{"id":238380,"date":"2020-11-02T17:43:30","date_gmt":"2020-11-02T12:13:30","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=238380"},"modified":"2020-11-06T11:31:58","modified_gmt":"2020-11-06T06:01:58","slug":"del-hc-is-the-liability-of-principal-borrower-and-guarantor-co-extensive-court-reiterates-scs-position-on-continuation-of-sarfaesi-proceedings-against-guarantor-by-banks","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2020\/11\/02\/del-hc-is-the-liability-of-principal-borrower-and-guarantor-co-extensive-court-reiterates-scs-position-on-continuation-of-sarfaesi-proceedings-against-guarantor-by-banks\/","title":{"rendered":"Del HC | Is the liability of Principal Borrower and Guarantor co-extensive? Court reiterates SC’s position on continuation of SARFAESI proceedings against Guarantor by banks"},"content":{"rendered":"

Delhi High Court:\u00a0<\/strong>A Division Bench of Hima Kohli and Subramonium Prasad, JJ., considered the following question:<\/p>\n

\n
\n
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Whether a bank\/financial institution can institute or continue with proceedings against a guarantor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), when proceedings under the Insolvency and Bankruptcy Code 2016 (IB Code) have been initiated against the principal borrower and the same are pending adjudication?<\/span><\/p>\n<\/blockquote>\n

Respondent 4 was the principal borrower in the present case who had obtained loans from the State Bank of India. Guarantor was the wife of the promoter of the principal borrower. Further, it has been stated that the bank filed an insolvency petition against the principal borrower under the provisions of the IB Code before the NCLT, Delhi.<\/p>\n

At the time of pendency of the insolvency proceedings against the principal borrower, bank issued a notice under Section 13(2) of the SARFAESI Act to the petitioner and another notice under Section 13(4) of the SARFAESI Act was also issued. Both the notices were challenged by the petitioner.<\/p>\n

The above-stated notices were challenged before Debts Recovery Tribunal but were later withdrawn in light of negotiation talks between the Bank and the Principal Borrower.<\/p>\n

Petitioner alleged that without issuing a Notice under Section 1(4) of SARFAESI Act, the Bank issued\u00a0 Sale Notice under Rule 8 (6) of Security Interest (Enforcement) Rules for sale of her residential house.<\/span><\/p>\n

In the instant matter, the prime question for consideration was confined to the action of the Bank of initiating proceedings against the petitioner under the SARFAESI Act when insolvency proceedings have been initiated against the Principal Borrower under the IB Code and the same are pending before the NCLT.<\/span><\/p>\n

Analysis & Decision<\/span><\/h3>\n

Bench referred to the relevant provisions, Sections 14 and 31 of the IB Code and Section 128 of the Contract Act.<\/p>\n

Section 14 of the IB code related to Moratorium, Section 31 of the IB Code refers to the approval of the resolution plan and Section 128 of the Contract Act provides the Surety’s liability.<\/p>\n

\n
\n
\n

Section 128 of the Contract Act provides that the liability of a Guarantor is coextensive with that of the Principal Debtor.<\/p>\n

Bench cited the decision of\u00a0Industrial Investment Bank of India Ltd. v. Biswanath Jhunjhunwala,\u00a0<\/em>(2009) 9 SCC 478<\/a>.<\/p>\n

Court held that since the liability of a guarantor is co-extensive with that of the principal debtor and not in the alternative, it cannot be said that proceedings in the NCLT against the principal debtor can be a bar to institution or continuation of proceedings against the guarantor under the SARFAESI Act.<\/p>\n

Bench stated that the question raised with regard to whether the bank can proceed against a guarantor even after initiation of proceedings under the IB Code also stands settled and is squarely covered by the Supreme Court’s decision in\u00a0SBI v. V. Ramakrishan, <\/em>(2018) 17 SCC 394<\/a>.<\/span><\/p>\n

The above-cited decision holds that Sections 14 and 31 of the IB Code do not bar initiation and continuation of the SARFAESI proceedings against the Guarantor.<\/em><\/span><\/p>\n

View of the Supreme Court amply demonstrated that neither Section 14 nor Section 31 of the IB Code place any fetters on banks\/Financial Institutions from initiation and continuation of the proceedings against the guarantor for recovering their dues.<\/p>\n

Therefore, Court held that,<\/p>\n

\n
\n
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“…petitioner cannot escape her liability qua the respondent\/Bank in such a manner. The liability of the principal borrower and the Guarantor remain co-extensive and the respondent\/Bank is well entitled to initiate proceedings against the petitioner under the SARFESI Act during the continuation of the Insolvency Resolution Process against the Principal Borrower.”<\/p>\n<\/blockquote>\n

