Matter: Rajnish Gupta v. Union Bank of India & Anr.
Order dated: 22 February 2022
Summary:
In the present case, DMC Infrastructure Pvt. Ltd. (DMC Infra) had provided guarantee to secure loan facilities sanctioned to J. B. Gold Pvt. Ltd. and Roshni Jewellers Pvt. Ltd. (collectively refereed as “Borrowers”). On account of failure of the Borrowers to repay the loan, CIRP was initiated against them and also a petition was filed against DMC Infra seeking initiation of its CIRP. Subsequently, CIRP of the Borrowers was withdrawn with approval of the CoC. DMC Infra sought discharge of the petition filed against it as the process initiated against the Borrowers was withdrawn. The NCLT did not grant such relief and CIRP of DMC Infra was initiated. The order of the NCLT was challenged before the NCLAT.
The issue before NCLAT was whether an action can be initiated by the financial creditors against a corporate person concerning guarantee offered by it in respect of a loan given to the principal borrower, where the action taken against such principal borrower itself has been withdrawn. NCLAT observed that it is a well settled preposition in Law that the lender is not bound to exhaust its remedy against the principal borrower before suing the guarantor for payment of outstanding sum (unless otherwise agreed to in the guarantee deed). In the present case, the NCLAT was of the view that DMC Indra had failed to establish that the contract of guarantee contains any such stipulation contrary to its liability as a guarantor being coextensive with that of the Borrowers. NCLAT further noted that CIRP against the Borrowers was withdrawn as they did not possess a single asset and therefore CIRP would
have only resulted in additional cost. Therefore, NCLAT held that mere withdrawal of CIRP against the principal borrower will not be a bar for the lender in initiating fresh CIRP against the guarantor.
