Personal guarantors remain liable despite corporate debtor's resolution plan approval under Section 95

NCLAT upheld the Adjudicating Authority's decision admitting Section 95 applications against personal guarantors despite approval of the Corporate Debtor's Resolution Plan. The Tribunal rejected the appellant's argument that debt assignment to SPV prevented invocation of personal guarantees, citing SC precedent in Lalit Kumar Jain that Resolution Plan approval does not automatically discharge personal guarantor liabilities. The Authority correctly found the guarantee was not assigned to the Successful Resolution Applicant and the application was filed within limitation period. Appeal dismissed.

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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.

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