Guarantor Whose Guarantee Stands Invoked By Any Creditor Barred From Giving Resolution Plan, Though Insolvency Initiated By Another Creditor
Case: Bank of Baroda and another versus MBL Infrastructures Ltd and others
Coram: JusticeSanjay Kishan Kaul & Justice M.M. Sundresh
Case No.: Civil Appeal No. 8411 Of 2019
Court Observation: “has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code and such guarantee has been invoked by the creditor and remains unpaid in full or part”.
“The word “such creditor” in Section 29A(h) has to be interpreted to mean similarly placed creditors after the application for insolvency application is admitted by the adjudicating authority. As a result, what is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor, notwithstanding the application being filed by any other creditor seeking initiation of insolvency resolution process. This is subject to further compliance of invocation of the said personal guarantee by any other creditor”.
“Ineligibility has to be seen from the point of view of the resolution process. It can never be said that there can be ineligibility qua one creditor as against others. Rather, the ineligibility is to the participation in the resolution process of the corporate debtor. Exclusion is meant to facilitate a fair and transparent process”
“Once a person executes a guarantee in favour of a creditor with respect to the credit facilities availed by a corporate debtor, and in a case where an application for insolvency resolution has been admitted, with the further fact of the said guarantee having been invoked, the bar qua eligibility would certainly come into play. What the provision requires is a guarantee in favour of ‘a creditor’. Once an application for insolvency resolution is admitted on behalf of ‘a creditor’ then the process would be one of rem, and therefore, all creditors of the same class would have their respective rights at par with each other”.
“The provision after the amendment speaks of invocation by a creditor. The manner of invocation can never be a factor for the adjudicating authority to adjudge, as against its existence. Adequate importance will have to be given to the latter part of the provision which also disqualifies a person whose liability under the personal guarantee executed in favour of a creditor, remains unpaid in full or in part for the amount due from him, upon invocation”.
“That is the reason why it consciously excludes certain categories of persons. We may add that Section 29A(h) foresees the creditors who are otherwise either already under the insolvency resolution process or are entitled to go under it”
Previous Posts
Section 304B IPC- Demand Of Money For Construction Of A House Is A ‘Dowry Demand’: Supreme Court
Family Courts Expected To Act With Due Application Of Mind Without Being Hyper- Technical, Should Have Litigant Friendly Approach: Delhi High Court Download Judgement
Keywords
Guarantor, Resolution Plan, Insolvency, Guarantor Guarantee
