The Corporate Guarantor can initiate CIRP against the Corporate Debtor under “Right to subvention”


Status as on- 10/08/2022

Name of the Case: Orbit Towers Pvt Ltd Vs Sampurna Suppliers Pvt Ltd

Case No.: C.P. (IB) No. 2046/KB/2019

Bench: National Company Tribunal, Kolkata

The facts of the case are as follows:

  1. In 2011, the Corporate Debtor had availed a loan of Rs. 10,00,00,000/- (Rupees 10 crores Only) from the Indian Bank. Upon the insistence of the Corporate Debtor, Orbit Towers Pvt Ltd i.e., Financial Creditors had given a corporate guarantee for the said loan. Also, the Financial Creditor created an equitable mortgage of one of the properties in Kolkata in favour of the Indian Bank.
  2. That since the Corporate Debtor was obliged to repay the said loan to the Indian Bank along with an interest and also to release the property of the Financial Creditor from the Indian Bank. However, the Corporate Debtor failed to do so and the Financial Creditor has repaid a number of Rs. 8,45,19,907/- to the Indian Bank as the Corporate Guarantor.
  3. Afterwards, towards the discharge of his liability, the Corporate Debtor had paid an amount of 2,60,00,000/- to the Corporate Guarantor. However, an amount of 5,85,19,907/- still remained outstanding towards the Corporate Debtor.
  4. Therefore, the Financial Creditor had filed an application u/s 7 of Insolvency and Bankruptcy Code, 2016 seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor.


The issue that has been raised before this Hon’ble National Company Tribunal, Kolkata Bench that whether the Corporate Guarantor can initiate CIRP against the Corporate Debtor under “Right to subvention”?

The decision of the Tribunal:

The NCLT Kolkata Bench observed that Section 140 and 141 of the Indian Contract Act, 1872., which says that, “substitution of another person in place of the Creditor, so that the person substituted will succeed all the rights of the creditor, with reference to the debt”.  It was further observed that “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, it is called at Guarantor’s right of subrogation.”

The Creditor had the right to sue the Principal Debtor, the Guarantor may, therefore, sue the Principal Debtor, having got invested with all the rights of the Creditor. Therefore, under the provisions of the Indian Contract Act, 1872, all the rights of the then Creditor i.e., the Indian Bank, would automatically become the rights of the Surety.


It was held that the Financial Creditor was eligible and entitled to proceed against the Corporate Debtor for the recovery of the dues and hence can file a petition against the Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the Adjudicating Authority.


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