NCLAT upholds the applicability of moratorium with respect to guarantors

Posted On : March 07, 2018

Under the company appeal filed by SBI against V. Ramakrishnan and M/S Veesons Energy Systems Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 213 of 2017, the NCLAT has held that Section 14 of the Code prohibits not only institution of suits or continuation of pending proceedings, but also, inter alia, an encumbrance over the assets of a corporate debtor or any legal right or beneficial interest arising in respect of its assets. In this appeal, since the enforcement of the guarantee would have resulted in the guarantor being invested with rights against the corporate debtor in respect of its assets, the same was not permitted. Consequently, it was held that the moratorium would be applicable not just to the corporate debtor but to the guarantor as well and as a result, the security against the assets of the Guarantor could not have been enforced. This is a very important judgment in context of the recourse available to the creditors against a third party who has provided a personal or a corporate guarantee.