The Supreme Court on Tuesday ruled that banks can sell off assets of personal guarantors even when corporate resolution proceedings are on against the corporate debtor under the Insolvency and Bankruptcy Code.
Setting aside the order of the NCLAT that held that the personal guarantors, who are generally promoters, are also entitled for protection like corporate guarantors under the moratorium declared against the ‘corporate debtor’ under IBC Section 14, a bench led by Justice RF Nariman said Parliament specifically didn’t provide for any moratorium along the lines of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 while enacting the Code’s Section 14.
Under SICA, now repealed, creditors couldn’t proceed against guarantors after the company had been declared sick without permission from the BIFR.
While clearing the confusion, the SC referred to the March 26 report of the Insolvency Law Committee, appointed by the ministry of corporate affairs, that recommended that “all assets of such guarantors to the corporate debtor shall be outside scope of moratorium imposed under the Code,” as a broad interpretation of the moratorium may curtail significant rights of the creditor which are intrinsic to a contract of guarantee.
The judgment came on a few appeals led by SBI seeking the SC’s view on whether the liability of a personal guarantor of a company under insolvency resolution process can be enforced.