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Company & Insolvency LawSupreme Court of India

State Bank of India v. V. Ramakrishnan & Anr.

Civil Appeal · 2018 INSC 711Decided 14 Aug 2018
Civil Appeal No. 3595 of 2018
Justice Rohinton Fali Nariman · Justice Indu Malhotra

Background

A company's managing director had personally guaranteed loans owed by the company to the State Bank of India; when the company defaulted, the bank issued SARFAESI notices against both the company and the guarantor. Before the bank could act further, the company itself applied for and was admitted into the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, triggering a statutory moratorium on proceedings against the company under Section 14. Both the National Company Law Tribunal and the National Company Law Appellate Tribunal held that this moratorium also protected the personal guarantor from being pursued, and the bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 14, read plainly, refers only to the "corporate debtor" and contains no mention of guarantors, so its moratorium cannot be stretched to cover a personal guarantor's separate assets. It explained that other provisions relied upon by the guarantor, Sections 60(2)/(3) and 31, only fix which tribunal has jurisdiction over a guarantor's bankruptcy or bind the guarantor to an approved resolution plan; they do not create or extend any moratorium protection to the guarantor personally. The Court also noted that Parliament's 2018 amendment, which expressly excluded sureties/guarantors from the Section 14 moratorium, was clarificatory and confirmed this was always the correct position, and that allowing guarantors to escape liability during the company's insolvency process would defeat the entire purpose of taking a personal guarantee. The appeals were accordingly allowed and the Tribunal's contrary ruling set aside.

Lesson Learnt

A personal guarantor to a company's loan cannot hide behind the moratorium that protects the company once it enters insolvency proceedings: banks and creditors remain free to pursue the guarantor's own personal assets and liability independently.

State Bank of India v. V. Ramakrishnan & Anr. – Legal Case Shots | LegalAware