BRS VENTURES INVESTMENT LTD. VS SREI INFRASTRUCTURE FINANCE LTD. : CASE SUMMARY
The Supreme Court in BRS Ventures Investment Ltd. Vs SREI Infrastructure Finance Ltd. (Civil Appeal No. 4565 /2021 ) has reiterated that CIRP can be initiated simultaneously against Corporate Debtor as well as Corporate Guarantor. The Supreme Court also held that assets of Subsidiary Company cannot be included in Resolution Plan of the Holding Company.
FACTS OF THE CASE
Gujarat Hydrocarbon and Power SEZ Ltd. ( GHPSL) approached SREI Infrastructure Finance Ltd. (Financial Creditor) for grant of loan. SREI granted loan of 100 Crore for setting up SEZ project. GHPSL is a subsidiary of Assam Company India Ltd (ACIL). The loan granted by SREI was secured by mortgage of leasehold land of GHPSL and pledge of shares of GHPSL and ACIL. The loan was also secured by Corporate Guarantee furnished by ACIL.
Financial Creditor initiated recovery proceedings before DRT. The Financial creditor also invoked Corporate Guarantee given by ACIL. The Financial Creditor filed Application under Section 7 of IBC against ACIL for initiating CIRP which was admitted on 26th October, 2017.
During CIRP, the Appellant emerged as Successful Resolution Applicant and its Resolution Plan was approved on 13th August, 2018. The Resolution Plan was approved by NCLT on 20.09.2018. Appeal filed before NCLAT was dismissed. Under Resolution Plan the Financial Creditor got 38.87 Crore against its claim of 241.27 Crore.
The Financial Creditor filed Application under Section 7 against GHPSL for initiating CIRP in respect of balance amount. NCLT admitted the application vide order dated 18th November, 2020. Appeals were filed before NCLAT, which were dismissed.
FINDINGS OF THE SUPREME COURT
The Supreme Court was dealing with the issue whether Application was maintainable against the Corporate Debtor for same debt and default when the Financial Creditor has accepted its dues in CIRP of Corporate Guarantor.
The Supreme Court observed that the law is well settled. The liability of principal debtor and surety is co-extensive. The Creditor has remedies available to recover amount payable by principal borrower by proceeding against both or any of them. The Creditor can also proceed against the Guarantor first.
If a Creditor recovers a part of guaranteed amount from the surety and agrees not to proceed against surety for balance amount, that will not extinguish remaining debt payable by the borrower. In such a case the Creditor can proceed to against the principal borrower to recover the balance amount. If there is a compromise between creditor and surety to which the principal borrower is not a party, the liability of the borrower qua the creditor will remain unaffected.
The Supreme Court relied on Lalit Kumar Jain Vs Union of India (2021) 9 SCC 321 wherein it has been held that the contract between creditor and surety is independent, therefore, the approval of the Resolution Plan of the Principal Borrower will not amount to discharge of surety. The Same principle will apply when the Resolution Plan of surety is approved. In such a case surety gets a discharge by operation of law or by involuntary process, it will not amount to discharge of the Principal Borrower.
The Supreme Court observed that Section 60 (2) contemplates separate or simultaneous insolvency proceedings against Corporate Debtor and the Guarantor. Section 60 (3) provides that if CIRP in respect of Guarantor is pending before another Adjudicating Authority and CIRP against the Corporate Debtor is pending before another Adjudicating Authority, CIRP proceedings against the Corporate Guarantor has to be transferred to Adjudicating Authority before whom CIRP proceedings against the Corporate Debtor is pending.
It was contended before Supreme Court that assets of the Second Respondent was part of Resolution Plan in the matter of ACIL. The Supreme Court concurred with NCLAT view that Resolution Plan of ACIL takes care of investment in subsidiaries and not the assets of subsidiaries. Supreme Court observed that assets of subsidiaries can not be part of Resolution Plan of Holding Company.
The Supreme Court noted that Section 36 (4) (d) provides that the assets of Indian Subsidiary of the Corporate Debtor will not be included in Liquidation Estate assets and shall not be used for recovery in liquidation. Similarly, explanation 2 to Section 18 (1) provides that the term “assets” used in Section 18 shall not include the assets Indian Subsidiary of the Corporate Debtor.
A holding company and a subsidiary company are distinct legal identities. The holding company own assets of subsidiary companies but that does not make holding company the owner of subsidiary assets.
The Supreme Court observed that if the surety pays the entirety of the amount payable under the guarantee to the creditor, Section 140 of Contract Act provides a remedy to the surety to recover the entire amount paid by him in the discharge of his obligations. The Surety gets invested with the rights of the creditor to recover from the principal debtor the amount which was paid as per guarantee. If the surety pays only a part of the amount payable to the creditor, the equitable right the surety gets under Section 140 will be confined to the debt cleared. In the instant case only liability of the ACIL has extinguished after payment of Rs. 38.87 Crore. The right of the Financial Creditor to recover balance debt is not extinguished.
The Supreme Court concluded that view of the NCLAT cannot be faulted with and dismissed the appeal.
___________________________________________________
Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.
