Approval Of Resolution Plan Containing Clause Which Permits Creditors To Take Recourse Against Guarantees Cannot Be Interfered With: NCLAT

Brief Facts:

State Bank of India filed an insolvency application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor which was admitted on 03.10.2020.

In the CIRP process, Resolution Plans came to be considered by the Committee of Creditors (CoC) in the 35th meeting of the CoC dated 11.07.2024. On the basis of result of voting, the plan submitted by Orissa Metaliks Pvt. Ltd. was approved by 98.94% vote share.

The Resolution Plan came for consideration before the Adjudicating Authority. Adjudicating Authority after hearing the parties approved the Resolution Plan by the impugned order dated 04.10.2024. This Appeal has been filed challenging the approval of the Resolution Plan.

Contentions:

The appellant submitted that the Resolution Plan which directed payment to be released after decision by the Adjudicating Authority in different application shall lead to reduction of the pay-out to the financial creditors.

It was further submitted that this ultimately shall have bearing on the suspended director and guarantors like Appellant who has given personal guarantee.

It was also argued that in the Resolution Plan, it is provided that the financial creditors shall continue to be entitled to avail recourse available to them in relation to the personal/corporate guarantees whereas in the Resolution Plan the liability of the Resolution Applicant has been completely wiped out.

Per contra, the respondents submitted that all operational creditors and other stakeholders after determination of their claims by the Adjudicating Authority shall be entitled to receive the amount from the amount deposited which is the term of approval of the Resolution Plan. The Resolution Plan is neither conditional nor suffers from any error.

It was also argued that under the Resolution Plan, the personal guarantees have not been extinguished, hence, Appellant is still liable to the financial creditors.

Observations:

The Tribunal observed that approval of a resolution plan does not ipso facto discharge the personal guarantor from its liabilities as held by the Supreme Court in Lalit Kumar Jain vs. Union of India and Ors.(2021).

It further noted that there is a clause in the plan which provides that the creditors will continue to take recourse in relation to corporate or personal guarantee. The plan containing this clause has been approved by the Adjudicating Authority by which all stakeholders including the appellant is bound.

It also observed that the financial creditors having been given the right to proceed against the personal guarantor for the balance liability, it is always open for the financial creditor to proceed against the personal guarantor/ corporate guarantor that being the approved clause of Resolution Plan, Appellant cannot be heard to say anything against that.

The Tribunal concluded that the jurisdiction of the Adjudicating Authority while approving the resolution plan under section 30(4) of the code is limited which cannot be stretched to challenge the decision taken by the CoC in its commercial wisdom.

Accordingly, the present appeal was dismissed.

Case Title: Raman Gupta Versus Surendra Raj Garg Resolution Professional, Metenere Ltd. & Ors.

Case Number: Company Appeal (AT) (Insolvency) No.51 of 2025 & I.A. No. 127 of 2025

Judgment Date: 18/02/2025

For Appellant: Mr. Virender Ganda, Sr. Advocate with Ms. Purti Gupta, Ms. Henna George and Mr. Ayandeb, Advocates.

For Respondents: Mr. Ankur Mittal and Ms. Muskan Jain, Advocates for NARCL.

Mr. Vaijayant Paliwal and Ms. Tanya Chib, Advocates for RP.

Click Here To Read/Download The Order