CR-5015-2023 and 23 and connected cases v. M/s Jeon S

Hon’ble Mr. Justice Pankaj J nkaj Jain Present : Mr. Vivek K. Thakur, Advocat dvocate for the petitioners in all the cases. Ms. Isha Goyal, Advocate for r *** te for respondent No.1. Pankaj Jai aj Jain, J. [1] RAJNEESH SHARMA 2025.01.16 18:36 I attest to the accuracy and integrity of this document This bunch of revision petition etitions involves common question. CR-5015-2023 and 23 and connected cases 2 [2] The petitioners are corporate porate guarantors. 22 suits were file re filed against the st the corporate debtors and corp corporate guarantors, including th ing the petitioners. ioners. Corporate debtors went into nt into insolvency proceedings befo before NCLT. Or T. Order dated 16.06.2021 was passe s passed. The same has been placed o laced on record as A d as Annexure P-4. Corporate debtors ebtors filed an application in civil suit vil suits, praying tha ng that the civil suits be adjourned rned sine die, as the moratorium stand stands declared. [3] Similar applications were filed re filed by corporate debtors petitione titioners also. Civil Civil Court vide order dated 02.11.2

2.11.2022 (Annexure P-7) allowed th wed the application cations filed by the corporate debto debtors. Recovery proceedings qu corporate d orate debtors were ordered to be stayed stayed and the plaintiffs-creditors we rs were directed to ted to file their claims for recovery covery before Resolution Profession essional appointed inted by NCLT vide order dated 16 ted 16.06.2021. However, applicatio lication filed by th by the petitioners, who are corpora orporate debtors stands declined vid ed vide impugned gned order. Petitioners filed applic application, seeking review of ord f order (Annexure exure P-8). The same stands reject rejected vide order dated 03.02.202

2.2023. Both the the orders dated 02.11.2022 (An 2 (Annexure P-8) and order date r dated

03.02.2023 .2023 (Annexure P-10) are subject ubject-matter of challenge before th ore this Court in the t in the present revision petitions. [4] Learned counsel for the petit e petitioners does not dispute that th that the petitioners ioners are corporate guarantors. Th s. The issue with respect to fate recovery pr ery proceedings against the corporate porate guarantors is no more res integr ntegra and has be has been elaborately explained by th by the Supreme Court in the case o case of ‘Lalit Kum t Kumar Jain versus Union of India India’, reported as 2021 (9) SCC 32 321, observing a rving as under:- RAJNEESH SHARMA 2025.01.16 18:36 I attest to the accuracy and integrity of this document CR-5015-2023 and 23 and connected cases 3 “121. In Essar Steel (India) Ltd. (Co . (CoC) v. Satish Kumar Gupta (the "Essar St r Steel case") this Court refused to interfe terfere with proceedings initiated to enfor enforce personal guarantees by financial cred creditors; it was observed as follows: (SCC (SCC e pp. 615-16, para 106) "106. Following this this judgment in V. Ramakrishnan case, it e, it is difficult to accept Shri Rohatg hatgi's argument that that part of the resoluti olution plan which states that the the claims of the guarantor on account unt of subrogation shall be extingui nguished, cannot be applied to the guarante rantees furnished by the erstwhile Dire Directors of the corporate debtor. So far as r as the present case is concerned, we , we hasten to add that we are saying nothi nothing which may affect the pending ing litigation on account of invocation of the f these guarantees. However, NCLAT LAT judgment being contrary to Section 31 n 31(1) of the Code and this Court's rt's judgment in V. Ramakrishnan case, is s set aside."

