NCLAT Upholds CoC's Decision to Release Personal Guarantees, Overturns Adjudicating Authority's Directions

NCLAT Upholds CoC's Decision to Release Personal Guarantees, Overturns Adjudicating Authority's Directions

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that if the Committee of Creditors (CoC) agrees to release personal guarantees upon completion of payment under a Resolution Plan, the Adjudicating Authority cannot direct the invocation of such guarantees.

Factual Background

The appellant challenged the observations made by the Adjudicating Authority in paragraphs 28 and 39 of the order dated March 27, 2025, which directed the invocation of personal guarantees despite the approved Resolution Plan stipulating their release upon full payment.

Procedural Background

The Adjudicating Authority approved the Resolution Plan submitted by the appellant, but made observations that contradicted the terms of the plan. The appellant appealed to the NCLAT, arguing that the observations were unsustainable and contrary to the approved plan.

Issues

1. Whether the Adjudicating Authority can direct the invocation of personal guarantees despite the CoC's agreement to release them upon payment?

2. Whether the observations made by the Adjudicating Authority are consistent with the approved Resolution Plan?

Contentions of the Parties

Appellant's Contention: The appellant argued that the approved Resolution Plan clearly stipulates the release of personal guarantees upon full payment, and the CoC's letter communicates the same. The appellant highlighted that the plan was approved by 100% CoC.

Respondent's Contention: The respondent supported the appellant's contention, submitting that the observation by the Adjudicating Authority was unnecessary.

Reasoning and Analysis

The bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member - Technical) observed that the Resolution Plan explicitly provided for the release of guarantees only upon full implementation and payment. The tribunal held that the observations made by the Adjudicating Authority were inconsistent with the Resolution Plan and that invocation of guarantee does not arise when the CoC itself has agreed to release the personal guarantees after receiving payment under the plan.

Implications

This judgment clarifies that the Adjudicating Authority cannot direct the invocation of personal guarantees if the CoC has agreed to release them upon payment. The judgment upholds the terms of the approved Resolution Plan and ensures that the parties are bound by their agreements.

Outcome

The NCLAT disposed of the appeal by deleting the observations made in paragraphs 28 and 39 of the impugned order. The tribunal's decision provides certainty and finality to the Resolution Plan, allowing the parties to proceed with its implementation.

In this case the appellant was represented by Mr. Diwakar Maheshwari, Mr. Shreyas Edupuganti and Mr. Karan B., Advocates. Meanwhile the respondent was represented by Mr. Dipankar Das, Advocate for Respondent no.2.