Section 7 of the Insolvency and Bankruptcy Code (IBC) deals with initiating insolvency proceedings against financial borrowers.
The apex court also said that if the sanction to initiate insolvency proceedings in respect of a borrower is granted, it cannot acquit the entity taking the debt together with him.
A bench of Justice Indira Banerjee and Justice JK Maheshwari said this in its order on a petition filed against the National Company Law Appellate Tribunal (NCLAT) judgment in August last year. The Appellate Tribunal had dismissed an appeal against an order of the National Company Law Tribunal (NCLT).
The top court, while dismissing the appeal filed against the appellate tribunal’s decision, held that the financial lender had given a loan of Rs 6 crore to one of the companies on the basis of mortgage agreements. Both companies were involved in this agreement.
Referring to the previous judgment, the court said that in the case of a corporate debtor, the approval of the resolution plan does not absolve its ‘guarantors’.
“If there are two borrowers or two companies fall under the category of borrowers, there is no reason why action under section 7 of IBC cannot be initiated against both of them,” the bench said.
The top court also said that the same amount cannot be recovered from both the company borrowers.
Dismissing the appeal, the bench said, “If some part of the dues is received from one, the remaining amount can be taken from the other borrower as a co-borrower. However, if the claim of the financial lender is settled, there is no question of recovering the claim amount twice.
The court, in its judgment, observed that the financial lender has filed separate petitions under Section 7 of the IBC against the two companies for initiation of CIRP and the same has been accepted by the NCLT.
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