Guarantor cannot escape the payment outlined as per the resolution plan: Calcutta High Court

When a resolution plan has been approved by a committee of creditors, it is binding on the guarantor and he cannot escape his obligations outlined in the plan. This was addressed in the case of Gouri Prasad Goenka v State Bank of India [WPO No. 171 of 2021] which was adjudged on 21st June 2021 by a bench consisting of Justice Sabyasachi Bhattacharyya of the Calcutta High Court.

The petitioner, Gouri Prasad Goenka is the Director and Promoter of Duncan Industries, additionally he was also the Guarantor for a loans taken by Duncan Industries from State Bank of India. Upon default of the payement, the petitioner was issued two show cause notices from SBI asking him for a reason why he should not be declared a wilful defaulter.  One notice was addressed to him in his capacity as director of Duncan Industries and the other notice in his capacity as the guarantor. The petitioner contended that an Interim Resolution Professional was appointed over the company from March 2020 and the power of its board of directors stood suspended in terms of Section 17(1)(b) of the Insolvency and Bankruptcy Code. A moratorium was also declared under section 14 of the IBP prohibiting suits or proceedings against the debtor. As a result of this, the petitioner contended that wilful defaulter proceedings should not be instituted against the director of the company.

The respondents countered that as per the Kotak Mahindra Bank Limited v Hindustan National Glass & Industries limited [(2013) 7 SCC 369] judgement, a wilful defaulter proceeding was meant to disseminate credit information and not for the recovery of property. Hence the moratorium cannot debar the proceeding for declaration of wilful defaulter. The court noted that it is evident that there lies no flaws in the notices and that the petitioner was given adequate oppurtunities to submit a suitable response asper Clause 2.6 of the RBI Master Circular. It was also noted that apphrehension of a future resolution plan which is yet to materialise cannot absolve the petitioner in his capacity of either director or guarantor from the liability incurred.

The High declared that “Essar Steel, in paragraph no. 105 thereof, stipulates that the guarantor cannot escape payment, as the Resolution Plan itself may so provide, although a successful resolution applicant starts on a fresh slate after such resolution, as indicated in paragraph no.107 of the said report”.  It was concluded that “In view of the above discussions, no fault can be found with the issuance of the impugned show-cause notices to justify judicial interference therewith. Accordingly, the writ petition fails and the respondent will be free to take subsequent steps in respect of the wilful declaration proceeding in accordance with law”.

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