TEAM CODE: T-32

Before,
THE HON’BLE SUPREME COURT OF INDIA

Special Leave Petition (Civil) No. XXXX/2020

(Under Article 136 of the Constitution of India)

Professor (Appellant)

v.

The Royal Bank of Sprain (Respondent No.1)

The Union of India (The Ministry of Corporate Affairs) (Respondent No.2)

The Insolvency and Bankruptcy Board of India (Respondent No.3)

ON SUBMISSION TO THE SUPREME COURT OF INDIA

-MEMORIAL ON BEHALF OF THE RESPONDENTS-

1
 TABLE OF CONTENTS

Table of Contents ....................................................................................................................... 1

Index of Authorities ................................................................................................................... 4

Statement of Jurisdiction............................................................................................................ 7

Statement of Facts ...................................................................................................................... 8

Statement of Issues .................................................................................................................. 10

Summary of Arguments ........................................................................................................... 11

Arguments Advanced............................................................................................................... 13

I. That RBS has the locus to initiate parallel proceedings against HAPL and Professor by
way of CP(IB)-11(ND)/2019 and CP(IB)-22(ND)/2020 ..................................................... 13

1.1 The co-extensive liability of hapl and professor allows for simultaneous proceedings
.......................................................................................................................................... 13

1.2 The I&B Code impliedly provides for parallel proceedings ...................................... 14

1.3 Allowing simultaneous proceedings is in consonance with the principles of Natural

Justice ............................................................................................................................... 15

1.4 The NCLAT decision in Piramal case is bad in law .................................................. 16

1.5 Parallel claims for the same debt are allowed by Common Law ............................... 17

II. That the approval of the Resolution Plan by the NCLT doesn’t prohibit the initiation of
proceedings against professor in CP(IB)-22(ND)/2020 ...................................................... 17

2.1 The professor isn’t discharged after approval of resolution plan against HAPL ....... 17

2.2 The Professor is bound to the resolution plan by the virtue of section 31 of IBC ..... 18

III. That the obligation of Professor under the Deed of Guarantee dated 15.08.2018 is not
discharged under applicable law .......................................................................................... 20

3.1 The exercise of Statutory Rights doesn’t alter the contractual obligations ............... 20

3.2 Discharge of borrower by law doesn’t discharge the surety ...................................... 21

3.3 The provisions of I&B Code override the provisions of Indian Contract Act ........... 21

1
 IV. that the notification dated 15.11.2019 and the Sections notified therein under, the
Guarantor Rules and the Guarantor Regulations are not ultra vires the IBC and the
Constitution of India ............................................................................................................ 22

4.1 Enforcement of Part III in Relation to A Particular Entity Is Constitutional and

Justifiable in Nature ......................................................................................................... 23

4.2 Part III when read in consonance with the Guarantor Rules and Regulations
establishes that it has been specifically made applicable to Personal Guarantors ........... 25

4.3 That the Provisions of Part III Read with Rules and Regulations Sought to Achieve
the Intent of Legislation ................................................................................................... 27

V. That the Hon’ble High Court Does Not Have The Jurisdiction To Entertain The Writ
Petition (C) 3911/2020 ......................................................................................................... 29

5.1 The I&B code is an Exhaustive and Complete Law in Itself ..................................... 29

5.2 The Jurisdiction of Hon’ble High Court stands completely ousted in the matters of
the IBC ............................................................................................................................. 31

5.3 Time is the essence and high court’s jurisdiction defeats the purpose of IBC 2016 . 32

Prayer ....................................................................................................................................... 33

