In an interesting interim relief¹ , potentially carrying far reaching consequences, the Hon'ble High Court of Punjab and Haryana has stayed the proceedings initiated by lenders against personal guarantors of Asian Colour Coated Ispat Limited (Principal Borrower), after the approval of resolution plan by the Hon'ble National Company Law Tribunal under the provisions of Insolvency and Bankruptcy Code, 2016. The basis for the interim relief granting stay against personal insolvency or other recovery action against such personal guarantors is the fact that the resolution approved resolution plan pertaining to the Principal Borrower contemplated assignment of entire underlying debt owed by the Principal Borrower to the Lenders. The Court took note of the provisions of the Insolvency and Bankruptcy Code, 2016 and the stipulations contained in the approved Resolution Plan delineating guarantee from underlying debt, yet, came to the conclusion that security or guarantee could not be enforced independent of underlying debt.

Intricate questions of law pertaining to liability of security providers post assignment of debt (and Reserve Bank of India guidelines covering the subject of assignment) in terms of a resolution plan have been raised in this matter. The bench, comprising Justice M.S. Ramachandra Rao and Justice Jasjit Singh Bedi, in the Interim Order, took note of the assignment agreement and other documents executed for the purposes of assignment of debt after approval of resolution plan. The Personal Guarantors were represented by Gravitas Legal, led by Partners, Rajeev Aggarwal and Tanuj Sud, Principal Associate, Ajay Kumar and Associate, Harshita Ahluwalia. The team at Gravitas Legal briefed Senior Advocate Mr. Anand Chhibbar in conjunction with Advocate, Nitin Kaushal.

In a related matter² , the Hon'ble High Court took note of factum of assignment of debt post approval of resolution plan and granted stay on auction proceedings (of Park Plaza Hotel, Faridabad) qua a third party security provider (ACCIL Hospitality Private Limited) where the lender (IFCI Limited) to the Principal Borrower (despite dissent) was bound by the resolution plan whereunder the underlying debt stood assigned.

Footnotes

1. Archana Aggarwal vs Reserve Bank of India & Ors., CWP No. 26668 of 2021, Sapna Aggarwal vs Reserve Bank of India & Ors., CWP No. 26715 of 2021 and Kamlesh Devi Aggarwal vs Reserve Bank of India & Ors., CWP No. 26276 of 2021.

2. ACCIL Hospitality Private Limited & Ors. vs Reserve Bank of India & Ors., CWP No. 24980 of 2021.