NCLAT : In Lalit Mishra & Ors. vs. Sharon Bio Medicine Ltd. & Ors.

It is a settled position of law that the liabilities of guarantors is co-extensive with the borrower and it was not the intention of the legislature to benefit the ‘Personal Guarantors’ by excluding exercise of legal remedies available in law by the creditors, to recover legitimate dues by enforcing the personal guarantees,  which are independent contracts.

The present appeal has been preferred by the promoters, who are responsible for having contributed to the insolvency of the ‘Corporate Debtor’. The ‘I&B Code’ prohibits the promoters from gaining, directly or indirectly, control of the ‘Corporate Debtor’, or benefiting from the ‘Corporate Insolvency Resolution Process’ or its outcome. The ‘I&B Code’ seeks to protect creditors of the ‘Corporate Debtor’ by preventing promoters from rewarding themselves at the expense of creditors and undermining the insolvency processes.

It was not the intention of the legislature to benefit the ‘Personal Guarantors’ by excluding exercise of legal remedies available in law by the creditors, to recover legitimate dues by enforcing the personal guarantees, which are independent contracts. It is a settled position of law that the liabilities of guarantors is co-extensive with the borrower. This Appellate Tribunal held that the resolution under the ‘I&B Code’ is not a recovery suit. The object of the ‘I&B Code’ is, inter alia, maximization of the value of the assets of the ‘Corporate Debtor’, then to balance all the creditors and make availability of credit and for promotion of entrepreneurship of the ‘Corporate Debtor’. While considering the ‘Resolution Plan’, the creditors focus on resolution of the borrower ‘Corporate Debtor’, in line with the spirit of the ‘I&B Code’.

Link : https://nclat.nic.in/Useradmin/upload/16294684985c1a14f4221dc.pdf