2
 ABBREVIATIONS

AA Adjudicating Authority

AIR All India Reporter

Anr Another

CIRP Corporate Insolvency Resolution Process

CoC Committee of Creditors

DRT Debt Recovery Tribunal

IBC Insolvency and Bankruptcy Code, 2016

IBBI Insolvency and Bankruptcy Board of India

IRP Insolvency Resolution Process

NCLAT National Company Law Appellate Tribunal

NCLT National Company Law Tribunal

PB Principle Bench

RP Resolution Professional

RBS Royal Bank of Sprain

SCC Supreme Court Cases

TLA Term Loan Agreement

WP Writ Petition

para Paragraph

u/s under section

3
 INDEX OF AUTHORITIES

Cases

Alpha & Omega Diagnostics (India) Ltd v Asset Reconstruction Co of India Ltd [2017]
ibclaw.in 14 NCLT. ............................................................................................................. 15
Anthony Raphael Kallarakkal v National Company Law Tribunal, Mumbai Bench & Ors
2018 SCC OnLine Bom 13865. ........................................................................................... 31
Aryan Mining and Trading Corporation Private Limited v Ganesh Sponge Private [2017]
ibclaw.in 10 NCLAT. .......................................................................................................... 32
B Shama Rao v The Union Territory of Pondicherry AIR 1967 SC 1480. ............................. 17
Bank Of Bihar Ltd v Damodar Prasad & Anr 1969 AIR 297 ................................................. 14
Basant Kumar Sarkar And Others v Eagle Rolling Mills Ltd And others 1964 AIR 1260. .... 24
Biswambhar Singh v State of Orissa 1954 AIR 139. ............................................................... 25
Commissioner of Income Tax v Chhabil Das Agarwal (2014) 1 SCC 603. ............................ 33
Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta 2019 SCC OnLine SC
1478............................................................................................................................... passim
Dr Vishnu Kumar Agarwal v Piramal Enterprises Ltd 2019 SCC OnLine NCLAT 542. ...... 17
Duncans Industries Ltd v AJ Agrochem 2019 SCC OnLine SC 1319. .................................... 20
Gouri Shankar Jain v Punjab National Bank & Anr AIR 2020 Cal 90. ............................ 19, 21
ICICI v CA Ritu Rastogi (2018) 97 taxmann.com 227 (NCLT – PB). .............................. 15, 18
IDBI Bank Ltd v BCC Estate Pvt Ltd 2017 SCC OnLine NCLT 11324.................................. 14
Industrial Finance Corporation of India v Cannonore Spinning and Weaving Mills Ltd
(2002) 5 SCC 54. ................................................................................................................. 22
Innoventive Industries Ltd v ICICI Bank 2017 SCC OnLine NCLAT 70. .................. 28, 30, 33
Jagannath Ganeshram Aggarwala v Shivnarayan Bhagirath AIR 1940 Bom 247 ................ 19
Jagannath v Shivnarayan AIR 1940 Bom 387. ....................................................................... 22
Joseph Peter v State of Goa, Daman and Diu (1977) 3 SCC 280. .......................................... 30
L. Chandra Kumar v Union of India and Others 1995 AIR 1151. .......................................... 32
Lalit Mishra & Ors v Sharon Bio Medicine Ltd & Ors [2018] ibclaw.in 47 NCLAT ...... 14, 23
Liberty House Group Pte Ltd v State Bank of India and Others (2019) 258 DLT 52. ............ 32
M/s Embassy Property Developments Pvt Ltd v State of Karnataka & Ors 2019 SCC OnLine
SC 1542................................................................................................................................ 29
M/s Speculum Plast Pvt Ltd v PTC Techno Pvt Ltd 2017 SCC OnLine NCLAT 319. .......... 16

4
Maharastra State Electricity Board, Bombay v Official Liquidator, High Court of Ernakulam
AIR 1982 SC 1497. ........................................................................................................ 19, 22
Modern stores v United Bank of India AIR 1988 Cal 18. ....................................................... 19
N Balakrishnan v MA Krishnamurthy AIR 1998 SC 3222. ..................................................... 16
Nellore Co-operative Urban Bank Ltd v Mallikarjunayya AIR 1948 Mad 252 ..................... 22
Nivedita Sharma v Cellular Operators Association of India (2011) 14 SCC 337. ................. 31
Patheja Bros Forging & Stamping & Anr v ICICI Ltd & Ors AIR 2000 SC 2553................. 15
Rajinder Singh v Santa Singh AIR 1973 SC 2537 ................................................................... 16
Ram Kishun v State of UP (2012) 11 SCC 511. ...................................................................... 14
RK Garg And Ors v Union Of India (UoI) And Ors 1981 1 SCR 947. ............................. 25, 33
Sadhana Lodh v National Insurance Co Ltd and Anr (2003) 3 SCC 524. .............................. 31
Sanjeev Shriya v State Bank of India & Ors Writ C No 30285 of 2017. ................................. 28
State Bank of India v V Ramakrishnan & Anr (2018) 17 SCC 394. ...................... 14, 15, 20, 29
State of Punjab v Jagdev Singh Talwandi (1984) 1 SCC 596. ................................................ 17
State of West Bengal v Anwar Ali Sarkar 1952 AIR 75. ......................................................... 25
Swiss Ribbons Private Limited & Anr v Union of India 2019 SCC OnLine SC 73. .............. 25
United Bank of India v Satyawati Tandon & others 2010 (6) MhLJ 721. ............................... 31
Wolverhampton New Waterworks Co v Hawkesford (1859) 6 CBNS..................................... 31

Statutes

DRT Act 1993. ......................................................................................................................... 31

Indian Contract Act, s 128 ................................................................................................ passim
Insolvency and Bankruptcy Code 2016, s 14.................................................................... passim
Motor Vehicles Act 1988. ........................................................................................................ 31
SARFAESI Act 2002. .............................................................................................................. 31
The Limitation Act 1963. ......................................................................................................... 16

Other Authorities

Ministry of Corporate Affairs, ‘NOTIFICATION’ (15 November 2019) THE GAZETTE OF

INDIA:EXTRAORDINARY
<https://ibbi.gov.in//uploads/legalframwork/1fb8c2b785f35a5126c58a2e567be921.pdf>
accessed 23 September. ....................................................................................................... 26
Ministry of Corporate Affairs, Report of the Insolvency Law Committee (2018) para 5.9. .... 16

