Insolvency and Bankruptcy Code, 2016 — Section 7 — Section 60(2) & (3) — Simultaneous initiation of CIRP against principal borrower and corporate guarantor — Maintainability. (Paras 2–4, 73–79)
The issue whether simultaneous proceedings for Corporate Insolvency Resolution Process (CIRP) may be maintained against the principal debtor and its corporate guarantor stands covered by the decision in BRS Ventures Investments Ltd. v. SREI Infrastructure Finance Ltd.. Section 60(2) of the IBC contemplates filing of proceedings relating to the corporate debtor and its guarantor before the same Adjudicating Authority.
The liability of the guarantor being co-extensive with that of the principal debtor under Section 128 of the Contract Act, the IBC permits separate or simultaneous proceedings against both.
Ratio Decidendi: The Insolvency and Bankruptcy Code permits initiation and continuation of simultaneous CIRP proceedings against a corporate debtor and its corporate guarantor; admission of one proceeding does not bar admission of the other for the same debt.
IBC — Rejection of ‘one debt–one proceeding’ theory — Interpretation of Vishnu Kumar Agarwal — Clarification of law. (Paras 73–79)
The view in Vishnu Kumar Agarwal that once a Section 7 application is admitted against one corporate debtor, a second application for the same claim cannot be admitted against another, does not represent the correct legal position in view of subsequent authoritative pronouncement in BRS Ventures.
Ratio Decidendi: Admission of CIRP against one obligor (principal borrower or guarantor) does not legally preclude admission of CIRP against the other obligor in respect of the same debt.
IBC — Nature of proceedings — Not mere recovery proceedings — Scope of discretion under Section 7(5)(a). (Paras 80–86)
IBC proceedings are not pure recovery proceedings; they are aimed at insolvency resolution and maximization of asset value. However, if statutory conditions of “debt” and “default” are satisfied, admission cannot be denied solely on the ground that recovery may incidentally follow.
Reliance placed on Axis Bank Ltd. v. Vidarbha Industries Power Ltd. regarding discretion under Section 7(5)(a).
Ratio Decidendi: While the Adjudicating Authority has limited discretion under Section 7(5)(a), simultaneous CIRP against debtor and guarantor cannot be refused merely because IBC is not intended as a recovery mechanism.
Doctrine of Election — Applicability to IBC — Rejected. (Paras 87–95)
The doctrine of election requires (i) existence of two or more remedies, (ii) inconsistency between such remedies, and (iii) a choice of one. Simultaneous proceedings under IBC against debtor and guarantor do not satisfy these conditions.
The Code contains no statutory mandate compelling a financial creditor to elect between remedies against principal borrower and guarantor.
Ratio Decidendi: The doctrine of election is inapplicable to simultaneous insolvency proceedings against principal borrower and guarantor; creditor cannot be compelled to restrict or split its claim.
Clean Slate Principle — Filing of full claim necessary — No compulsory bifurcation of debt. (Paras 90–93)
In light of the ‘clean slate’ principle explained in Ghanshyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, if a creditor fails to lodge its full claim in a CIRP, it risks extinguishment of the unpaid portion upon approval of the resolution plan.
Ratio Decidendi: A financial creditor is entitled to file its entire claim in each CIRP proceeding against obligors jointly and severally liable; mandatory election or bifurcation would undermine statutory rights under the Code.
Double Enrichment — Safeguards under Regulations 12A and 14 of CIRP Regulations, 2016. (Paras 96–100)
Though simultaneous proceedings are permissible, a creditor cannot recover more than the debt due. Regulation 12A obligates updating of claims when satisfied wholly or partly; Regulation 14 requires revision of admitted claims upon additional information.
Reliance placed on Maitreya Doshi v. Anand Rathi Global Finance Ltd..
Ratio Decidendi: While simultaneous CIRP is maintainable, recovery cannot exceed the debt due; regulatory safeguards prevent double enrichment.
Judicial Restraint — Refusal to frame additional guidelines on group insolvency. (Paras 101–104)
Though submissions were made seeking guidelines on modalities of simultaneous proceedings and group insolvency, the Court declined to legislate judicially, leaving the matter to legislative and regulatory authorities.
Ratio Decidendi: Policy refinements concerning group insolvency or procedural modalities fall within the legislative/regulatory domain and not judicial prescription.
