Right of Subrogation

NCLT, Kolkata Bench have admitted Section 7 filed by the Guarantor (Financial Creditor) under Section 7 of the Insolvency & Bankruptcy Code, 2016 for initiating CIRP against the Principal Borrower (Corporate Debtor).

Referring to right of subrogation under Sections 140 and 141 of Indian Contracts Act, 1872 , Court observed that, it is the substitution of another person in place of the Creditor, so that the person substituted will succeed to all the rights of the creditor with reference to the debt.The Guarantor who performed the obligations of the Principal Debtor which are subject to his guarantee is entitled to stand in the shoes of the Creditor to enjoy all the rights that the Creditor has against the Principal Debtor.

Court further observed that , the surety is entitled to the benefit of every security which the creditor has against the Principal Debtor. At the time when the contract of surety-ship is entered into, whether the surety knows of the existence of such security or not and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.

When amount of debt has been repaid by the Financial Creditor in its capacity as Guarantor to the original creditor for and on behalf of the Corporate Debtor, which has put the Guarantor in the shoes of the original Creditor.  

Orbit Towers Private Limited v. Sampurna Suppliers Private Limited

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