Allahabad High Court: Mere Approval of a Resolution Plan does not ipso facto Absolve the Director of a Company of his or her liability

Allahabad High Court: Mere Approval of a Resolution Plan does not ipso facto Absolve the Director of a Company of his or her liability

The Allahabad High Court in the case of Narendra Singh Panwar vs. Pashchimanchal Vidyut Vitran Nigam Limited and Others dismissed the writ petition filed against the demand notice of electricity dues totaling to Rs. 9 crore issued in the name of two directors of a company- M/s Trimurti Concast Pvt ltd, that went into insolvency and held that although the defaulter company went into insolvency and the resolution plan was also approved by the National Company Law Tribunal Allahabad, (in short NCLT), the liability of its directors stood non-extinguished.

The plea was filed by one of the directors of the company namely- M/s Trimurti Concast Pvt ltd against the demand notice issued by Pashchimanchal Vidyut Vitran Nigam Limited (in short PVVNL) in his and the other director's name.

It was contended by the petitioner- Narendra Singh Panwar that once the Company had gone into insolvency under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short IBC, 2016), the unpaid electricity dues towards the defaulter company being a Corporate debtor was not possible to be recovered from its directors.

Referring to the waiver, reliefs, and exemptions granted by the NCLT in its order, he asserted that after approval of the resolution plan, a creditor is prohibited from initiating proceeding for recovery of its claims which are not part of the resolution plan, therefore, all claims except provided in the resolution plan stood permanently extinguished.

Per contra, the counsel for the respondent- PVVNL and the UP-Power Corporation Ltd submitted that Clause 4.3(f) and Clause 6.15 of the Electricity Supply Code, 2005 clearly authorized the electricity department to issue recovery proceeding against the directors.

The counsel argued that the Directors of the company shall be liable for the electricity dues of the company as per Clause 4.3 (f)(v) of the Electricity Supply Code, 2005.

Moreover, the respondent asserted to the court that one of the Directors of the defaulter company at the time of submitting the application form for supply of electricity had filed his affidavit along with the application form to undertake that whatever be the dues of the Company, he would always be ready and bound to deposit the same.

However, the court opined that the issue whether the director was a personal guarantee or not was not in question.

The High Court while placing reliance on catena of judgments passed by the Top Court observed that the object of the IBC, 2016 is not to allow personal guarantors such as Directors who are in the management of the companies to escape from an independent and co-existent liability to pay off the entire outstanding debt.

The Court referred to the judgment held in Vijay Kumar Jain vs. Standard Chartered Bank (2019)- the sanction of a resolution plan and finality imparted to it by Section 31 does not per se operate as a discharge of the guarantor's liability, the division bench noted.

The court, therefore, upheld the powers of the Electricity Department under Clause 4.3 (f) and Clause 6.15 of the U.P. Electricity Supply Code, 2005 to proceed against the directors of the company.

Lastly, the Court observed that the approval of a resolution plan does not ipso facto absolve the surety/guarantor of his or her liability, which arises out of an independent contract of guarantee, and to what extent, the liability of a guarantor can be pressed into service would depend on the terms of the guarantee/contract, itself.