IMPORTANT POINT
A personal guarantor cannot be declared a wilful defaulter if the guarantee was executed before the cut-off date specified in the RBI Master Circular.

JUDGMENT :

(Sabyasachi Bhattacharyya, J. ):

1. The present challenge has been preferred by a Director of a company by the name of UIC Udyog Limited which has since undergone a Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the IBC”).

2. The case of the respondents is that the petitioner was also a guarantor in respect of loan taken by the said Company from the respondent no.1, the State Bank of India. On July 20, 2019, the respondent-Bank (SBI) sent a show-cause notice to the petitioner and the borrower company under the Master Circular on Wilful Defaulters dated July 1, 2015 issued by the Reserve Bank of India (RBI).The petitioner gave a reply thereto, upon which on March 3, 2020, the Wilful Defaulter Identification Committee declared the petitioner and the borrower company to be Wilful Defaulters.

3. A challenge was preferred against the same by the petitioner before this Court, upon which, by an order dated January 27, 2022, this Court granted a liberty to the petitioner to take all points raised by him before the Review Committee.

4. Accordingly, the petitioner filed a representation before the Review Committee and ultimately the said Committee, by an order dated December 30, 2022, affirmed the decision of the first Committee, thereby declaring the petitioner to be a Wilful Defaulter.

5. In the meantime, the borrower company was admitted to Insolvency Resolution under the IBC on September 30, 2019. On April 7, 2021, the Resolution Plan was approved by the National Company Law Tribunal (NCLT).

6. Learned counsel for the petitioner contends that the petitioner, in the capacity of personal guarantor, is not liable to the SBI (respondent no.1-Bank) after assignment of the remaining portion of the debt to one DRP Trading and Investment Private Limited, a Non Banking Financial Company (NBFC) under the approved Resolution Plan of Laser Power and Infra Private Limited.

7. It is contended that as soon as a debt is assigned, the principal debtor ceases to be liable to the original creditor and becomes a borrower/debtor of the assignee. Thus, even if it is assumed that the corporate debtor/personal guarantor is still in debt due to borrowings of the corporate debtor, the liability would be towards the assignee, that is, DRP Trading and Investment Private Limited and not the respondent-Bank.

8. In support of such contention, learned counsel for the petitioner cites ICICI Bank Ltd. v. Officials Liquidator APS Star Industries Ltd. And others reported at (2010) 10 SCC 1.

9. It is next argued by the petitioner that from the approved Resolution Plan, it appears that the assignment has been made in respect of the debt owed against the corporate debtor, although the personal guarantees have been excluded from such assignment. Thus, upon assignment of debt to DRP Trading and Investment Private Limited, the assignee becomes a creditor for that portion of the debt which is assigned.

10. However, the respondent-Bank argues that since the personal guarantees were excluded from the purview of assignment, the bank retained the right to invoke personal guarantee and proceeded against the personal guarantor notwithstanding the assignment of the entire portion of remaining debt in favour of the DRP Trading and Investment Private Limited.

11. Learned counsel appearing for the petitioner contends that such conundrum was dealt with by the High Court of Australia in Hutchens v. Deauville Investments Pty. Ltd reported in (1986) 68 367 at pages 372 and 373, where it was clarified that it is impossible to assign the debt while retaining the benefit of a guarantee and thereby convert one debt owing to one creditor by both the principal debtor and guarantor into two debts (one owed by the principal debtor and the other by the guarantor).

12. The observation of the High Court of Australia has been elaborately dealt with in the judgment of the Delhi High Court in the matter of Vineet Saraf v. R