2024 (5) TMI 469 - AT - Insolvency and Bankruptcy

CIRP - Admissibility of Section 95 Applications against Personal Guarantors - discharge the liabilities of Personal Guarantors on approval of Resolution Plan - submission of the Appellant that since the entire debt has been assigned to SPV, personal guarantees against the Appellant could not have been invoked, has been considered and rejected by the Adjudicating Authority by the impugned order - time limitation - HELD THAT - The judgment of the Hon ble Supreme Court in LALIT KUMAR JAIN VERSUS UNION OF INDIA AND ORS. 2021 (5) TMI 743 - SUPREME COURT has categorically laid down that approval of Resolution Plan does not ipso facto discharge the liabilities of Personal Guarantors. The judgment of this Tribunal in UV Asset Reconstruction Company Limited vs. Electrosteel Castings Limited 2024 (3) TMI 804 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI is considered where one of the questions arose as to whether by approval of Resolution Plan, entire debt of the Corporate Debtor stood extinguished and as a result there will be no default. It was held by this Tribunal that even after approval of Resolution Plan, recourse against third party can be resorted to and the approval of Resolution Plan, does not extinguish the right of Financial Creditor to proceed against third party. The Adjudicating Authority by the impugned order has admitted Section 95 Applications, upholding the initiation of proceeding under Section 95 by the SBI. The Adjudicating Authority has rightly returned a finding that the Resolution Plan of Corporate Debtor was approved and the entire debt of the Corporate Debtor has been taken over by the Successful Resolution Applicant, but the guarantee given by the Promoters has not been assigned to SRA. The Adjudicating Authority also held that Application was filed within limitation. The date of default mentioned in the Application was 23.01.2019 and the petition under Section 95 was filed on 22.05.2021. There are no error in the order of the Adjudicating Authority, admitting Section 95 Applications by the impugned order. There is no merit in any of the submissions of the learned Counsel for the Appellant(s) - appeal dismissed.

Summary

Issues Involved:

1. Admittance of Applications u/s 95 of the Insolvency and Bankruptcy Code, 2016.
2. Impact of Resolution Plan on the enforceability of personal guarantees.
3. Applicability of judgments from other jurisdictions and Indian courts on the enforceability of guarantees post-resolution plan approval.

Summary:

1. Admittance of Applications u/s 95 of the Insolvency and Bankruptcy Code, 2016:

The Appeals were filed by the Personal Guarantors of the Corporate Debtor challenging the order of the Adjudicating Authority dated 27.02.2024, which admitted Applications filed u/s 95(1) of the Insolvency and Bankruptcy Code, 2016 by SBI. The Corporate Debtor had defaulted in payment, and the Financial Creditor invoked the personal guarantees. The Adjudicating Authority admitted the Applications after the RP recommended their admission.

2. Impact of Resolution Plan on the enforceability of personal guarantees:

The Appellant contended that the personal guarantees could not be enforced after the approval of the Resolution Plan, as the entire debt was assigned to a Special Purpose Vehicle (SPV). However, the Tribunal noted that the guarantees were explicitly excluded from the assignment in the Resolution Plan and could still be enforced by the Financial Creditor. The Tribunal referenced the Supreme Court judgment in Lalit Kumar Jain v. Union of India & Ors., which held that approval of a Resolution Plan does not discharge the liabilities of personal guarantors.

3. Applicability of judgments from other jurisdictions and Indian courts on the enforceability of guarantees post-resolution plan approval:

The Appellant relied on judgments from the Delhi High Court and the High Court of Australia. The Tribunal found that the Delhi High Court in Vineet Saraf vs. Rural Electrification Corporation Ltd. left the matter to be decided by the NCLT and did not provide conclusive aid to the Appellant. Similarly, the High Court of Australia's judgment in Hutchens v. Deauville Investments Pty Ltd. was found irrelevant as it pertained to a different context and did not impact the enforceability of guarantees under the IB Code.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision to admit the Applications u/s 95, stating that the Resolution Plan did not absolve the Personal Guarantors of their liabilities. The Appeals were dismissed, affirming the enforceability of the personal guarantees despite the approval of the Resolution Plan.