Financial Creditor Can Initiate CIRP Against Corporate Guarantor and Corporate Debtor for the Same Debt

In BRS Ventures Investments Ltd. v.  SREI Infrastructure Finance Ltd. & Anr., [2024 SCC OnLine SC 1767], dated July 23, 2024, the Hon’ble Supreme Court of India addressed the liability of a Corporate Guarantor and the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 (IBC).

SREI Infrastructure Finance Ltd. (“Financial Creditor”) had extended a Rs. 100 crore loan to Gujarat Hydrocarbon and Power SEZ Ltd. (“Corporate Debtor”), a subsidiary of Assam Company India Ltd. (“Corporate Guarantor”). A resolution plan by BRS Ventures Investments Ltd. (“BRS”) was approved in September 2018, leading to a partial payment of Rs. 38.87 crores by the Corporate Guarantor to the Financial Creditor as a full settlement against the admitted claim of Rs. 241.27 crores.

Subsequently, on February 10, 2020, the Financial Creditor filed another application under Section 7 of the IBC against the Corporate Debtor, claiming Rs. 1428 crores, purportedly the balance due under the initial loan facility, which was admitted by the National Company Law Tribunal (NCLT). Appeals against this decision by the successful resolution applicant (BRS) and the suspended Director of the Corporate Debtor were dismissed by the National Company Law Appellate Tribunal (NCLAT).

The Hon’ble Supreme Court of India upheld the NCLAT’s decision, addressing several critical aspects. It reaffirmed that the liability of a Corporate Guarantor and the Corporate Debtor is co-extensive. The Financial Creditor can initiate separate or simultaneous insolvency proceedings under Section 7 of the IBC against both the Corporate Debtor and the Corporate Guarantor.  A resolution plan for the Corporate Guarantor does not extinguish the Corporate Debtor’s obligation to repay the remaining loan amount after deducting the amount settled through the Corporate Guarantor’s resolution plan. The Court also emphasized that the assets of a subsidiary are not part of the holding company’s resolution plan, as upheld in previous rulings.

Hence, the Hon’ble Supreme Court of India upheld the decision of the NCLAT and dismissed the appeal, reinforcing the Financial Creditor’s rights to recover outstanding dues from the Corporate Debtor despite partial settlement from the Corporate Guarantor under IBC.