalit Kumar Jain v. Union of India, where the Top Court held that the approval of a resolution plan in relation to a Corporate Debtor does not discharge the guarantor of the Corporate Debtor, the Court, in the instant case, said,

"On a parity of reasoning, the approval of a resolution in respect of one borrower cannot certainly discharge a co-borrower."