Judgments

Lalit Kumar Jain v. Union of India and others

Citation- 21st  May, 2021

Bench- Division Bench

Facts-  (1) The Petitioner contends that the Personal Guarantor liability is coextensive with the liability of Principal Debtor under Section- 128 the Indian Contract Act, 1872.

(2)  The  Committee  of  Creditors  (CoC)  and  Resolution  Professionals  (RPs)  defined  term” Guarantor” as a debtor who is a personal guarantor to a corporate debtor and in respect of whom guarantee has been invoked by the creditor and remains unpaid in full or part which is not so defined by the Parent Act.

(3) Praying that the Notification of the Central Government to be considered as ultra vires.

(4)  Part-III  of  the  Insolvency  and  Bankruptcy  Code,  2016  does  not  create  any  distinction between the personal guarantor and corporate debtor.

(5)  The Impugned notification applies  to particular subcategory  of people  that  is  Personal guarantor who is out of scope of the conditional delegation of power. Such notification shall be deemed void.

(6) The conditional legislation power under Section- 1(3) of the Code to bring changes for particular category be deemed ultra vires and contrary to the power granted by the Parliament. On application of moratorium under Section-101 of the Code against the Personal Guarantor’s debt as a guarantor is same as the Corporate Debtor.

Judgment- The Supreme Court while dismissing the Writ Petition along with all the other Transfer Petitions in relation to this Writ Petition held that the approval of the Resolution Plan in relation to a Corporate Debtor does not ipso facto discharge the Personal Guarantor liabilities under Contract of Guarantee. The discharge of the Principal borrower from the debt owed by him/ her to its creditor by an involuntary process, by operation of law, or due to the insolvency and liquidation proceedings does not absolve the liability of guarantor which arise out of an independent contract. Thus, the impugned notification is legal and valid.

For full Judgment:

https://main.sci.gov.in/supremecourt/2020/26016/26016_2020_37_1501_28029_Judgement_21-May-2021.pdf

Akanksha Gupta

Currently pursuing LLM from University of Rajasthan. one can reach out her on aklawyerslawhub@gmail.com

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