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Issues: (i) Whether the respondent was a guarantor to the financial facilities advanced to the borrower under the financing documents; (ii) Whether approval of the resolution plan extinguished all claims against the respondent as a third party or surety.
Issue (i): Whether the respondent was a guarantor to the financial facilities advanced to the borrower under the financing documents
Analysis: The financing documents were construed as a whole. The undertaking obligated the promoter to arrange infusion of funds into the borrower to enable compliance with financial covenants, and the supplementary arrangement created security over immovable property. The Court held that this did not amount to a promise to perform the borrower's liability or discharge it on default within Section 126 of the Indian Contract Act, 1872. The contemporaneous letter of the lender stating that no corporate guarantee was required, the information memorandum, and the assignment deed, all of which did not treat the respondent as a guarantor, were treated as significant indicators of the parties' understanding. The prior pleadings relied on by the appellant were found to relate to enforcement of security and not to a concluded admission of guarantor status.
Conclusion: The respondent was not a guarantor in respect of the borrower's financial facilities.
Issue (ii): Whether approval of the resolution plan extinguished all claims against the respondent as a third party or surety
Analysis: The Court held that a resolution plan discharges the corporate debtor's liability, but does not ipso facto extinguish independent claims against third parties or guarantors where the plan expressly preserves such rights. Clause 3.2(ix) of the approved resolution plan preserved creditor rights against third parties, including the existing promoter, in relation to unsustainable debt secured or guaranteed by such third parties. The minutes of the committee of creditors were read consistently with that preservation. The finding of extinguishment recorded by the adjudicating authority was therefore confined to the corporate debtor and could not be read as extinguishing claims against third parties.
Conclusion: Approval of the resolution plan did not bar recourse against third parties to the extent preserved by the plan.
Final Conclusion: The appeal failed on the principal challenge, and the rejection of the Section 7 application was sustained, while the finding on debt extinguishment was limited to the corporate debtor alone and not extended to third-party liability.
Ratio Decidendi: A clause requiring a promoter to infuse funds into the borrower, without an express undertaking to discharge the borrower's debt on default, is not a contract of guarantee; and where an approved resolution plan expressly preserves rights against third parties, the corporate debtor's discharge does not extinguish such preserved claims.
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