BRS Ventures Investments Ltd. vs. SREI Infrastructure Finance Ltd. [July 23, 2024]
Citation: 2024 INSC 548; Civil Appeal No. 4565 of 2021; [2024] 7 S.C.R. 2143; Supreme Court of India
Background and Facts
The dispute arose from a ₹100 crore loan granted by SREI Infrastructure Finance Ltd. (financial creditor) to Gujarat Hydrocarbon and Power SEZ Ltd. (corporate debtor), a subsidiary of Assam Company India Ltd. (ACIL). The loan was secured by a mortgage on the corporate debtor’s land, a pledge of shares, and a corporate guarantee by ACIL. When the corporate debtor defaulted, SREI invoked the guarantee and initiated a Corporate Insolvency Resolution Process (CIRP) against ACIL (the guarantor) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). BRS Ventures Investments Ltd. was the successful resolution applicant in ACIL’s CIRP, and SREI accepted ₹38.87 crore as full and final settlement of its admitted claim of ₹241.27 crore against ACIL.
Subsequently, SREI filed another Section 7 IBC application against the original corporate debtor (GHPSL) for recovery of the remaining balance of ₹1,428 crore (including interest). The NCLT admitted this application, and the NCLAT upheld the decision. BRS Ventures, as the successful resolution applicant for ACIL, challenged the maintainability of this second application before the Supreme Court, arguing that SREI’s claim had already been settled in full and final terms through the resolution plan for ACIL, and that simultaneous proceedings for the same debt were not permissible.
Key Legal Issues
Whether a financial creditor can initiate or maintain CIRP against both the corporate debtor and the corporate guarantor for the same debt under the IBC.
Whether the approval of a resolution plan for the guarantor (ACIL) extinguishes the creditor’s right to proceed against the principal borrower (GHPSL) for the unsatisfied portion of the debt.
Whether the Section 7 application against the corporate debtor was barred by limitation.
Supreme Court’s Analysis and Findings
Co-extensive Liability:
The Supreme Court reaffirmed that the liability of a guarantor and a principal debtor is co-extensive under Section 128 of the Indian Contract Act, 1872. The creditor may proceed against either or both, and the approval of a resolution plan for one does not automatically extinguish the liability of the other for the same debt.
Simultaneous Proceedings Permitted:
The Court clarified that the IBC allows for simultaneous or sequential CIRP proceedings against both the corporate debtor and the corporate guarantor for the same debt. The payment made under the resolution plan for the guarantor does not discharge the principal debtor from its remaining liability unless the creditor has received the entire amount due.
Effect of Resolution Plan:
The Court held that the acceptance of a reduced amount under a resolution plan for the guarantor (ACIL) is binding only on the parties to that plan and does not preclude the creditor from pursuing the principal borrower for the balance. The principle of “full and final settlement” in the resolution plan does not extend to the principal debtor unless specifically provided.
No Bar by Limitation:
The Supreme Court found that the Section 7 application against GHPSL was not barred by limitation, as the default continued and the proceedings against the guarantor did not preclude action against the principal debtor.
Conclusion and Significance
The Supreme Court dismissed the appeal by BRS Ventures, upholding the creditor’s right to initiate CIRP against both the corporate debtor and corporate guarantor for the same debt.
The judgment clarifies that the approval of a resolution plan in respect of one entity does not automatically discharge the other, unless the creditor’s entire claim is satisfied.
The decision reinforces the co-extensive and independent liability of principal debtors and guarantors under Indian law, and affirms the broad remedies available to financial creditors under the IBC.
In summary: The Supreme Court held that insolvency proceedings can be initiated and maintained against both a corporate debtor and a corporate guarantor for the same debt, and that settlement of a claim through a guarantor’s resolution plan does not bar further proceedings against the principal debtor for the unsatisfied balance.
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