Directors providing a personal guarantee on loan taken by company cannot claim immunity u/s 14 of IBC on default

Case details: Ayan Mallick v. State Bank of India - [2021] 128 taxmann.com 151 (Calcutta)

Judiciary and Counsel Details

• • Sabyasachi Bhattacharyya, J.
  • Sabyasachi Choudhury, Sanwal Tibrewal and Ms. Sutapa Saha for the Petitioner.
  • Smtuti Mishra and Ashim Rout for the Respondent.

Facts of the Case

The petitioners are the erstwhile Directors of a company, M/s. A K Power Industries Private Limited. The company took a loan from the bank and subsequently failed to repay the same. The loans were secured by primary and collateral securities and equitable mortgage of immovable properties standing in the name of the petitioners, as well as by the guarantee of the petitioners.

At the behest of the bank, the forensic audit was carried out into the affairs of the company and the same forensic report was placed before the members of the joint lenders’ wherein the bank declared the account of the company as a ‘No Fraud Account’.

Subsequently, the company forwarded a One-Time Settlement proposal, which was accepted by the bank.

In the interregnum, Corporate Insolvency Resolution Process (CIRP) was commenced in respect of the corporate debtor. During the pendency of CIRP, the bank issued a notice calling upon corporate debtor and petitioner-director to show cause as to why their names should not be included in the list of Wilful Defaulters as per relevant RBI guidelines.

The petitioners challenged said notice and claimed immunity under section 14 in view of the moratorium envisaged in section 14 of the Code.

NCLT Held

The NCLT noted that section 14 contemplates a moratorium in respect of all proceedings against corporate debtor for the obvious reason that continuance of other proceedings would lead to conflicting decisions vis-a-vis management of corporate debtor by the resolution professional.

However, such immunity could not be extended to Directors in view of their prior disassociation from affairs of the company. Even in the capacity of guarantors, petitioners mere liable to be prosecuted. Thus, petitioners could not claim immunity order section 14, being not covered by moratorium therein.