NCLAT: Change in Debt Quantum Post-Resolution Plan Approval Doesn’t Bar Section 95 IBC Proceedings Against Personal Guarantors
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has ruled that a change in the quantum of financial debt—resulting from the approval of a resolution plan in the Corporate Insolvency Resolution Process (CIRP)—does not bar the initiation of insolvency proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the personal guarantors of the corporate debtor. The decision reinforces that once a personal guarantee is invoked and the liability remains unpaid, the creditor’s right to proceed against the guarantor under Section 95 remains intact.
The ruling was delivered by a bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), which dismissed a batch of appeals filed by Ms. Aarti Singal and Mr. Sanjay Singal, both personal guarantors of the corporate debtor. The appellants had challenged the NCLT's order dated 07.10.2024, which not only admitted the Section 95 application filed by the State Bank of India (SBI) but also rejected the appellants’ interim applications (IA No. 155 of 2024 and IA No. 2595 of 2024) seeking deferment of the insolvency proceedings.
The appellants primarily argued that since the CIRP against the corporate debtor had already culminated in the approval of a resolution plan on 05.09.2019, there existed no basis for continuing the proceedings against them. They specifically relied on Clause 1.8F of the resolution plan, which states that the financial creditors retain the right to recover only the unrecovered portion of the debt from personal guarantors. The core contention was that since the resolution plan altered the quantum of financial debt owed, the admitted amount in the Section 95 application could no longer serve as a valid ground to initiate proceedings.
However, the Tribunal rejected this line of argument. It noted that the invocation of personal guarantees by the financial creditor (SBI) had occurred on 13.02.2018—well before the approval of the resolution plan—thereby giving rise to a cause of action under Section 95. The Tribunal emphasized that the resolution plan may affect the quantum of recoverable debt, but it does not negate the underlying liability of the personal guarantor, nor does it extinguish the creditor's statutory right to initiate proceedings under the Code.
Referring to Clause 1.8F of the resolution plan, the Tribunal observed that it merely reaffirms the creditor’s right to pursue any unrecovered financial debt from guarantors. It clarified that “in the event under the Resolution Plan any amount is recovered by the financial creditor, allowance of the said amount has to be given while preparing a repayment plan with regard to the personal guarantor’s insolvency.” However, this accounting adjustment does not affect the maintainability or admissibility of the Section 95 application itself.
The Tribunal supported its reasoning by relying on its earlier decision in Hari Singh Thakur v. Sandeep Kumar Bhatt (RP) and Anr [2024 SCC OnLine NCLAT 1182]., where it was held that challenges regarding the correctness of the debt amount or valuation of assets are not valid grounds to oppose admission of a Section 95 application. Such objections, the NCLAT reiterated, are relevant only at the repayment plan stage, where parties have the opportunity to raise their concerns and submit material evidence.
In Hari Singh Thakur, the NCLAT had categorically held that: “The submission of the Appellant that the debt has not been correctly shown in the application is not a question which can be ground to reject the application under Section 95… The said argument is also not an argument for challenging admission.”
Following the same rationale, the Tribunal in the present case held that the debtor's recovery under the resolution plan does not eliminate the remaining liability of the personal guarantor, and thus, cannot prevent the application under Section 95 from proceeding.
In conclusion, the NCLAT dismissed all the appeals, upholding the Adjudicating Authority’s order admitting the application under Section 95 and rejecting the appellants' plea for deferment. It confirmed that the proceedings against the personal guarantors were validly initiated and must proceed to the next stage under the framework of the Code.
Appearance
For Appellant: Mr. Sandeep Bajaj, Mr. Soayib Qureshi, Mr. Mayank Siyani, Advocates.
For Respondents: Mr. Sanjiv Sen, Sr. Advocate with Ms. Srideepa Bhattacharya, Ms. Neha Shivhare, Mr. Uday Khare, Ms. Anjali Singh, Mr. Prahalad Balaji, Mr. Pragyan Mishra, Advocates for SBI.
Cause Title: Aarti Singal V. State Bank of India & Anr.
Case No: Company Appeal (AT) (Insolvency) No. 2121 of 2024
Coram: Justice Ashok Bhushan [Chairperson], Arun Baroka [Member (Technical)]
[Read/Download order]
