Effect Of Resolution Plan Approval On Guarantor's Liability

Section 31 of the Insolvency and Bankruptcy Code, 2016 (Code) provides that a resolution plan, once approved by the Adjudicating Authority, is binding on all stakeholders including the creditors and surety/guarantors of the Corporate Debtor (CD), and extinguishes all accrued liabilities of the CD except as provided under the approved plan. While the liability of a guarantor is co-extensive with the liability of the principal debtor as per Section 128 of the Indian Contract Act, 1872 (Contract Act), the Code specically provides for the initiation of insolvency proceedings against both personal and corporate guarantors of the CD along with the Corporate Insolvency Resolution Process (CIRP) of the CD. This note discusses whether the liability of a guarantor of a debt of the CD stands extinguished/discharged or reduced upon approval of the resolution plan under the Code.