NCLAT held that the approval of a Resolution Plan does not discharge personal guarantors' liabilities.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson0 and Barun Mitra (Technical Member) was hearing appeals filed by the Personal Guarantors and upheld the admission of Financial Creditor's applications under Section 95, ruling that personal guarantees were excluded from the Resolution Plan, in accordance with established legal precedents.
In the NCLAT judgment, Personal Guarantors Vikram Babulal Sanghvi and Naresh Babulal Sanghvi contested an order by the Adjudicating Authority, dated 27th February 2024, which admitted applications filed by the State Bank of India (SBI) under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). The applications were related to the default in repayment by Sanghvi Forging & Engineering Limited, where both Sanghvi brothers were Personal Guarantors.
The Adjudicating Authority's order was challenged in two appeals, both dealing with the admission of SBI's applications. The appellants argued that after the approval of the Resolution Plan, which transferred the debt to a Special Purpose Vehicle (SPV), their personal guarantees should not be enforceable. They cited judgments from Indian and Australian courts to support their claim.
However, the NCLAT rejected the appellants' arguments, citing Clause 36 of the approved Resolution Plan, which excluded guarantees from the debt assignment to the SPV. The NCLAT also referenced the Supreme Court's ruling in Lalit Kumar Jain v. Union of India & Ors., affirming that approval of a Resolution Plan does not discharge personal guarantors' liabilities. Additionally, the NCLAT referred to its own precedent, UV Asset Reconstruction Company Limited v. Electrosteel Castings Limited, confirming that the Resolution Plan's approval does not extinguish creditors' rights against third parties.
The NCLAT also dismissed the appellants' reliance on the Delhi High Court's judgment in Vineet Saraf v. Rural Electrification Corporation Ltd., clarifying that the High Court's decision only provided a prima facie opinion and left the matter to be decided on merits by the concerned tribunal.
Likewise, the NCLAT found no relevance in the judgment of the High Court of Australia in Hutchens v. Deauville Investments Pty Ltd., stating that it pertained to a different legal context and did not address the specific issues of Resolution Plans and personal guarantees.
Ultimately, the NCLAT upheld the Adjudicating Authority's decision to admit SBI's applications under Section 95, dismissing the appeals filed by the Personal Guarantors.
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