Approval of a Resolution Plan does not ipso facto discharge a Personal Guarantor (of a Corporate Debtor) of her/his liabilities under the Contract of Guarantee – Lalit Kumar Jain Vs. Union of India & Ors. – Supreme Court
The Hon’ble Supreme Court upheld validity of notification dated 15.11.2019 and held that the impugned notification enforcing provisions of the Code, only in so far as they relate to Personal Guarantors was issued within the power granted by Parliament and it is legal and valid. The Court also held that the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor’s liability. The Court referred Maharashtra State Electricity Board [2017] ibclaw.in 19 SC judgment alongwith other judgments and clarified that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract. It was also held that approval of a resolution plan relating to a corporate debtor does not operate so as to discharge the liabilities of personal guarantors (to corporate debtors).