NCLAT reaffirmed that the approval of a Resolution Plan does not discharge the liability of personal guarantors.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Member Barun Mitra, reviewed an appeal on 18.02.2025 and held that that the approval of a Resolution Plan does not discharge the liability of personal guarantors, as financial creditors retain their right to proceed against them, reaffirming the principle laid down in Lalit Kumar Jain v. Union of India and Others, REEDLAW 2021 SC 05510. It further ruled that the deposit mechanism for adjudicated claims ensures equitable treatment of stakeholders and does not render the plan conditional or legally flawed.
The appeal was filed by the appellant challenging the order dated 04.10.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi, allowing the application IA No. 37 of 2024 filed by the Resolution Professional for approval of the Resolution Plan. The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor commenced on 03.10.2020 upon an application filed by the State Bank of India. In the 35th meeting of the Committee of Creditors (CoC) held on 11.07.2024, the Resolution Plan submitted by Orissa Metaliks Pvt. Ltd. was approved by a 98.94% vote share. Following the approval, the Resolution Professional filed IA No. 37 of 2024 for approval of the plan. The Adjudicating Authority, considering the interest of stakeholders, directed the deposit of the entire amount of Rs. 295,14,95,611/- in a high-interest-bearing account on 10.09.2024, to be distributed as per the final adjudication of various pending applications. Subsequent to compliance with this direction, the Adjudicating Authority approved the Resolution Plan on 04.10.2024, leading to the present appeal.
The appellant, represented by Senior Counsel Shri Virender Ganda, contended that the Resolution Plan, by directing the release of payment post-adjudication of pending applications, would result in a reduction of financial creditors' pay-out, impacting the appellant as a personal guarantor. It was argued that while financial creditors retained the right to proceed against personal/corporate guarantees, the Resolution Applicant's liability was extinguished, rendering the plan conditional and thereby unfit for approval. Furthermore, the appellant claimed that the commencement of CIRP against him from 01.03.2024 and the lack of an invitation to participate in CoC meetings violated procedural fairness.
The CoC, represented by Counsel Shri Ankur Mittal, countered these arguments, asserting that the appellant, as a suspended director/promoter, had no right to challenge the commercial wisdom of the CoC. It was emphasized that the deposit directive aimed to safeguard stakeholders, including the dissenting financial creditors such as Indian Bank, which had filed IA No. 4275 of 2024. The resolution plan provided for the adjudicated claims to be paid from the deposited amount while ensuring that financial creditors retained recourse against personal guarantors. The plan was neither conditional nor legally flawed, and previous appeals by operational creditors, including the Employees' Provident Fund Organization (EPFO), had been dismissed.
The Tribunal considered these submissions and examined the impugned order, particularly paragraph 11.3, which documented the CoC’s consent to deposit the plan amount in a separate interest-bearing account pending adjudication of claims. The Tribunal noted that the Resolution Plan explicitly preserved the financial creditors' rights against personal/corporate guarantors. Relying on the Supreme Court’s judgment in Lalit Kumar Jain v. Union of India and Others, REEDLAW 2021 SC 05510, it reiterated that approval of a resolution plan does not ipso facto discharge a personal guarantor. Clause 4.6.5 of the plan reinforced this principle, confirming that financial creditors retained their recourse against guarantees while any subrogation rights of the guarantor against the Corporate Debtor stood extinguished upon payment.
The Tribunal rejected the appellant’s argument that the adjudication of claims would reduce the deposited amount, thereby increasing the guarantor’s exposure. It held that the plan approval and deposit mechanism were essential to ensuring equitable treatment of all stakeholders, including dissenting creditors. The financial creditors' right to proceed against personal guarantors remained intact, precluding any basis for challenging the plan’s approval. Accordingly, the appeal was dismissed, affirming the Adjudicating Authority’s decision.
Mr. Virender Ganda, Sr. Advocate with Ms. Purti Gupta, Ms. Henna George and Mr. Ayandeb,
Advocates represented the Appellant.
Mr. Ankur Mittal and Ms. Muskan Jain, Advocates appeared for the NARCL.
Mr. Vaijayant Paliwal and Ms. Tanya Chib, Advocates appeared for the Resolution Professional.
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