Liability Of Corporate Debtor Not Discharged By Release Of Guarantors' Liability If Bank Preserves Right To Proceed Under IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that the liability of the Corporate Debtor is not discharged merely because the guarantors were released from their liabilities by the Bank after One time settlement (OTS) especially when the Bank had preserved its right to proceed against the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 (IBC). The present appeal has been filed against an order passed by the National Company Law Tribunal (NCLT) by which an application under section 7 of the IBC was admitted and the Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor. The Appellant submitted that the Bank has deliberately failed to disclose a crucial fact—that the entire loan liability, comprising a Cash Credit facility of Rs.9 Crores and a Secured Overdraft facility of Rs.4 Crores, had already been fully and finally settled much before the filing of the -7- Section 7 application. It was further submitted that the Bank issued a release letter to the guarantors and released the mortgaged property. The Bank had no authority to release the mortgaged property, unless the entire loan account stood satisfied, particularly since the mortgage was a tripartite arrangement among the Borrower, Bank, and Guarantors. Per contra, the Respondent submitted that the amount recovered by the Bank was from the guarantors, and the Bank took a commercial call to release them upon receiving Rs.10 Crores in accordance with the agreed settlement. The property situated at Gandhi Nagar, Jammu, belonging to the guarantors, was released. However, this in no way implies that the principal borrower/Corporate Debtor was absolved of its liability. The Tribunal after perusing various documents observed that the Bank preserved its rights to proceed against the Corporate Debtor despite releasing the guarantors from their liabilities and their mortgaged properties. The debt against the corporate debtor was not extinguished as no waiver or No Dues Certificate was issued. The Appellant's claim that the liability of the corporate debtor was discharged due to the payment of higher value than the OTS value made by the Guarantors cannot be accepted. It further observed that an agreement between the corporate debtor and the guarantor was a private transaction and the bank was not privy to this arrangement therefore the bank will not be bound by the Agreement. Any such agreement cannot affect the interest of the Financial Creditors to proceed under the IBC. Furthermore, the Bank continued to treat the debt as unpaid as it had filed a recovery suit for the remaining amount after adjusting the amount paid by the Guarantors and initiated proceedings under the SARFAESI Act. The Tribunal further held that the Appellant claimed that works worth Rs. 38 crore are ongoing but showed no documents to establish that they have been approved for payment. Merely citing ongoing contracts does not bring the case within scope of the Vidharbha Industries. Accordingly, the present appeal was dismissed. Case Title:Puneet Resutra Versus Jammu & Kashmir Bank Ltd. Case Number: Company Appeal (AT) (Ins.) No. 752 of 2023 Judgment Date: 03/07/2025 For Appellant: Mr. Amar Vivek & Mr. Aditya Jain, Advocates. For Respondent: Mr. Syed Arsalan, Mr. Prateek Khaitan, Mr. Chatanya Sharma and Mr. Shitij Chakravarty, Advocates. Click Here To Read/Download The Order

Liability Of Corporate Debtor Not Discharged By Release Of Guarantors' Liability If Bank Preserves Right To Proceed Under IBC: NCLAT

Mohd Malik Chauhan

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