The NCLAT, New Delhi Bench opined that by approval of the plan, the personal guarantors are not per se and ipso facto discharge from the obligations that may arise of the guarantee given to the Financial Creditor. However, it is not to say that the personal guarantee can never be discharged in a resolution plan. It was further noted that moratorium does not apply to personal guarantors.
In the present case, there was a specific clause in the plan about the release of the personal guarantee. It was observed that when the CoC itself approved the plan after deliberations on the said clause, the NCLT could not have interfered with that commercial wisdom.
Brief Facts:
The present appeal has been filed against the order of the NCLT vide which the resolution plan filed for approval was rejected.
Brief Background:
The Appellant submitted its resolution plan after Corporate Insolvency Resolution Process (“CIRP”) was initiated against the Respondent.
The Committee of Creditors (“CoC”) approved the resolution plan along with the addendum with 78.04% shares.
One of the members of CoC holding 5.83% voting share objected to the resolution plan when it was filed before the NCLT for approval. The NCTL rejected the resolution plan on the ground that one of the secured creditor’s rights cannot be extinguished.
Contentions of the Appellant:
It was argued that NCLT had committed an error in rejecting the plan based on one dissenting opinion of the financial creditor. It was further contended that the plan was approved with majority vote and hence, could not have been interfered with.
Contentions of the Respondents:
It was contended that the plan could not have contained any provision by which personal guarantees in favor of the financial creditor could have been extinguished.
Observations of the Tribunal:
The primary issue was whether in a resolution plan there can be a clause vide which security interest of a financial creditor could be extinguished by way of personal guarantee of the Corporate Debtor which was given for obtaining financial assistance.
It was noted that the amount proposed in the plan was towards the value of the Corporate Debtor and also towards the release of personal guarantees.
It was opined that by approval of the plan, the personal guarantors are not per se and ipso facto discharge from the obligations that may arise of the guarantee given to the Financial Creditor. However, it is not to say that the personal guarantee can never be discharged in a resolution plan.
It was further noted that moratorium does not apply to personal guarantors.
In the present case, there was a specific clause in the plan about the release of the personal guarantee. It was observed that when the CoC itself approved the plan after deliberations on the said clause, the NCLT could not have interfered with that commercial wisdom.
The decision of the Tribunal:
Based on the aforementioned reasons, the NCLAT set aside the order of the NCLT and accordingly allowed the appeal.
Case Title: SVA Family Welfare Trust & Anr. V. Ujaas Energy Ltd. & Ors.
Case No.: Company Appeal (AT) (Insolvency) No. 226 of 2023
Coram: Justice Ashok Bhushan, Barun Mitra
Advocates for Appellant: Advs. Mr. Krishnendu Datta, Mr. Himanshu Satija, Mr. Rajat Sinha, Ms. Neha Agarwal, Ms. Kushali Palreeha, Mr. Harsh Saxena
Advocates for Respondents: Advs. Mr. Awanish Kumar, Mr. Prashant Kumar, Mr. Anish Agarwal, Mr. Immanud, Mr. Rohit Dubey . Mr. Brijesh Kumar Tamer, Mr. Prateek Kushwaha, Mr. Vinay Singh Bist
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