Doctrine of subrogation is an absolute right of Guarantor, however, the issue becomes different, if it falls within the domain of IBC | A Resolution Plan itself can vary and modify the rights of Creditors and Guarantors and provide for continuation of Personal Guarantees which do not need any confirmation from Personal Guarantor – Mr. Vikas Aggarwal Vs. Asian Colour Coated Ispat Ltd. and Ors. – NCLAT New Delhi

In this important judgment on modification of rights of Creditors/ Personal Guarantor in Resolution Plan, Hon’ble NCLAT held that: (i) The financial creditors have a right to proceed against the personal guarantors of the Corporate Debtor, and further, that the personal guarantors, in terms of section 31 of the Code are duty bound by the terms of the Resolution Plan approved by the Adjudicating Authority. (ii) The objective of the code is to revive and rehabilitate the Corporate Debtor and therefore the right to subrogation may not survive in such situation. The extinguishment of the Personal Guarantors right of subrogation is clear departure from establish principles of contract guarantee which are covered under Section 140 and 141 of the Indian Contract Act, 1872. (iii) Despite provisions of Section 140 and 141 of the Indian Contract Act, 1872 the Personal Guarantors cannot claim any relief in view of clear provisions of Section 238 of the Code (iv) The extinguishment of Personal Guarantors right of subrogation is unavoidable and inaccessible fact in insolvency cases and it requires to be respected by all stakeholders and any departure from such principles will have adverse impact on revival of the Corporate Debtors, interest of the Financial Creditors and overall negative impact on the national economy.

Related Posts

Scroll to Top