122. It is therefore, clear that the s the sanction of a resolution plan and finality ality 9 imparted to it by Section 31 does n es not per se operate as a discharge of of the guarantor's liability. As to the natur ature and extent of the liability, much wou depend on the terms of the guarantee ntee itself. However, this Court has indicat icated, time and again, that an involuntary ary act of the principal debtor leading to lo to loss ofsecurity, would not absolve a guaran arantor of its liability. In Maharashtra SEB EB the liability of the guarantor (in a case ase where liability of the principal debtor or was discharged under the Insolvency law law or the Company law), was considered. ered. It was held that in view of the uneq unequivocal guarantee, such liability of of the guarantor continues and the creditor itor can realise the same from the guarantor ntor in view of the language of Section 128 128 of the Contract Act, 1872 as there is e is no discharge under Section 134 of that Ac at Act. This Court observed as follows (SCC p CC pp. 362-63, para 7) "7. Under the bank guar guarantee in question the Bank has undertak ertaken to b pay the Electricity Board oard any sum up to Rs.50,000 and in order rder to realise it all that the Electri ectricity Board has do is to make a deman emand. Within forty-eight hours Bank ank to pay to the Electricity Board which is n h is not under any obligation to prove rove any default on the part of the Company pany in liquidation before the amount ount demanded is paid. The Bank cannot ra t raise the plea that it is liable only t nly to the extent of any loss that may have be ve been sustained by the Electricity Bo ty Board owing to any default on the part of t of the supplier of goods i.e. the Com ompany in liquidation. The liability is absol bsolute and unconditional. The fact fact that the Company in liquidation i.e. i.e. the principal debtor has gone into into liquidation also would not have any eff y effect on the liability of the Bank i.e k i.e. the guarantor. Under Section 128 of of the RAJNEESH SHARMA 2025.01.16 18:36 I attest to the accuracy and integrity of this document Contract Act, 1872, the liabil iability of the surety is coextensive with that that of the principal debtor unless it ss it is otherwise provided by the contract. ract. A CR-5015-2023 and 23 and connected cases 4 surety is no doubt discharge arged under Section 134 of the Contract A ct Act, 1872 by any contract betwee tween the creditor and the principal debtor btor by which the principal debtor is r is released or by any act or omission of of the creditor, the legal conseque equence of which is the discharge of the the e principal debtor. But a discha scharge which the principal debtor may secu secure by operation of law in bankru nkruptcy (or in liquidation proceedings in in the case of a company) does no s not absolve the surety of his liability (s ty (see Jagannath Ganeshram Agarw garwale v. Shivnarayan Bhagirath; see a e also Fitzgeorge, In re68)."

123. This legal position was notice oticed and approved later in Industrial Finan inance Corpn, of India Ltd. v. Cannanore Sp Spg. & Wvg. Mills Ltd. An earlier decision ision of three Judges in Punjab National Ba l Bank v. State of U.P. pertains to the issu issues regarding a guarantor and the princi incipal debtor. The Court observed as follow ollows: (Punjab National Bank case, SCC p. 8 p. 80-81, paras 1-6) "1. The appellant had, after R ter Respondent 4's management was taken ov en over by U.P. State Textile Corporation L on Ltd. (Respondent 3) under the Industr ustries (Development and Regulation) Act, ad advanced some money to the said Respond ondent

4. In respect of the advance so made, ade, Respondents 1, 2 and 3 executed deeds eeds of guarantee undertaking to pay the am amount due to the Bank as guarantors in in the event of the principal borrower being ing unable to pay the same.

2. Subsequently, Respondent 3 ent 3 which had taken over the management ment of Respondent 4 became sick and procee oceedings were initiated under the Sick Text Textile Undertakings (Nationalisation) Act, ct, 1974 (for short "the Act"). The appella pellant filed suit for recovery against the gu e guarantors and the principal debtor of of the amount claimed by it.

3. The following prelim eliminary issue was, on the pleadings of of the parties, framed: ' Whether the c the claim of the plaintiff is not maintainable able in view of the provisions ions of Act 57 of 1974 as alleged in Para 25 a 25 of the written statement o ent of Defendant 2?'

4. The trial court as w as well as the High Court, both came to to the conclusion that in view of the the provisions of Section 29 of the Act, the s the suit of the appellant was not maint aintainable.

5. We have gone through ough the provisions of the said Act and in o in our opinion the decision of the co e courts below is not correct. Section 5 of of the said Act provides for the own owner to be liable for certain prior liabilit bilities and Section 29 states that the the said Act will have an overriding effect ov ct over all other enactments. This Act Act only deals with the liabilities of a compa which is nationalised and ther there is no provision therein which in any w ny way affects the liability of a guaran arantor who is bound by the deed of guaran arantee executed by it. The High Cour ourt has referred to a decision of this Court ourt in RAJNEESH SHARMA 2025.01.16 18:36 I attest to the accuracy and integrity of this document Maharashtra SEB v. Official icial Liquidator 30 where the liability of of the CR-5015-2023 and 23 and connected cases 5 guarantor in a case where here liability of the principal debtor w r was discharged under the Insol Insolvency law or the Company law, w , was considered. It was held in t in this case that in view of the unequivo uivocal guarantee, such liability of th f the guarantor continues and the creditor c tor can realise the same from the gua guarantor in view of the language of Secti Section 128 of the Contract Act, 1872 72 as there is no discharge under Section 1 ion 134 of that Act.

