top of page
Search

Approval of a resolution plan does not ipso facto absolve the surety/guarantor of their liability


The Division Bench of Allahabad High Court comprising Justices Mrs Sunita Agarwal and Vipin Chandra Dixit was hearing a petition and held that the approval of a resolution plan does not ipso facto absolve a surety or guarantor of their liability, which arises from an independent contract of guarantee.


In the present case, the contention raised by the petitioner's learned counsel to challenge the recovery on the basis that the approval of the resolution plan in the insolvency proceedings of the defaulter company, namely M/s. Trimurti Concast Pvt. Ltd. (Corporate debtor), would automatically discharge both directors of the defaulter company, one of whom is the petitioner, such argument is deemed to be rejected.


The High Court noted that another director of the defaulter company, Ashok Sharma, who is not a party to the present case, claims to have provided a personal guarantee for the discharge of the defaulter company's electricity dues. The extent to which the contents of the said affidavit would operate as a personal guarantee against the aforementioned director is not to be determined in this proceeding, as it has not been raised or required to be answered. The challenge to the demand notice made by one of the directors is solely based on the argument that once the defaulter company underwent insolvency proceedings and obtained approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016, and subsequently liquidated its assets, the liability of its directors was extinguished. However, this argument has been rejected based on the reasoning provided above. Moreover, the signatory director who claims to have given the personal guarantee for the electricity dues is not a party to the present case. Therefore, the aforementioned issue can be addressed by the relevant parties in a suitable proceeding.


As for the applicability of Clause 4.3(f)(v) of the Electricity Supply Code, 2005, the arguments questioning its validity or alleging it to be ultra vires to the Electricity Act, 2003, made in a half-hearted manner in the rejoinder, cannot be entertained. No foundation has been laid in this regard in the writ petition.


To summarize, the legal issue pertaining to the liability of the personal guarantor of the corporate debtor, whose liability is co-extensive with that of the principal debtor (the corporate debtor), has been addressed, considering the established legal principles by the Supreme Court. However, other issues concerning the nature or extent of liability of the petitioner or another director of the company as a personal guarantor have not been addressed, as no arguments have been presented in this regard.


The High Court noted that the approval of a resolution plan does not ipso facto absolve a surety or guarantor of their liability, which arises from an independent contract of guarantee. The extent to which the liability of a guarantor can be enforced depends on the terms of the guarantee contract itself.


Based on the above discussion, the challenge to the demand notice for electricity dues issued jointly in the name of the directors of the defaulter company, the corporate debtor that underwent insolvency, cannot be sustained on the grounds that the acceptance of the resolution plan under Section 31 of the Insolvency and Bankruptcy Code automatically discharged or extinguished all liabilities of the directors who may act as guarantors.


The writ petition was dismissed.


Comments


bottom of page