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NCLAT: Personal guarantor has no right against corporate debtor

In Lalit Mishra & Ors. Vs Sharon Bio Medicine Ltd. & Ors., the Appellants/promotors challenged the approval of the Resolution Plan on the grounds that the Appellants/promoters were the shareholders and for them no amount has been provided under the ‘Resolution Plan’; and that some of the Appellants/promoters are also ‘personal guarantors’ who have been discriminated.

It was submitted by the Appellants/promotors that the lenders have not been treated similarly and restructuring for its entire claims of the ‘Corporate Debtor’ is against the provisions of the ‘I&B Code’ and that the security interest which include the personal guarantees of the Appellants have been reduced to ‘nil’ and thereby the ‘Resolution Plan’ have been submitted against the provisions of Sections 133 and 140 of the ‘Indian Contract Act’.

The NCLAT opined that it was not the intention of the legislature to benefit the ‘Personal Guarantors’ by excluding exercise of legal remedies available in law by the creditors, to recover legitimate dues by enforcing the personal guarantees, which are independent contracts. It is a settled position of law that the liabilities of guarantors is co-extensive with the borrower. The promoters, who are also among those responsible for having contributed to the insolvency of the ‘Corporate Debtor’. The ‘I&B Code’ prohibits the promoters from gaining, directly or indirectly, control of the ‘Corporate Debtor’, or benefiting from the ‘Corporate Insolvency Resolution Process’ or its outcome. The ‘I&B Code’ seeks to protect creditors of the ‘Corporate Debtor’ by preventing promoters from rewarding themselves at the expense of creditors and undermining the insolvency processes. The NCLAT also held that as the shareholders and promoters are not the creditors, if no amount is given to the promoters/ shareholders and the other equity shareholders who are not the promoters have been separately treated by providing certain amount in their favour, the Appellant cannot claim to have been discriminated.


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