6. In our opinion, the p he principle of the aforesaid decision of t of this Court is equally applicable in le in the present case. The right of the appella pellant to recover money from Respo espondents 1, 2 and 3 who stood guaranto rantors arises out of the terms of the d he deeds of guarantee which are not in any w ny way superseded or brought to a na a naught merely because the appellant may n ay not have been able to recover m r money from the principal borrower. It m It may here be added that even as a r a result of the Nationalisation Act the liabil iability of the principal borrower doe does not come to an end. It is only the mode ode of recovery which is referred to i to in the said Act."

124. In Kaupthing Singer & Fr Friedlander Ltd. the UK Supreme Co Court reviewed a large number of previous ious authorities on the concept of double pro e proof i.e. recovery from guarantors in the co he context of insolvency proceedings. The Co e Court held that: (AC p. 814, para 11). "11. The function of the r he rule is not to prevent a double proof of f of the same debt against two separate estate states (that is what insolvency practitioners c ers call "double dip"). The rule prevents a dou a double proof of what is in substance the sa e same debt being made against the same e e estate, leading to the payment of a dou double dividend out of one estate. It is for tha r that reason sometimes called the rule agai against double dividend. In the simplest case ase of suretyship (where the surety has neith neither given nor been provided with security urity, and has an unlimited liability) there i re is a triangle of rights and liabilities betwe etween the principal debtor ("PD"), the sur surety ("S") and the creditor ("C"). PD has th as the primary obligation to C and a seconda ondary obligation to indemnify S if and so far o far as S discharges PD's liability, but if PD f PD is insolvent S may not enforce that right ight in competition with C. S has an obligati igation to C to answer for PD's liability, ity, and the secondary right of obtaining ing an indemnity from PD. C can (after due n ue notice) proceed against either or both of P of PD and S. If both PD and S are in insolven olvent liquidation, C can prove against each ach for 100p in the pound but may not recover over more than 100p in the pound in all." :

125. . In view of the above discussion, it is h t is held that approval of a resolution plan do n does ot ipso facto discharge a personal guaran not ip arantor (of a corporate debtor) of her or or his liabili abilities under the contract of guarantee. As . As held by this Court, the release or dischar charge f a principal borrower from the debt owed by of a p d by it to its creditor, by an involuntary proc process i.e. by e. by operation of law, or due to liquidation tion or insolvency proceeding, does not abso absolve the su e surety/guarantor of his or her liability, whi , which arises out of an independent contract ract.”. RAJNEESH SHARMA 2025.01.16 18:36 I attest to the accuracy and integrity of this document CR-5015-2023 and 23 and connected cases 6 [5] In view of the aforesaid pr aid proposition of law, even thoug though moratorium torium has been declared against the st the corporate debtors and Resolutio solution Professiona ssional has been appointed, the co he corporate guarantors does not g not get discharged arged of his liabilities under the contr contract of guarantee. The plea raise a raised by the plain e plaintiff with respect to dual procee roceedings, is misconceived. Princip nciple of “double uble dip” i.e. dual nature of recover ecovery by a creditor of the same de me debt from two two entities i.e. principal borrowe or co- rrower as well as guarantors or co guarantors antors is an acknowledged practice. W tice. Wherever a primary lender and er and a guarantor a antor are liable, the creditor can ass assert a claim for the full amou amount against eac st each one of them until he is fully s fully paid. Meaning thereby, he ca , he can afford to “ d to “double dip”. [6] In view of the aforesaid facts a facts and settled proposition of law, th law, this Court does t does not find any reason to interfe terfere in a well reasoned order passe r passed by the Cou e Courts below. Resultantly, all rev all revision petitions are ordered to b d to be All miscellaneous application( ation(s), if any, stands disposed off. Photocopy of this order be plac be placed on the file of connected case cases. (Pankaj Jain) Judge Whether speaking/ reasoned Whether reportable : : Yes/No Yes/No issed. dismissed [7] [8] .2024 06.11.2024 ‘R. Sharma’ RAJNEESH SHARMA 2025.01.16 18:36 I attest to the accuracy and integrity of this document