Orbit Towers Private Limited Vs Sampurna Suppliers Private Limited (NCLT Kolkata)
Summary: The National Company Law Tribunal (NCLT), Kolkata Bench, recently ruled that a guarantor who pays a principal borrower’s debt automatically assumes the role of a financial creditor and can initiate the Corporate Insolvency Resolution Process (CIRP) against the borrower. This decision was made in the case of Orbit Towers Private Limited vs. Sampurna Suppliers Private Limited. Orbit Towers, the guarantor, had paid a debt on behalf of Sampurna Suppliers, the principal borrower, after Sampurna defaulted on a loan from Indian Bank. The central issue was whether Orbit could file a petition for CIRP against Sampurna without a specific agreement between the two. The NCLT’s analysis focused on the legal principle of “right of subrogation,” as outlined in Sections 140 and 141 of the Indian Contracts Act, 1872. This right stipulates that once a surety (guarantor) discharges a debt, they are automatically “invested with all the rights which the creditor had against the principal debtor.” The tribunal determined that the original guarantee agreement with the bank was sufficient to transfer these rights, making a separate agreement between the guarantor and the borrower unnecessary. Consequently, the NCLT admitted the petition, confirming that a guarantor who has paid the debt legally steps into the shoes of the original creditor and is entitled to pursue recovery through CIRP.
BRIEF FACTS:
1. This petition under section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 has been filed by Orbit Towers Private Limited, through its Director namely Mr. Pramod Kumar Eshwa, authorised vide Board Resolution dated 27.09.2019 (hereinafter referred to as the Financial Creditor) for initiation of Corporate Insolvency Resolution Process in respect of Sampurna Suppliers Private Limited, (herein after referred to as the Corporate Debtor).
2. In 2011, Sampurna Suppliers Pvt. Ltd. (“Corporate Debtor”) had availed a loan of Rs.10,00,00,000/- from the Indian Bank.
3. Upon the request of Corporate Debtor, Orbit Towers Pvt. Ltd. (“Financial Creditor”) had given corporate guarantee for the said Loan and had also created an equitable mortgage of its property situated in Kolkata in favour of Indian Bank.
4. The Corporate Debtor was obligated to repay the loan amount of Rs.10,00,00,000/- along interest and to obtain release of the Financial Creditor’s property at Kolkata.
5. However, the Corporate Debtor failed to do so and the Financial Creditor( Orbit) paid Rs.8,45,19,907/- to the Indian Bank in capacity of a Corporate Guarantor.
6. Thereafter, the Corporate Debtor(Sampurna) paid Rs.2,60,00,000 to the Financial Creditor( Orbit) towards part discharge of its liability and a sum of Rs.5,85,19,907/- remained due and payable.
7. In this case the liability of Principal Borrower (Corporate Debtor) was discharged by the Guarantor (Financial Creditor).
THE MAIN ISSUE BEFORE TRIBUNAL
8. When the Surety has repaid the amount of financial debt owed by the Corporate Debtor to the Indian Bank, would it make the Surety a “Financial Creditor”, eligible for proceeding against the Corporate Debtor (Principal Borrower) without there being any agreement between the two?
ANALYSIS BY THE NCLT BENCH
9. The NCLT Bench observed that Sections 140 and 141 of the Indian Contracts Act, 1872 talk of “right of subrogation”, which entails the substitution of another person in place of the Creditor, so that the person substituted will succeed to all the rights of the creditor with reference to the debt. The guarantor’s right to be placed in the creditor’s position on the discharge of the principal debtor’s obligation, to the extent that the Guarantor’s property or funds have been used to satisfy the Creditor’s claim and to effect such discharge is called the Guarantor’s right of subrogation.”
