Execution Of Fresh Personal Guarantee Post-Restructuring Bars Initiation Of Insolvency Process U/S 95 Of IBC Against Personal Guarantor: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that when the lenders restructured their debts and extinguished prior security interests by obtaining a fresh personal guarantee from the Personal Guarantor, the Appellant cannot invoke the earlier guarantee to initiate personal insolvency proceedings under section 95 of the Insolvency and Bankruptcy Code, 2016 (Code) against the Personal Guarantor, who is also the Resolution Applicant with an approved plan upheld by the Supreme Court. Brief Facts: Erstwhile Allahabad Bank granted various financial facilities to the Corporate Debtor, M/s MBL Infrastructure Limited, starting from 2010. These facilities were extended by a consortium of banks, with State Bank of Mysore as the lead bank. The Appellant executed a deed of guarantee dated 17.02.2016 in favor of State Bank of Mysore. During the Corporate Insolvency Resolution Process (CIRP), Respondent No.1, Anjanee Kumar Lakhotia, the suspended director, submitted a Resolution Plan dated 22.11.2017, which was approved by the Committee of Creditors with a 78.50% vote share. Under the Resolution Plan, the debt of all the lenders was restructured and was proposed to be paid in phased manner. The Respondent No.1 herein, the Personal Guarantor was required to submit a fresh guarantee to the consortium of bank. A new Deed of Guarantee dated 04.07.2024 was executed by the Respondent No.1 in favour of the SBICAP Trustee Company Limited. The Appellant was one of the dissenting Financial Creditor who did not voted for approval of Resolution Plan. By virtue of approval of plan, the dissenting financial creditor was entitled to receive liquidation value in priority. Subsequent to the approval of plan, an application under Section 95(1) was filed by the Indian Bank was filed to initiate insolvency process against the Personal Guarantor – Anjanee Kumar Lakhotia. The Adjudicating Authority after hearing the parties and considering all the materials on record rejected the application under Section 95(1) filed by the Appellant by order dated 24.01.2025. Aggrieved by which order, this appeal has been filed. Contentions: The Appellant submitted that Resolution Plan of the Corporate Debtor which was approved in the year 2017 does not affect the personal guarantee given by the Respondent No.1. It was further submitted that mere fact that a fresh personal guarantee has been taken from Respondent No.1 by the consortium of banks shall not retrospectively extinguish the personal guarantee given by Respondent No.1. Per contra, the State Bank of India submitted that The Personal Guarantor himself having given the Resolution Plan, a fresh personal guarantee was executed by the Personal Guarantor on 04.07.2024 for implementation of the approved Resolution Plan. It is submitted that in view of obtaining fresh guarantee, the Indian Bank which is dissenting Financial Creditor cannot proceed to file an application under Section 95 against the Respondent No.1. Observations: The Tribunal after referring to the relevant materials observed that when the lenders' debts were restructured and security interests extinguished by requiring the Personal Guarantor to provide a fresh guarantee to the consortium, the Appellant cannot rely on the earlier guarantee to initiate personal insolvency proceedings against the Personal Guarantor, who is also the Resolution Applicant with an approved plan upheld by the Supreme Court. It further observed that the Resolution Plan included clause for modification of security interest, issuance of securities of the Corporate Debtor, for cash, property, securities or in exchange for claims or interest. The Resolution Plan, thus, dealt with all securities. The Tribunal further said that the Supreme Court in Lalit Kumar Jain v. Union of India held that approval of a Resolution Plan does not automatically extinguish a personal guarantee. In this case, the Personal Guarantor, who submitted the Resolution Plan which was subsequently approved, had their assets as of 31.03.2017 noted in the plan. The Resolution Plan also provides for repayment to lenders with respect to securities and claims. It further noted that in Maharashtra State Electricity Board v. Official Liquidator (1982), the Supreme Court held that under Section 128 of the Indian Contract Act, 1872, a guarantor's liability is co-extensive with that of the principal debtor, and the debtor's liquidation does not absolve the guarantor. While this principle stands undisputed, the present case requires examining the effect and consequences of the approved Resolution Plan. The Tribunal concluded that in the present case, the Resolution Plan was submitted by the Personal Guarantor, who also executed a fresh...

Execution Of Fresh Personal Guarantee Post-Restructuring Bars Initiation Of Insolvency Process U/S 95 Of IBC Against Personal Guarantor: NCLAT

Mohd Malik Chauhan

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