Sanction Of Resolution Plan U/S 31 IBC Does Not Discharge Liability Of Guarantor Towards Loan Agreement: Delhi High Court

The Delhi High Court has recently reiterated that where proceedings are initiated under the SARFAESI Act and the borrower is aggrieved by any of the actions of the bank for which it has remedy under the Act, no writ petition should be entertained.

Justice Sanjeev Narula further observed that the extent of liability of a personal guarantor would have to be determined in light of the agreement between the borrower, i.e., the corporate debtor and the personal guarantor, for which the appropriate forum would be the Debt Recovery Tribunal and not the High Court.

"Discharge of the corporate debtor from a debt owed by it to its creditors, by way of an involuntary process such as insolvency proceedings, does not absolve the guarantor of its liability since it arises out of an independent contract."

The Court thus dismissed a plea filed by a person who stood as guarantor to a loan facility, being aggrieved with the recovery action initiated by the bank, against the borrower and himself, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

It was the petitioner's case that once a resolution plan qua the borrower was approved under sec. 31 of the under the Insolvency and Bankruptcy Code, 2016, the bank's claims stood addressed. Thus, it could not have sought recovery for amounts over and above the amount approved by the NCLT.

Observing that the law of maintainability of a writ petition in matters relating to SARFAESI Act is no longer res integra, the Court reiterated the said observation from the Supreme Court judgment in Phoenix ARC Pvt. Ltd. v. Vishwa Bharti Vidya Mandir and Ors.:

"…. where proceedings are initiated under the SARFAESI Act, and the borrower is aggrieved by any of the actions of the bank for which the borrower has remedy under the SARFAESI Act, no writ petition should be entertained."

The Court noted that since Petitioner's challenge to the action of bank was already the subject-matter of challenge before the DRT which was pending adjudication, the writ cannot be entertained.

"Thus, if the Petitioner is not absolved of his liability, the proceedings initiated by the bank under the SARFAESI Act cannot be held to be unconstitutional or in derogation of the Approval Order of the NCLT," the Court added.

Taking note of sec. 33(3) of the IBC, which envisages a liquidation process in the event of contravention of a resolution plan, the Court said that the bank had the right to proceed against the collateral securities for recovery of its dues, which were independent of the resolution plan approved by the NCLT.

"This is the scheme under the IBC, and if the Parliament, in its wisdom, has only provided the remedy of a liquidation process under Section 33(3) of IBC as a consequence of non- implementation of the resolution plan by the concerned corporate debtor, this Court cannot create another remedy just because the afore-noted remedy is not sufficient or suitable for the Petitioner," the Court said.

Accordingly, the plea was dismissed.

Case Title: SANJAY SARIN v. THE AUTHORISED OFFICER, CANARA BANK & ORS.

Citation: 2022 LiveLaw (Del) 821

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