In a milestone order, the National Company Law Tribunal (NCLT), New Delhi Bench-III, dismissed insolvency resolution proceedings against Mr. Anjanee Kumar Lakhotia, the Personal Guarantor to MBL Infrastructure Ltd. The order, dated January 24, 2025, is of great significance for personal guarantors, dissenting financial creditors, and the enforceability of approved resolution plans under the Insolvency and Bankruptcy Code, 2016 (IBC).
The case highlights the intersection of corporate insolvency resolution processes (CIRP) and personal guarantor liability, reinforcing the finality of resolution plans once approved by adjudicating authorities and upheld by appellate courts.
Background
MBL Infrastructure Ltd., a construction and infrastructure company, faced financial difficulties and was admitted into CIRP under Section 7 of the IBC by the NCLT Kolkata Bench on March 30, 2017. The Resolution Plan submitted by Mr. Anjanee Kumar Lakhotia, the promoter of MBL, was approved on April 18, 2018, by the NCLT Kolkata Bench. The plan provided that the entire financial debt will be restructured and paid over an agreed period of time. As security towards the restructured loan, the promoter had agreed to provide personal guarantee to the assenting financial creditors.
This plan was challenged by dissenting financial creditors, including Indian Bank, but was ultimately upheld by the NCLAT and the Supreme Court. Despite the finality of the Resolution Plan, Indian Bank initiated proceedings under Section 95(1) of the IBC against Mr. Lakhotia, seeking to invoke his guarantee obligations.
Key Legal Issues Tackled by the NCLT
1. The Extinguishment of the Personal Guarantee
A central issue was whether the personal guarantee dated February 17, 2016, given by Mr. Lakhotia to the State Bank of Mysore (Lead Bank in the consortium), remained enforceable after the approval and implementation of the Resolution Plan. The State Bank of India (SBI), representing the New Working Capital Consortium, argued that the earlier guarantee was extinguished and replaced by a new personal guarantee dated July 4, 2024, under the Resolution Plan. The tribunal agreed, ruling that once a Resolution Plan is approved under Section 31 of the IBC, it is binding on all stakeholders, including dissenting creditors like Indian Bank. Consequently, Indian Bank could not initiate fresh proceedings against the Personal Guarantor based on an extinguished guarantee.
2. Interference in an Approved Resolution Plan
The tribunal reiterated that once a Resolution Plan is sanctioned, dissenting creditors cannot challenge or circumvent it. The Supreme Court had already upheld the resolution plan, and the company had infused ₹63 crores while securing approvals to raise additional funds. Allowing personal insolvency proceedings against Mr. Lakhotia would have disrupted the implementation of the Resolution Plan and harmed other stakeholders, including employees, shareholders, and trade creditors.
3. Breach of the Inter-se Agreement Among Banks
Another significant argument presented by SBI (Lead Bank of the Consortium) was that Indian Bank’s action violated the Inter Creditor Agreement, which governs how consortium banks can invoke guarantees. Under the Inter Creditor Agreement, only the Lead Bank (SBI) had the authority to invoke security interests, including personal guarantees. Indian Bank had not followed the prescribed procedures before initiating insolvency proceedings, rendering their action procedurally flawed.
Conclusion
The NCLT’s order in this matter upholds the sanctity of Resolution Plans and prevents dissenting creditors from using personal insolvency provisions to override the corporate insolvency process. This was one of the first cases before the Tribunal dealing with the conflict of personal insolvency proceedings with the approved resolution plan.
The law permits promoters of MSME companies to submit resolution plans. In the event the promoter's plan gets approved, the Damocles' sword of guarantee obligations should not hang over the promoters while they try to revive the corporate debtor. In this order, NCLT appreciated that the resolution plan provisions were to be given primacy over any recovery proceedings under the personal insolvency regime arising of invocation of personal guarantees.
For financial creditors, the order serves as a reminder to adhere to consortium agreements and respect the finality of the IBC process, rather than seeking alternative enforcement methods against Personal Guarantors.
This ruling is also likely to have broader implications for how personal guarantor liabilities are treated in India, particularly in cases where Resolution Plans have been submitted by the promoters of the Company and involve restructuring of debt and security interests.
This case sets a significant precedent in India’s evolving insolvency jurisprudence. If Indian Bank chooses to appeal this ruling, it could lead to further judicial clarity on the enforceability of old personal guarantees after Resolution Plan approvals. We will continue to monitor developments in personal guarantor liability under the IBC and provide updates on future legal challenges.
💬 Do you think this ruling strengthens the IBC framework, or does it create challenges for financial creditors? Let us know in the comments!
Disclosure: SD Partners represented State Bank of India in these proceedings.
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