S Ganesh Subramaniam vs Union Bank Of India
2023 Latest Caselaw 1333 AP

          HIGH COURT OF ANDHRA PRADESH

               MAIN CASE No:W.P.No. 5324 OF 2023

                          PROCEEDING SHEET

SL.     DATE                                 ORDER                           OFFICE
NO.                                                                           NOTE
02.   09.03.2023   DVSS,J & VJP, J

                              Heard the learned Senior Counsel appearing
                   for the petitioner.


                              After hearing the both the counsel and their
                   lengthy submissions and considering the case law,
                   this Court is of the opinion that even if the auction
                   is sucessfully held, the same should not be
                   confirmed as this matter is heard and decided
                   finally.


                              The reasons for this order are:-

                              (a)    The submissions of the learned senior
                   counsel that the sureties, who discharge the debt of
                   a primary borrower are entitled to their securities of
                   the primary borrower for realization of their debt is
                   a point that merits consideration. In the case on
                   hand, it is pointed out that the primary borrower is
                   liquidated and it is not in existence. Therefore, an
                   issue to be decided is if the sureties stand step into
                   the shoes of a principal borrower and pay his debts,
                   in case they are called upon to pay the amount,
 SL.   DATE                               ORDER                             OFFICE
NO.                                                                         NOTE
             how will they realise the same.


                      The other important question that arises is
             the     participation   of    the   bank   in   liquidation
             proceedings and the procedure specified under
             section 52(1)(a)(a). Admittedly, the bank has
             realized the substanital part of its outstanding debt
             by participating in the proceedings. The issue raised
             under section 52(1)(a)(a) is also a point which
             needs further consideration.


                      The judgment of the Hon'ble Supreme Court,
             which was cited by the learned counsel for the bank
             viz., is Lalit Kumar Jain Vs Union of India and others
             {(2021) 9 Supreme Court Cases 321} wherein
             the Apex Court categorically held in para, 125 that
             the approval of the resolution plan does not ipso
             facto    discharge      a    personnel   gurantor   (of   a
             corporate debtor) of her or his liabilities under the
             contract of gurantee. It was further held that
             release or discharge of a principal borrower from
             the debt owed by it to its creditor, by an involuntary
             process i.e. by operation of law, or due to
             liquidation or insolvency proceedings, does not
             absolve the surety/guarantor of his or her liability,
             which arises out of an independent contract.
             However the fact remains that if the sureties are
             called upon to pay the amount due, they are not
 SL.   DATE                           ORDER                           OFFICE
NO.                                                                   NOTE
             having access to the security of the principal
             debtor, since the debt and the principal debtor are
             no longer in existence as on date.


                      In that view of the matter as legal and
             factual issues are involved, this Court is of the
             opinion that the respondent should be directed to

file a counter positively within two (02) weeks and thereafter the matter will be taken up for final hearing.

List on 23.03.2022.

Learned counsel for the respondent requested to inform the bank the orders passed today.

_______ DVSS, J

_______ VJP, J Note:

Issue CC by Tomorrow. B/o PNS