NCLAT Delhi: Personal And Corporate Guarantors Have No Right Of Subrogation After Approval Of Resolution Plan
Sachika Vij
8 March 2024 12:30 PM IST
The National Company Law Appellate Tribunal ('NCLAT') Delhi, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that the personal guarantors and corporate guarantors have no right of subrogation after the approval of the Resolution Plan under Insolvency and Bankruptcy Code, 2016 ('IBC'). Background Facts: On 07.02.2003, Yamuna...
The National Company Law Appellate Tribunal ('NCLAT') Delhi, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held that the personal guarantors and corporate guarantors have no right of subrogation after the approval of the Resolution Plan under Insolvency and Bankruptcy Code, 2016 ('IBC').
Background Facts:
On 07.02.2003, Yamuna Expressway Industrial Development Authority and Jaiprakash Associates Limited ('JAL') entered into a Concession Agreement with JAL being granted a concession to develop the expressway against the right to collect toll charges for a period of 36 years and the right to develop 6177 acres at actual compensation cost. Jaypee Infratech Ltd. (Corporate Debtor) was assigned all the rights and obligations under the Agreement.
The consortium of banks provided finances for the project. The Corporate Insolvency Resolution Process ('CIRP') filed by IDBI Bank against the Corporate Debtor was revived by the Supreme Court. Later on, Resolution Plans submitted by Suraksha Realty and NBCC were approved by the Committee of Creditors ('CoC') as well as NCLT New Delhi on 07.03.2023.
JAL and Manoj Gaur (Appellants) erstwhile Managing Director and personal guarantor of Corporate Debtor's loan have filed the appeals against NCLT New Delhi's Order approving the Resolution Plans in the CIRP of the Corporate Debtor.
NCLAT Verdict:
The NCLAT Delhi dismissed the appeals and held that the personal guarantors and corporate guarantors have no right of subrogation after the approval of the Resolution Plan under IBC.
The Appellate Tribunal rejected the objection relating to the Appellants' locus to challenge the NCLT Delhi's Order and decided that the appeals cannot be rejected on the ground of locus. It held that the only limited ground to contest the approval of the resolution plan is if it does not comply with Section 30(2) of IBC.
It placed reliance on Section 140 of the Indian Contract Act, 1872 ('ICA').
140.Rights of surety on payment or performance.—
Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.
It observed that Section 140 of ICA provides to keep alive securities, benefit, any right of the creditor under the security or otherwise which is discharged by payment or performance of liability. Presently, the corporate guarantor and personal guarantor can get into the shoes of the principal creditor since they have made the payment of dues. Thus, Section 140 of ICA does not subsist. Further, there has been discharge of the Principal borrower's debt under the Resolution Plan.
NCLAT highlighted that the Supreme Court in Lalit Kumar Jain vs. Union of India (2021) noted that the approval of Resolution Plan and finality imparted to it does not per se operate as a discharge of the guarantor's liability. Moreover, the Resolution Plan becomes binding post approval on the Corporate Debtor, its employees, members, creditors including its Directors and Guarantors as per Section 31(1) of IBC.
It also placed reference to the Supreme Court's decision in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta (2019) which dealt with the issue under the heading “Extinguishment of Personal Guarantees and Undecided Claims”.
NCLAT following the above reliances noted that the Guarantors cannot contend to be not bound by Clause 34.50 of the Resolution Plan especially when the statute provides that the Resolution Plan is binding on the Guarantors also. Thus, expressly extinguishing the right of subrogation. It observed that the while the debt of the Corporate Debtor may have extinguished following the approval of the Resolution Plan, the same does not extend to the Corporate Guarantors and Personal Guarantors. The extinguishment shall be only following the provisions of the Resolution Plan.
In conclusion, NCLAT declined to accept the Appellants' submission that their debt is extinguished under Section 135 of ICA with their right of subrogation under Section 140 of ICA and to receive the provisions of securities under Section 141 of ICA.
Case Title: Jaiprakash Associates Ltd. vs. Jaypee Infratech Ltd. and Ors.
Case No.: Company Appeal (AT) (Insolvency) No. 548 of 2023 & I.A. No. 2643, 3702 of 2023
Counsel for Appellant: Mr. Krishnan Venugopal, Sr. Advocate with Mr. Anupam Chaudhary, Mr. Sarvesh Mehra, Mr. Krishnan Aggarwal, Mr. Avinash Mathews, Advocates.
Counsel for Respondents: Mr. Sumant Batra, Mr. Sanjay Bhatt, Mr. Sarthak Bhandari, Ms. Mehreen Garg, Advocates for IMC of JIL/R-1. Mr. Krishnendu Datta, Sr. Advocate with Mr. Mahesh Agarwal, Ms. Geetika Sharma, Ms. Eshna Kumar, Mr. Sagar Bansal, Ms. Varsha Himatsingka, Mr. Rajat Sinha, Advocates for SRA, R- 3 & 4. Mr. Tushar Jain, Mr. Vaibhav Chowdhary, Mr. Mukesh Kumar, Advocates in IA 2643/2023. Mr. Parth Tandon and Mr. Harsh Sharma, Advocates for Applicant in I.A. 3218/2023. Mr. Amit K. Mishra, Mr. Akshat Hansaria, Advocates for Homebuyers/Intervenors. Mr. Vierat K. Anand, Ms. Srishty Kaul, Mr. Harish Nadda, Advocates.
