Validity of Section 95 Proceedings Against Personal Guarantors Post-Resolution Plan Approval
- REEDLAW
- 23 hours ago
- 3 min read
NCLAT upheld the validity of proceedings initiated under Section 95 of the IBC against Personal Guarantors, even after the approval of a Resolution Plan for the Corporate Debtor.
On 21.04.2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), reviewed a batch of Appeals and held that the initiation of insolvency proceedings under Section 95 of the IBC against a personal guarantor is valid, even after the approval of a Resolution Plan for the corporate debtor. The Tribunal clarified that creditors retain the right to recover unrecovered debt through personal guarantees, and any disputes regarding the quantum of such debt are to be addressed at the stage of finalising the repayment plan.
The National Company Law Appellate Tribunal (NCLAT) delivered its judgment in a group of Appeals filed by Personal Guarantors of a Corporate Debtor, who had challenged the admission of an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). This application had been initiated by the State Bank of India against the Personal Guarantors, and alongside, two interlocutory applications (IA No. 155 of 2024 and IA No. 2595 of 2024) seeking deferment of proceedings under Section 95 had also been dismissed by the Adjudicating Authority. The impugned order dated 07.10.2024, passed by the NCLT, Principal Bench, New Delhi, was the subject matter of challenge in these Appeals.
Learned Counsel for the Appellants argued that the initiation of proceedings under Section 95 was erroneous, given that a Resolution Plan for the Corporate Debtor had already been approved on 05.09.2019. Referring to Clause 1.8 F of the said Plan, the Counsel contended that the rights of the Financial Creditor were limited to recovery of only the unrecovered portion of the financial debt, and that any subsequent proceedings, including those under Section 95, should reflect this altered quantum of debt. Therefore, it was submitted that the proceedings were not maintainable.
On behalf of the Respondent Bank, Senior Counsel countered the submissions by stating that the initiation of proceedings was valid under the IBC and that any dispute regarding the extent of debt or amounts already recovered was a matter to be addressed during the finalisation of the repayment plan. He relied on the NCLAT’s earlier decision in Hari Singh Thakur v. Sandeep Kumar Bhatt (RP) and Another, REEDLAW 2024 NCLAT Del 08515, where it was held that such contentions did not invalidate the admission of a Section 95 application.
After hearing both sides and examining the record, the Tribunal held that the Resolution Plan indeed binds all stakeholders, but Clause 1.8 F did not preclude the Financial Creditor from initiating proceedings for the recovery of the remaining debt via personal guarantees. It clarified that while the Appellants may raise objections regarding amounts already recovered during the repayment plan stage, such factors do not vitiate the initiation of proceedings under Section 95. The NCLAT also affirmed that the correct procedure under Rule 7 of the relevant Rules had been followed.
Accordingly, the Tribunal found no merit in the arguments of the Appellants and dismissed the Appeals, holding that the initiation of insolvency proceedings against the Personal Guarantors was not erroneous in law.
Mr. Sandeep Bajaj, Mr. Soayib Qureshi, Mr. Mayank Siyani, Advocates, represented the Appellant.
Mr. Sanjiv Sen, Sr. Advocate with Ms. Srideepa Bhattacharya, Ms. Neha Shivhare, Mr. Uday Khare, Ms. Anjali Singh, Mr. Prahalad Balaji, Mr. Pragyan Mishra, Advocates, appeared for the Respondent No. 1/SBI.
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