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2019 (2) TMI 2000 - HC - Indian LawsInterpretation of statute - overriding effect of IBC over SARFAESI Act - When Section 2(e) of the IBC says that the provisions of the IBC are applicable to the personal guarantors to corporate debtor, whether the secured creditor (respondent-Bank) can proceed with the properties of the guarantors (petitioners) under the SARFAESI Act, when the order of liquidation is passed against the borrower-Company by the NCLT as per the provisions of the IBC? - HELD THAT:- In the instant case, the borrower-Company filed a company petition under Section 10 of the IBC before the NCLT, Chennai, vide C.P.No. 64(IB)/CB/2018 for initiation of Corporate Insolvency Resolution Process (CIRP). The NCLT, by order dated 25.01.2018, initiated the CIRP and subsequently, after the period of moratorium of 180 days, ordered liquidation on 06.08.2018. Pursuant to the order of liquidation, one Ms.C.S.Satyadevi Alamuri had been appointed as Liquidator, with a direction that the Company Liquidator shall exercise her powers and duties enumerated under Sections 35 to 50 and 52 to 54 of the IBC read with Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. Since the liability of the guarantor and principal debtor is co-extensive, it is absolutely not necessary for the Bank to first proceed against the principal debtor and then against the guarantor, and when that being the position, the submission of the learned counsel for the petitioners that the secured creditor has to wait for the completion of the entire sale transaction by the liquidator on the properties of the corporate debtor surrendered by the secured creditor for realising the dues, cannot be accepted - Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors may be complete strangers to the debtor--often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor. In the instant case, the secured creditor had surrendered only the properties of the corporate debtor and not the personal properties of the guarantors and hence, the properties of the guarantors stand outside the scope of liquidation. Therefore, there is no law prohibiting the secured creditor to take legal action to recover the amount from the guarantors, without taking action on the borrower. Hence, there is no impediment in the action taken by the secured creditor under the SARFAESI Act as against the personal properties of the guarantors, since the liability of the guarantor is co-extensive. It cannot be said that the principles laid down in the above judgment of the Supreme Court will be applicable only during the moratorium period and not after the order of liquidation. Therefore, we are of the opinion that the respondent-Bank is entitled to initiate the proceedings under the SARFAESI Act as against the personal properties of the guarantors, even when the borrower-Company is under the order of liquidation. When the properties of the borrower alone are surrendered to liquidation, there cannot be SARFAESI proceedings against the properties of the guarantors, cannot be countenanced. Thus, at the risk of repetition, we state that the respondent-Bank is entitled to proceed under the SARFAESI Act as against the guarantors' properties, even when the borrower- Company is in liquidation process under the IBC - the liability of a guarantor arises as soon as the principal debtor defaults in paying back the loan. It is to be noted that a contract of guarantee focusses upon the breaking of a promise, whereas the IBC focusses upon the existence of a default. Contrary to the proceedings under the IBC which can only be conducted in NCLT, a breach of guarantee contract can be brought into DRT, that too when 'public money' is involved. The rights available to a creditor to proceed against the personal guarantor of a corporate debtor are many-fold, i.e. he can either go to DRT solely for the purpose of debt recovery, or he can file insolvency proceedings against the personal debtor. The contention of the petitioners that the secured creditor of the corporate debtor has to wait to initiate proceedings under the SARFAESI Act against the personal guarantors till the liquidation process is over, is unsustainable and not supported by any of the provisions of the IBC - Petition dismissed.
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