Can A Resolution Plan Release Personal Guarantors From Liability?

NCLAT'S JUDGMENT IN SVA FAMILY TRUST & ORS. V. UJAAS ENERGY LIMITED & ORS.

The Supreme Court's judgment in Lalit Kumar Jain v. Union of India & Ors.¹ made clear that the resolution of a corporate debtor under the Insolvency and Bankruptcy Code, 2016 (“IBC”) does not automatically discharge the guarantors of the corporate debtor from liability. Resolution plans often state that while approval of the plan would extinguish creditors' claims against the corporate debtor, it would not prevent creditors from pursuing their claims against the promoters and guarantors of the corporate debtor. A recent judgment of the National Company Law Appellate Tribunal, Principal Bench (“NCLAT”) considered the converse issue—can a resolution plan provide for the release of personal guarantees, when the personal guarantor has not been subject to the insolvency resolution process?