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CS Professional · Insolvency and Bankruptcy - Law and Practice · Group Insolvency

Gamma Ltd. is in CIRP. Its parent Delta Ltd. gave a corporate guarantee for Gamma's loan from a bank, and the bank also claims against Delta, which is not insolvent. Applying the Supreme Court's reasoning in Lalit Kumar Jain v. Union of India on guarantors, which statement is correct?

The bank may still proceed against Delta. The Supreme Court in Lalit Kumar Jain held that approving the principal debtor's resolution plan does not by itself discharge a guarantor's liability, and the moratorium covers only the corporate debtor in CIRP, not a solvent guarantor.

  1. AApproval of Gamma's resolution plan does not by itself extinguish Delta's liability as guarantor; the bank may pursue Delta under the guaranteeCorrect
  2. BApproval of Gamma's plan automatically discharges Delta from the guarantee
  3. CDelta's guarantee becomes void once Gamma is admitted into CIRP
  4. DThe bank must abandon its claim against Delta because of the Section 14 moratorium on Gamma

Explanation

The Supreme Court held that sanction of a resolution plan does not per se discharge the liability of a guarantor, whose liability is co-extensive under the Contract Act and depends on the guarantee terms. The Section 14 moratorium protects the corporate debtor, not its non-insolvent guarantor.

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