ICICI Bank Vs. Era Infrastructure (India) Limited - Initiating Insolvency proceedings against principal borrower during CIRP of Corporate Guarantor,

NCLT (PB) New Delhi (07.05.2019) in ICICI Bank  V/s. Era Infrastructure (India) Limited [C.P. NO. IB-1151(PB)/2018] held that “on account of duplicacy” of the claims, the petition filed by ICICI Bank can not be entertained. This is again raised for admission in the present proceeding. Such a course is not permissible in law,"

Facts of the case ; ICICI Bank had given a loan of Rs 240 crore to Era Infrastructure India. For the loan, its parent firm Era Infra Engineering had guaranteed the payments, which were later defaulted. Meanwhile NCLT admitted the application of Union Bank of India on 08.05.2018. [CP (IB)190 (PB) /2017] & initiated CIRP against the parent firm,  Era Infra Engineering ( Corporate Guarantor) and its RP had invited claims. ICICI Bank had lodged its claim before the RP of Era Infra Engineering, placing reliance on securities and contractual comfort (guarantees) provided by Era Infra Engineering for Era Infrastructure  India . However, the RP had rejected its claims, following which ICICI Bank approached the NCLT. The tribunal had admitted ICICI Bank’s plea on December 6, 2018 [CA No. 997(PB) /2018] and had directed RP to admit the claims.

Now NCLT rejected ICICI Bank’s application to initiate insolvency proceedings against Era Infrastructure (India) Ltd (principal borrower) on the grounds of “duplicacy” of claims. A two-member bench headed by NCLT President Justice M M Kumar observed that ICICI Bank has already raised similar claims against its parent company Era Infra Engineering, which is currently undergoing a resolution process. The tribunal held that “on account of duplicacy” of the claims, the petition filed by ICICI Bank can not be entertained. This is again raised for admission in the present proceeding. Such a course is not permissible in law," it said.

Excerpts of the order;

# 5. It is pertinent to mention that the Corporate Insolvency  Resolution Process was initiated in respect of the Parent Company  namely M/s. Era Infra Engineering Private Limited on 08.05.2018  and Mr. Rajiv Chakraborty was appointed as an Interim Resolution  Professional. He invited claims and the Financial Creditor lodged its  claim (which is further claimed in the present application) placing  reliance on the securities and contractual comforts (those are the facilities disbursed by the Financial Creditor to the entities/group 

related to the Parent Company-M/s. Era Infra Engineering Limited including the Corporate Debtor along with proof claiming that the applicant is a Financial Creditor. The claim of the applicant was  rejected vide order dated 13.09.2018 by the Resolution Professional.  The aforesaid rejection was recorded on various folds. 

# 6. Feeling aggrieved against the aforesaid rejection, an application being C.A. No. 997(PB)/2018 was filed by the applicant-the ICICI  Bank before this Tribunal. After issuance of notice and considering  the reply of the Resolution Professional, we accepted the application  of the applicant-the ICICI Bank on 06.12.2018. The relevant  observations, made, at paragraph 18, by us, reads thus: 

• “18. In order to determine whether the agreements, arrangements, undertaking etc. involved in this matter would qualify to be called  ‘Contract of Guarantee'we must dwell on Section 126 of the Contract Act, 1872 which reads as under: 

• “Section 126. 'Contract of guarantee', 'surety', 'principal debtor' and ‘creditor- A ‘contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written.

A bare perusal of Section 126 of the Contract Act makes it patent  that it demystify a contract of guarantee to mean a contract to perform  the promise, or discharge the liability of a third person in case of his  default. The parties involved are known as 'surety'; 'principal debtor' and  the creditor”. A contract of guarantee involves three parties: creditor,  surety, and principal-debtor. A contract of guarantee must, therefore,  involve a contract to which all those parties are privy. A guarantee is an undertaking to indemnify, if some other person does not fulfil his promise. The liability under a contract of guarantee is conditional on the default of the principal-debtor, and hence does not amount to a 'promise to pay'. 

It is evident from the facts of this case that Principal Debtor are EIIL and DHPL. The Corporate Debtor is the 'Surety' and the applicant is 'Creditor. The essential ingredients of contract of guarantee are also fulfilled as is patent from the preceding paras. As per various clauses  surety has stood guarantee for the facilities given in case of default by the Principal Debtor. The default has occurred and the amount is recoverable from the Corporate Debtor. If that be so then the Resolution Professional was not justified to decline the claim made by the applicant." 

Allowing the applicant's-the ICICI Bank's application, we had passed the following directions: 

1. The Corporate Debtor is liable to repay the amount granted by the ICICI Bank Limited to Era Infrastructure (India) Limited and Dehradun Highways Project Limited, as a Financial Debt as per the provisions of the Code.

2. Once it is an amount repayable then the Resolution Professional must admit the claim of the ICICI Bank as Financial Debt, in respect of the obligations undertaken by the Corporate Debtor under the credit facilities availed by Era Infrastructure (India) Limited and Dehradun Highways Project Limited to the extent of INR 240.17 crores and INR 460.58 crores respectively. Accordingly, we issue directions to Resolution Professional to do so. 

3. As a consequential relief a direction is issued to the Resolution Professional to revise the list of financial creditors of the Corporate Debtor by including the claims of the applicant-ICICI Bank with respect to the facilities granted to Era Infrastructure (India) Limited and Dehradun Highways Project Limited amounting to INR 700.75 crores and credit the applicant-ICICI Bank in the COC by adding the aforesaid claims. It shall also grant the applicant its voting share in the COC in proportion to such claims with all consequential benefits arising therefrom.”

# 8.  Therefore, the question arises whether the same claim could be made the basis for filing an application under Section 7 of the Code or it is prohibited. The question is no longer res integra. In, Dr. Vishnu Kumar Agarwal v. M/s. Piramal Enterprises Ltd., Company Appeal (AT) (Insolvency) No. 346 of 2018 decided on 08.01.2019, the Learned Appellate Tribunal held that: 

• "...... However, once for same set of claim application under Section 7 filed by the Financial Creditor is admitted against one of the ‘Corporate Debtor' (*Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the "Corporate Guarantor(s) or the ‘Principal Borrower')......" 

# 9. In light of the aforesaid facts and circumstances of the case, the question further is as to whether the claim lodged by the applicant,-the ICICI Bank which was based on the same set of facts and documents in the parent company namely Era Infra Engineering Limited which after rejection by the Resolution Professional of that company we had allowed vide order 06.12.2018. A direction stand issued to the RP to admit the said claim as Financial Debt. This is again raised for admission in the present proceeding. Such a course obviously is not permissible in law as laid down in Dr. Vishnu Kumar Agarwal case (supra). Therefore, on account of duplicacy of the claims the petition cannot be entertained. 

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