Supreme Court to examine if moratorium under IBC extends to personal guarantees

After several inconsistent views on the issue, the Supreme Court is now examining the question of enforcement of personal guarantee(s) provided to companies facing moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC)..The IBC Committee Report which was published earlier this month suggested that the assets of a such a guarantor should fall outside the scope of the moratorium and be allowed to be proceeded against independently. The Report recommended insertion of an explanation to Section 14, which clarifies that section 14 does not intend to bar actions against assets of guarantors to the debts of the corporate debtor..The present appeal to the Supreme Court has been filed by the State Bank of India, against an NCLAT judgment in the case of Veesons Energry Private Ltd. The NCLAT ruled that personal guarantees cannot be invoked when the company in favour of whom the guarantee was extended, is under moratorium..The managing director of Veesons, V. Ramakrishnan had extended personal guarantee and mortgaged his property in favour of SBI. While the company was in moratorium, SBI issued a notice for the sale of assets of the personal guarantor..An interlocutory application was filed by Ramakrishnan with the Mumbai Bench of the NCLT, where it was held that the protection accorded under moratorium period will extend to the property of the personal guarantor as well. On an appeal by the SBI, the NCLAT upheld the findings of the NCLT..However, the NCLAT has in the cases of Alpha & Omega Diagnostics v Asset Reconstruction of Company India Limited and Schweitzer Systemic India Private Limited v Phoenix ARC taken a different view that the moratorium will apply only to property of the corporate debtor and no other person..Both these rulings were made observing the language contained in Section 14 of the IBC, which makes the moratorium applicable only to the assets of the corporate debtor..Contrary views have also been taken by the Allahabad High Court and Bombay High Court on the subject. While the Allahabad High Court ruled that the moratorium is applicable to a personal guarantor since the liability hasn’t been fructified, the Bombay High Court did not agree with this view and held that moratorium would be applicable only to the corporate debtor alone..SBI is pursuing the same argument at the Supreme Court, that is, Section 14 applies only to assets of the corporate debtor. It is being further argued that guarantee is an independent contract and that Section 128 of the Indian Contract Act, 1872 which provides that the liability of the surety is co-extensive with that of the principal debtor..Accordingly, SBI has prayed for setting aside the judgment of the NCLAT and as an interim measure, has sought to restrain Ramakrishnan from alienating the assets under protest..The petition in the Supreme Court has been filed by AOR Sanjay Kapur..The case is now listed for hearing on May 9, 2018.