Original creditors lose right to enforce personal guarantees after debt assignment; court stays NCLT and DRT proceedings.

The HC of Punjab and Haryana determined that the original creditors cannot enforce personal guarantees post-assignment of debt to M/s Hasaud Steels Ltd. The Court stayed proceedings in NCLT and DRT, pending further examination. The Resolution Plan, supported by the RBI circular, extinguished the original creditors' rights to recover.

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Issues Involved:
1. Jurisdiction of the High Court.
2. Enforcement of personal guarantees post-Corporate Insolvency Resolution Process (CIRP).
3. Validity of continuing recovery actions by original creditors after debt assignment.
4. Applicability of RBI circular on the resolution of corporate debt under IBC.

Issue-wise Detailed Analysis:

1. Jurisdiction of the High Court:
The petitioners argued that the High Court of Punjab and Haryana has territorial jurisdiction to entertain the writ petitions since they are residents of Faridabad, Haryana, and their properties are located in Haryana. They contended that enforcement of personal guarantees would involve the sale of these properties, thus part of the cause of action arises within the jurisdiction of this Court. The Court agreed, referencing the Supreme Court decision in 'Kusum Ingots & Alloys Ltd. Vs. Union of India and Another' (2004) 6 SCC 254, which held that even a small fraction of the cause of action within the jurisdiction of the High Court is sufficient for jurisdiction.

2. Enforcement of Personal Guarantees Post-CIRP:
The petitioners contended that the approved Resolution Plan for the principal borrower, M/s ACCIL, resulted in the assignment of the entire debt to M/s Hasaud Steels Limited. They argued that there remains no debt in the books of the original creditors (respondents No.3 to 11), and thus, these creditors cannot continue recovery actions against the personal guarantors. The Court noted that the NCLT had approved the Resolution Plan, and the debt was assigned to M/s Hasaud Steels Limited, which included a 'No Due Certificate' issued to the principal borrower. Therefore, prima facie, the original creditors could not enforce personal guarantees post-assignment.

3. Validity of Continuing Recovery Actions by Original Creditors After Debt Assignment:
The respondents argued that the Resolution Plan and subsequent assignment did not revoke their rights to enforce personal guarantees. They cited clauses in the Resolution Plan and assignment deed that purportedly excluded personal guarantees from the assignment. However, the Court observed that the RBI circular and the Resolution Plan's provisions implied that the debt must be fully extinguished in the books of the original creditors upon assignment. Thus, prima facie, the original creditors could not continue recovery actions, and only M/s Hasaud Steels Limited could enforce the guarantees.

4. Applicability of RBI Circular on the Resolution of Corporate Debt Under IBC:
The petitioners referred to the RBI circular RBI/2018-19/203 dated 7.6.2019, which stated that a Resolution Plan involving assignment of debt would be deemed implemented only if the exposure to the borrower is fully extinguished. The Court agreed, noting that the Resolution Plan approved by the NCLT included assignment of debt to M/s Hasaud Steels Limited, which should result in the extinguishment of debt in the books of the original creditors. This interpretation was supported by Clause 16 of the RBI circular, which would prevail over any inconsistent provisions in the Resolution Plan.

Conclusion:
The Court held that prima facie, the respondents were not entitled to continue proceedings before the NCLT and DRT to enforce personal guarantees given by the petitioners. The Court stayed the proceedings in Application No.478 of 2021 before the NCLT, New Delhi, and in OA No.743 of 2018, OA No.367 of 2021, and OA No.1095 of 2019 before the DRT-II, New Delhi, until further orders. The matter was listed for further examination on 21.03.2022, with the respondents directed to file replies.

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