The Supreme Court on September 22, 2022 in the matter of Maitreya Doshi v. Anand Rathi Global Finance Ltd. held that the approval of a resolution in respect of one borrower cannot discharge a co-borrower and that if there are two borrowers or if two corporate bodies fall within the ambit of corporate debtors, there is no reason why proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) cannot be initiated against both the corporate debtors.

In the instant matter, an appeal was filed under Section 62 of IBC challenging an order passed by the National Company Law Appellate Tribunal (“NCLAT”), dismissing an appeal filed by the Appellant against an order passed by NCLT, Mumbai Bench (“Adjudicating Authority”), admitting a petition under Section 7 of IBC filed by Anand Rathi Global Finance Limited (“Financial Creditor / Respondent”), for initiation of the Corporate Insolvency Resolution Process (“CIRP”) of Doshi Holdings Pvt. Ltd. In the present case the Financial Creditor had disbursed loan to Premier Limited (“Corporate Debtor”), under three separate Loan-cum-Pledge agreements. Doshi Holdings pledged shares held by it in Corporate Debtor, in favour of the Financial Creditor, by way of security for the loan. It was contented by the suspended Director of Doshi Holdings (“Appellant”) that the petition under Section 7 of the IBC was not maintainable because contract of indemnity, contract of guarantee and pledge are not one and the same.

The Court observed that “The contract of indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person. In a contract of indemnity, a promisee acting within the scope of his authority is entitled to recover from the promisor all damages and all costs which he may incur. A contract of guarantee, on the other hand, is a promise whereby the promisor promises to 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 the principal debtor and the person to whom the guarantee is given is the creditor. Anything done or any promise made for the benefit of the principal debtor may be a sufficient consideration to the surety for giving the guarantee. On the other hand, the bailment of goods as security for payment of a debt or performance of a promise is a pledge.”

Further, the Court held that approval of a resolution plan in relation to a corporate debtor does not discharge the guarantor of the corporate debtor and if the dues are realised in part from one corporate debtor, the balance may be realised from the other corporate debtor being the co-borrower and thus, the appeal was dismissed.