In view of the above, no merit was found in the petition and hence was dismissed. [Kiran Gupta v. State Bank of India, 2020 SCC OnLine Del 1390<\/b><\/a>, decided on 02-11-2020]<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Delhi High Court:\u00a0A Division Bench of Hima Kohli and Subramonium Prasad, JJ., considered the following question: Whether a bank\/financial institution can institute <\/p>\n","protected":false},"author":8808,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,10],"tags":[9631,43680,43633,30361,40198,22074,12521,3596],"class_list":["post-238380","post","type-post","status-publish","format-standard","hentry","category-casebriefs","category-highcourts","tag-banks","tag-financial-institutions","tag-guarantor","tag-ibc","tag-insolvency-proceedings","tag-moratorium","tag-nclt","tag-SARFAESI"],"yoast_head":"\nDel HC | Is the liability of Principal Borrower and Guarantor co-extensive? 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The instant appeal was filed under Section 61(1) of the Insolvency and Bankruptcy\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":273376,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/09\/10\/can-arbitration-proceedings-against-a-director-promoter-continue-even-after-moratorium-is-imposed-on-the-principal-debtor-company\/","url_meta":{"origin":238380,"position":2},"title":"Can Arbitration Proceedings Against a Director\/Promoter Continue Even after Moratorium is Imposed on the Principal Debtor Company","author":"Bhumika Indulia","date":"September 10, 2022","format":false,"excerpt":"by Garima Sharma*","rel":"","context":"In "Op Eds"","block_context":{"text":"Op Eds","link":"https:\/\/www.scconline.com\/blog\/post\/category\/op-ed\/legal-analysis\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/09\/MicrosoftTeams-image-438-1.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/09\/MicrosoftTeams-image-438-1.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/09\/MicrosoftTeams-image-438-1.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/09\/MicrosoftTeams-image-438-1.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/09\/MicrosoftTeams-image-438-1.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":236504,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/10\/01\/remedy-against-guarantor-ibc-a-better-choice\/","url_meta":{"origin":238380,"position":3},"title":"Remedy against Guarantor – IBC \u2013 A better choice","author":"Bhumika Indulia","date":"October 1, 2020","format":false,"excerpt":"by Umesh Shetty*","rel":"","context":"In "Op Eds"","block_context":{"text":"Op Eds","link":"https:\/\/www.scconline.com\/blog\/post\/category\/op-ed\/legal-analysis\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2020\/10\/Graphic1.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2020\/10\/Graphic1.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2020\/10\/Graphic1.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2020\/10\/Graphic1.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2020\/10\/Graphic1.png?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":270157,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/07\/15\/nclt-can-a-financial-creditor-initiate-insolvency-resolution-process-against-a-personal-guarantor\/","url_meta":{"origin":238380,"position":4},"title":"NCLT| Can a Financial Creditor initiate Insolvency Resolution Process against a Personal Guarantor?","author":"Editor","date":"July 15, 2022","format":false,"excerpt":"National Company Law Tribunal, Hyderabad: The Bench of N. Venkata Ramakrishna Badarinath, Judicial Member, and Veera Brahma Rao Arekapud, Technical Member held that a guarantor cannot enjoy the right of subrogation enunciated in the Contract Act, 1872, when the payment made by the guarantor regards the debt for which the\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"Financial Creditor","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/06\/NCLT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/06\/NCLT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/06\/NCLT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/06\/NCLT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/06\/NCLT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":166024,"url":"https:\/\/www.scconline.com\/blog\/post\/2017\/10\/30\/liability-guarantor-co-extensive-principal-debtor-borrower-right-recover-dues-guarantor\/","url_meta":{"origin":238380,"position":5},"title":"Liability of guarantor is co-extensive with that of principal debtor and borrower has a right to recover the dues from guarantor","author":"Saba","date":"October 30, 2017","format":false,"excerpt":"High Court of Himachal Pradesh: A Single Judge Bench of Tarlok Singh Chauhan, J. dismissed a petition holding that the respondent-Bank was well within its right to recover the dues from the amount payable to the petitioner who stood guarantor for a loan. The petitioner filed the instant petition praying\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/11\/Himachal-HC_1.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/11\/Himachal-HC_1.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/11\/Himachal-HC_1.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/11\/Himachal-HC_1.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/11\/Himachal-HC_1.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/238380","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/8808"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=238380"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/238380\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=238380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=238380"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=238380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}