Tribunal Admits Insolvency Application, Declares Moratorium

The Tribunal admitted the application under Section 100 of the Insolvency and Bankruptcy Code, initiating the Insolvency Resolution Process against the Personal Guarantor. A moratorium was declared, staying legal actions and proceedings. The Resolution Professional was tasked with creditor notification, listing, and repayment plan preparation. The Tribunal affirmed the continued liability of the Guarantor post-Resolution Plan approval, aligning with co-extensive liability principles. The Guarantor's subrogation rights were dismissed, emphasizing the Guarantor's ongoing liability akin to the principal borrower. Recovery proceedings at the Debt Recovery Tribunal were deemed unaffected by the Insolvency Resolution Process.

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Issues Involved:
1. Initiation of Insolvency Resolution Process against the Personal Guarantor.
2. Default in repayment of debts by the Personal Guarantor.
3. Approval and compliance with the Resolution Plan.
4. Liability of the Personal Guarantor post-approval of the Resolution Plan.
5. Subrogation rights of the Personal Guarantor.
6. Co-extensive liability of the Personal Guarantor with the principal borrower.
7. Pendency of recovery proceedings before the Debt Recovery Tribunal.
8. Moratorium and its implications.

Issue-wise Detailed Analysis:

1. Initiation of Insolvency Resolution Process against the Personal Guarantor:
The application was filed by the State Bank of India under Section 95(1) of the Insolvency and Bankruptcy Code, 2016, seeking to initiate the Insolvency Resolution Process against the Personal Guarantor for the credit facilities extended to the Corporate Debtor. The Tribunal appointed a Resolution Professional to file a report under Section 99 of the Code, which recommended the admission of the application based on the default committed by the Personal Guarantor.

2. Default in repayment of debts by the Personal Guarantor:
The Financial Creditor invoked the Personal Guarantee of the Guarantor, issuing a guarantee invocation letter and a demand notice. Despite being served, the Guarantor neither replied nor made the payment towards the dues. The Resolution Professional's report confirmed the default in repayment by the Personal Guarantor.

3. Approval and compliance with the Resolution Plan:
The Corporate Debtor underwent Corporate Insolvency Resolution Process (CIRP), and a Resolution Plan was approved by the Tribunal. However, the Resolution Applicant failed to comply with the Resolution Plan. The Guarantor argued that the approval of the Resolution Plan extinguished all pre-existing debts of the Corporate Debtor, hence no default existed.

4. Liability of the Personal Guarantor post-approval of the Resolution Plan:
The Financial Creditor argued that the liability of the Guarantor is co-extensive with that of the borrower and continues even after the approval of the Resolution Plan. The Tribunal relied on the Supreme Court's judgments, which held that the approval of a Resolution Plan does not absolve the liability of the guarantors, and the liability of the Guarantor continues despite the discharge of the Corporate Debtor's liabilities.

5. Subrogation rights of the Personal Guarantor:
The Guarantor's argument that the Resolution Plan impaired her subrogation rights was rejected. The Tribunal noted that under the IBC, the Guarantor does not have a right of subrogation, and this does not vitiate their liability under the Code or the Contract.

6. Co-extensive liability of the Personal Guarantor with the principal borrower:
The Tribunal upheld the principle that the liability of the Guarantor is co-extensive with that of the principal borrower, as per Section 128 of the Indian Contract Act, 1872. The Tribunal noted that the approval of the Resolution Plan does not reduce the Guarantor's liability, and the Guarantor can be held liable to the extent provided in the Resolution Plan.

7. Pendency of recovery proceedings before the Debt Recovery Tribunal:
The Tribunal noted that the pendency of recovery proceedings before the Debt Recovery Tribunal does not affect the Insolvency Resolution Process under the IBC. The moratorium imposed by the Tribunal will stay all pending legal actions and proceedings in respect of any debt.

8. Moratorium and its implications:
Upon admission of the application under Section 100 of the IBC, the Tribunal declared a moratorium, which stays all pending legal actions and proceedings, prohibits creditors from initiating new legal actions, and restricts the debtor from transferring or disposing of any assets. The Resolution Professional was directed to publish a public notice inviting claims from creditors and to prepare a repayment plan in consultation with the debtor.

Conclusion:
The Tribunal found merit in the submissions of the Financial Creditor and admitted the application under Section 100 of the IBC. The Insolvency Resolution Process was initiated against the Personal Guarantor, and a moratorium was declared. The Resolution Professional was directed to proceed with the necessary steps as per the IBC, including publishing a public notice, preparing a list of creditors, and formulating a repayment plan. The Tribunal emphasized that the liability of the Personal Guarantor continues despite the approval of the Resolution Plan for the Corporate Debtor.

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