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Corporate Debtor liability not extinguished upon Insolvency Resolution Plan Approval

 In STATE BANK OF INDIA vs Anil Dhirajlal Ambani, Applications are filed before the NCLT by the Financial Creditor against a Personal Guarantor of the Corporate Debtors seeking urgent hearing and necessary orders under section 97(3) of the Insolvency and Bankruptcy Code, 2016.

The issue under consideration is whether the liability of a guarantor of a debt of a corporate debtor stands reduced/extinguished upon an Insolvency Resolution Plan in respect of the corporate debtor, being approved under the Insolvency and Bankruptcy Code, 2016?

NCLT stated that, basing on the law decided the Hon‟ble High Court answered the question in the negative. It held that a discharge which the principal debtor may secure by operation of law in bankruptcy or in liquidation proceedings does not absolve the surety of his liability. The Hon‟ble Court have also held that the fact that the Company i.e. principal debtor has gone into liquidation would not have any effect on the liability of the guarantor. The principle thus laid down applies on all fours to the case at hand. In view of such authoritative pronouncement by the Hon‟ble Apex Court, it is clear that notwithstanding pendency of the Resolution Plans, the personal guarantor can be proceeded against under section 60(2) read with sections 95 and 97(3) of the Code. A plain reading of the provision would indicate that while an Application for corporate insolvency resolution process or liquidation proceedings of corporate debtors are pending before this Authority i.e. to say during the pendency of a process of corporate insolvency resolution of the Corporate Debtors, an Application against the Personal Guarantor shall have to be filed. This itself indicates that the process of corporate insolvency resolution of the Corporate Debtors in an Application relating to insolvency resolution etc. of a personal guarantor needs to be filed and can be prosecuted. The law doesn’t envisage that the insolvency resolution of the personal guarantor should follow only when the process of corporate insolvency resolution of the corporate debtor has come to an end. Therefore, the submission that this Authority should wait till the resolution of RCOM or RITL is successfully accomplished and the debts of the corporate debtors have been satisfied, would be eristic. It is to be remembered that the present forum is not a recovery forum and has nothing to do with the satisfaction or otherwise of the debts of the corporate debtors. The submissions accordingly don‟t hold much water. It is not in dispute that the Respondent furnished his personal guarantee for the credit facilities availed by RCOM and RITL. When an Application under section 95 of the Code is filed by the Creditor, as in this case, the Adjudicating Authority shall within seven days of filing of the Application direct the Board to nominate a resolution professional for the insolvency resolution process. Section 97(3) of the Code doesn‟t provide for any alternative or any option to the Adjudicating Authority to be tardy in making the direction to the Board. The use of the word “shall” itself indicates the urgency with which the Application needs to be dealt with. The Authority accordingly has no other option than to issue the direction. The submissions made by the Respondents that this Authority could wait till the resolution of the Corporate debtors are completed accordingly cannot be accepted.

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