TMI Blog2020 (11) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... y the counsel for the petitioner that all proceedings against the petitioner, who is only a guarantor, ought to be stayed under the SARFESI Act during the continuation of the Insolvency Resolution process qua the Principal Borrower, is rejected as meritless. Petition dismissed. - W.P.(C) 7230/2020 & CM.APPL. 24414/2020(stay) - - - Dated:- 2-11-2020 - HON'BLE MS. JUSTICE HIMA KOHLI AND HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD Petitioner Through: Mr. Sandeep Sethi and Mr. Amit Singh Chadha, Senior Advocates with Mr. Arvind Kumar Gupta and Ms. Henna George, Advocates Respondents Through: Mr. Rajiv Kapur and Mr. Akshit Kapur, Advocates for respondent No.1/SBI. Mr. Vikas Mehta and Mr. Apoorv Khator, Advocates for respondent No.3/IBBI. SUBRAMONIUM PRASAD, J. 1. The short question which arises for consideration in this writ petition is as to whether a bank/financial institution can institute or continue with proceedings against a guarantor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act ), when proceedings under the Insolvency and Bankruptcy Code 2016 (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Counsel appearing for the petitioner had stated on instructions that he would not be pressing prayer clauses (A) to (F) and had confined the relief in the petition to prayer clauses (G) to (M). The writ petition is now being confined to the action of the Bank of initiating proceedings against the petitioner under the SARFAESI Act when insolvency proceedings have been initiated against the Principal Borrower under the IB Code and the same are pending before the NCLT. 7. It is the contention of the petitioner that proceedings against the Principal Borrower under the IB Code and against the Guarantor under the SARFAESI Act cannot be instituted and continued simultaneously; unless the proceedings under the IB Code do not come to an end and it is decided that the company cannot be revived, proceedings against the Guarantor alone cannot go on; that if the Resolution Plan is accepted, then under Section 31 of the IB Code, all the Guarantees become ineffective as the Resolution Plan is binding on the Guarantors. A plea has been taken that after approval of the Resolution Plan under the IB Code, the liability of the Guarantor also comes to an end. It has also been stated that dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, read as under:- Section 14 of IB Code. Moratorium.-( 1) Subject to provisions of sub-section (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:- (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under subsection (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination as referred to in section 5 of the Completion Act, 2002(12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.] Section 128 of Contract Act . Surety s liability.- The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. 11. Section 128 of the Contract Act provides that the liability of a Guarantor is coextensive with that of the Principal Debtor. In Industrial Investment Bank of India Limited v. Biswanath Jhunjhunwala, reported as (2009) 9 SCC 478 , the Supreme Court has observed as under:- 14. Mr Gupta, in support of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40] , SCC p. 165, para 13) the liability of the surety is coextensive with that of the principal debtor, unless it is otherwise provided by the contract . [Ed.: This is the verbatim text of Section 128 of the Contract Act, 1872.] 18. The term coextensive has been defined in the celebrated book of Pollock Mulla on Indian Contract and Specific Relief Act, 10th Edn., at p. 728 as under: Coextensive.-Surety's liability is coextensive with that of the principal debtor. A surety's liability to pay the debt is not removed by reason of the creditor's omission to sue the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety, and a suit may be maintained against the surety though the principal has not been sued. 19. In Chitty on Contracts, 24th Edn., Vol. 2 at pp. 1031-32, para 4831 it is stated as under: 4831. Conditions precedent to liability of surety.- Prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor. 20. In Halsbury's Laws of England, 4th Edn., Vol. 20, para 159 at p. 87 it has been obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceed against a guarantor even after initiation of proceedings under the IB Code also stands settled. As correctly pointed out by Mr. Kapur, learned counsel appearing for the respondent/Bank, the said issue is squarely covered by the judgment of the Supreme Court in State Bank of India (supra). Paras 20 and 25 of the said decision that answer the issue raised by Mr. Sethi, Senior Advocate against him, read as under:- 20. Section 14 refers to four matters that may be prohibited once the moratorium comes into effect. In each of the matters referred to, be it institution or continuation of proceedings, the transferring, encumbering or alienating of assets, action to recover security interest, or recovery of property by an owner which is in possession of the corporate debtor, what is conspicuous by its absence is any mention of the personal guarantor. Indeed, the corporate debtor and the corporate debtor alone is referred to in the said section. A plain reading of the said section, therefore, leads to the conclusion that the moratorium referred to in Section 14 can have no manner of application to personal guarantors of a corporate debtor. XXX XXX XXX 25. Section 31 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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