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Background and Context
The Supreme Court on 23.07.2024 in Civil Appeal No. 4565 of 2021 dismissed appeal filed by BRS Ventures Investments Ltd., successful resolution applicant of Assam Company India Ltd. (ACIL). Facts show SREI Infrastructure Finance Ltd. granted Rs 100 Crores loan on 05.01.2011 to Gujarat Hydrocarbon and Power SEZ Ltd., subsidiary of ACIL, secured by mortgage of SEZ land and corporate guarantee dated 05.01.2011 of ACIL. On default, SREI invoked guarantee and filed Section 7 IBC against ACIL, admitted on 26.10.2017. Claim filed Rs 648.81 crores, admitted Rs 357.29 crores then reassessed Rs 241.27 crores.
Resolution plan of BRS Ventures approved by CoC on 13.08.2018 and by NCLT on 20.09.2018, providing Rs 38.87 crores to SREI in full and final settlement. Subsequently SREI filed Section 7 against principal borrower SEZ company on 10.02.2020 claiming Rs 1428 crores as balance amount, admitted on 18.11.2020. NCLAT dismissed appeals filed by BRS Ventures and suspended director. Appellant argued that payment of Rs 38.87 crores in full and final settlement under resolution plan discharges entire debt under Section 63 read with Section 41 Contract Act, and under Section 140 Contract Act rights of creditor stand subrogated to guarantor, so BRS steps into shoes of SREI and can claim mortgage over SEZ land.
It relied on Amit Lal Goverdhan Lalan, Shib Charan Das, Kadamba Sugar Industries, Economic Transport Organization and Lala Kapurchand Godha that even partial payment in full and final settlement triggers subrogation. Respondents argued resolution plan of ACIL does not include assets of subsidiary as per Section 18 explanation (b) and Section 36(4)(d) IBC, holding and subsidiary are distinct legal persons as per Vodafone International Holdings BV vs Union of India and Jaypee Kensington, plan clauses 13.1 and 13.3 expressly extinguish corporate guarantees but no subrogation available, and as per Lalit Kumar Jain vs Union of India (2021) 9 SCC 321 approval of resolution plan of corporate debtor does not ipso facto discharge guarantor, same principle applies vice versa.
The Court held liability of surety is co-extensive under Section 128 Contract Act unless otherwise provided, creditor can proceed against both or any without exhausting remedies against principal under Section 137, and Sections 133 to 139 deal with discharge of surety only when variance without consent, release by contract or composition to which surety assents, but involuntary acts by operation of law do not discharge surety. Relying on Lalit Kumar Jain paras 122-125 and Maharashtra SEB vs Official Liquidator (1982) 3 SCC 358, Jagannath Ganeshram Agarwale vs Shivnarayan Bhagirath, Court held sanction of resolution plan and finality under Section 31 does not per se operate as discharge of guarantor's liability as contract between creditor and surety is independent, release by involuntary process like insolvency does not absolve surety.
Same principle applies when resolution plan of surety corporate guarantor is approved, guarantor gets discharge by operation of law but principal borrower liability remains to the extent not recovered. Section 31 binds corporate debtor, its employees, members, creditors, guarantors and stakeholders, but does not extinguish principal borrower's liability after deducting amount recovered from guarantor or paid by resolution applicant. Section 60(2) and (3) IBC expressly permits separate or simultaneous Section 7 petitions against corporate debtor and corporate guarantor.
Conclusion
Supreme Court in BRS Ventures vs SREI dated 23.07.2024 holds payment of Rs 38.87 crores under resolution plan of corporate guarantor ACIL will not extinguish liability of principal borrower SEZ company to pay entire amount after deducting amount paid on behalf of guarantor, and financial creditor can file simultaneous applications under Section 7 against both. Approval of guarantor's plan does not discharge principal debtor. Judgment affirms Lalit Kumar Jain and strengthens creditor rights in guarantee transactions and group company insolvencies.
