New Delhi, April 18, 2018

A bench led by Justice Rohinton Nariman has sought response on these questions raised in an appeal by SBI against the NCLT’s February 28 order that restrained the banks from selling the assets of personal guarantor and former promoter and MD of Veesons Energy Systems V Ramakrishnan.

The SBI has sought the Supreme Court view on whether the liability of a personal guarantor of a company under insolvency resolution process can be enforced when a moratorium against the corporate debtor for recovery of dues is on under the IBC Code. The apex court will also look into the issue whether the benefit of such moratorium would be available to such an individual/ personal guarantor in case the insolvency resolution process has not been initiated and whether a secured creditor is entitled to initiate proceeding for recovery independently against the personal guarantor without initiating action against the principal borrower.

A bench led by Justice Rohinton Nariman has sought response on these questions raised in an appeal by SBI against the NCLT’s February 28 order that restrained the banks from selling the assets of personal guarantor and former promoter and MD of Veesons Energy Systems V Ramakrishnan. The NCLT, Chennai, in September 2017 held that the personal guarantors are also entitled for protection under the moratorium declared against the ‘corporate debtor’ under Section 14 of IBC. However, the Bombay High Court took a contrary view in another petition by holding that moratorium under IBC has no application on the personal mortgaged assets of the guarantors.

“For that there are contrary views of the High Court of Bombay and High Court of Allahabad on whether the creditor can proceed to recover its dues from the personal guarantor when the moratorium has been issued under Section 14 of the IBC, 2016. Therefore, to bring the certainty in the said law and in the interest of justice this court should interfere and decides the question of law,” SBI said. Alleging that the impugned NCLT’s order, which was later upheld by NCLAT, was not in line with the intend of the Code, SBI said that section 31 provides that the resolution plan after approval would be binding on all the parties including the guarantors.

It said that the moratorium is being used by Veesons Energy to frustrate the recovery proceedings. The guarantee is an independent contract and in all has to be honoured to fulfil the contractual obligation between the surety and the creditor, according to the appeal. Besides, the tribunal failed to consider section 128 of the Indian Contract Act, 1872 which provides that the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided in the contract.

[The Financial Express]