SBI v. V. Ramakrishnan: 

The present appeals revolve around whether Section 14 of the Insolvency and Bankruptcy Code, 2016, which provides for a moratorium for the limited period mentioned in the Code, on admission of an insolvency petition, would apply to a personal guarantor of a corporate debtor.

As matters stood thus, an application was filed by Respondent 2, the corporate debtor, under Section 10 of the Code on 20-5-2017 to initiate the corporate insolvency resolution process against itself. On 19-6-2017, this petition filed under Section 10 was admitted, followed by the moratorium that is imposed statutorily by Section 14 of the Code. While the said proceedings were pending, an interim application was filed by Respondent 1 as personal guarantor to the corporate debtor, in which Respondent 1 took up the plea that Section 14 of the Code would apply to the personal guarantor as well, as a result of which proceedings against the personal guarantor and his property would have to be stayed. The National Company Law Tribunal held that since under Section 31 of the Code, a Resolution Plan made thereunder would bind the personal guarantor as well, and since, after the creditor is proceeded against, the guarantor stands in the shoes of the creditor, Section 14 would apply in favour of the personal guarantor as well. The interim application filed by Respondent 1 was thus allowed, and the appellant was restrained from moving against Respondent 1.

Shri Singh, in particular, relied heavily upon the difference in language between Section 14 and Section 101. According to the learned Senior Counsel, Section 14, in all its sub-sections, speaks only of the corporate debtor. When contrasted with Section 101, it becomes clear that Section 14 cannot possibly attach to a personal guarantor as well, as Section 101 does not speak of a “debtor” but speaks “in relation to the debt” and is not only wider than Section 14, but would attach only if Part III proceedings were to be instituted against the personal guarantor. They also relied heavily upon the Amendment Ordinance dated 6-6-2018, by which Section 14(3) of the Code was substituted, including a surety in a contract of guarantee to a corporate debtor.

The learned counsel for the appellants relied upon the Insolvency Law Committee proceedings, which led to the aforesaid amendment, stating that it had been recommended to clarify, by way of an explanation that all assets of such guarantors to the corporate debtor shall be outside the scope of the moratorium imposed under the Code. The much impugned judgment in the present proceedings was referred to by the Insolvency Law Committee stating that such a broad interpretation of Section 14 would curtail significant rights of the creditor. They relied upon judgments which made it clear that clarificatory statutes, like this amendment, would have retrospective operation and that, therefore in any case the impugned judgment would have to be set aside.

 In particular, he pointed out Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, and stated that as a result of the said section applying to guarantors as well, creditors could not proceed against guarantors as well after the company had been declared sick under the said Act, without permission from the Board for Industrial and Financial Reconstruction. Now that the said Act has been repealed, and the fact that several later enactments, including the Companies Act, 2013 had omitted a provision akin to Section 22, would show that the enactment of Section 14 of the Code was deliberate, and that the idea was that there should be no stay of proceedings against the guarantor while the corporate debtor is undergoing an insolvency proceeding. For this, he cited various judgments. He also relied upon the Amendment Act, 2018 and stated that since the Act was to get over the appellate judgment in particular, and since it was clarificatory, the position in law would be that it would be retrospective, and would thus govern the case at hand.

Before dealing with the arguments of the learned counsel on both sides, it is important at this stage to set out some of the provisions of the Code. One difficulty that we faced when hearing the matter was that different provisions of the Code were brought into force on different dates, as Section 1(3) indicates. Also, certain important provisions of the Code have not yet been brought into force. This we will advert to a little later in our judgment.