5
Ministry of Finance, ‘Economic Survey 2019-20’ (2020) vol II
<https://www.indiabudget.gov.in/economicsurvey/> accessed 25 September 2020. .... 16, 28
Moot Proposition . ................................................................................................ 15, 20, 21, 23
Pradip Thakur, ‘High Court Judges Get Just 5-6 Minutes to Decide Cases, says Study’ The
Times of India (7 April 2016). ............................................................................................. 33
The Bankruptcy Law Reforms Committee Report, Rationale and Design (2015). ................. 27
The Insolvency and Bankruptcy Board of India, ‘First Report of the Reconstituted Working
Group for recommending strategy and approach for implementation of the provisions of
the Insolvency and Bankruptcy Code, 2016 .................................................................. 24, 25

Rules

Insolvency (Application to Adjudicating Authority for Insolvency Resolution Process for

Personal Guarantors to Corporate Debtors) Regulation (2019). .......................................... 23
Insolvency (Application to Adjudicating Authority for Insolvency Resolution Process for
Personal Guarantors to Corporate Debtors) Rules 2019. ............................................... 23, 28

Articles

E Jenks, ‘The Prerogative Writs in English’ [1923] 32(6) YLJ 523. ...................................... 32
J Cottrell, ‘The Indian Judges' Transfer Case’ [1984] 33(4) ICLQ 1032. ............................... 32
Raghav Pandey & Akshal Agarwal, ‘WRIT JURISDICTION NCLT - A DEATH KNELL
FOR THE INSOLVENCY REGIME: COMMENT ON EMBASSY PROPERTY
DEVELOPMENTS V. STATE OF KARNATAKA’ (2019) II ILI Law Review
<http://www.ili.ac.in/pdf/rpa.pdf> ....................................................................................... 33
United Nations Commission on International Trade Law, ‘Legislative Guide on Insolvency
Law’[2005]<https://uncitral.un.org/sites/uncitral.un.org/files/mediadocuments/uncitral/en/
05-80722_ebook.pdf>. ......................................................................................................... 29

Books

Halsbury’s Laws (2nd edn, 1935) vol 16, para 192. ................................................................. 22
Pollock & Mulla, Pollock & Mulla: Indian Contract and Specific Relief Act (RY Vardhan,
15th edn, LexisNexis 2018) 728. .......................................................................................... 14
Sir John William Salmond, On Jurisprudence (PJ Fitzgerald, 12th edn, Sweet and Maxwell
1966) 439. ............................................................................................................................ 16

6
 STATEMENT OF JURISDICTION

THE RESPONDENTS HAVE THE HONOUR TO SUBMIT BEFORE THE HON’BLE SUPREME COURT
OF THE UNION OF INDIA, THE MEMORANDUM FOR THE RESPONDENTS

I. IN SLP NO. XXXX/ 2019

The Petitioner has approached this Honourable Court under Article 136 of the Constitution of
India. The Respondents, The Royal Bank of Sprain, The Union of India (The Ministry of
Corporate Affairs) and The Insolvency and Bankruptcy Board of India humbly submit to the
jurisdiction of this Honourable Court.

The Present Memorandum sets Forth the Facts, Contentions and Arguments in the
Present Case

7
 STATEMENT OF FACTS

1. Heist Artillery Private Limited (HAPL) is a company leading in quality defence equipment
manufacturing and is registered in India at New Delhi. Mr. Professor and Mr. Berlin were the
directors and shareholders of the company. Both were instinctively egotistic with a huge
appetite for individual professional conquests.

2. As HAPL’s business grew by leaps and bounds, HAPL required infusion of capital in order
to invest in new plants and machinery, and expand operations to the whole of India. In view
of the imminent requirement for funds, Professor and Berlin approached the Royal Bank of
Sprain (RBS), headquartered in New Delhi in order to avail certain loan facilities. Upon an
assessment of the credit worthiness of HAPL and its directors/guarantors, RBS agreed to
sanction vide the Term Loan Agreement (TLA) dated 15.05.2018 a business loan to the tune
of Rs. 6,00,00,00,000/- (Rupees Six Hundred Crores) to HAPL. As per the terms of the TLA,
the repayment was to be done within the next five years in a phased manner along with
applicable interests.

3. The repayment of the said amount (under TLA) was secured by four agreements. First, a
Mortgage Deed was entered into between HAPL and RBS mortgaging various immovable
assets of HAPL in favour of RBS. Second, a Hypothecation Deed, conferring a first ranking
charge in favour of RBS, over various assets of HAPL. Two separate agreements were
entered into by RBS, first with the Professor and other with Berlin, both being Deed of
Guarantees whereby both the directors guaranteed repayment of the entire amount of TLA in
case of default, respectively.

4. HAPL serviced the said TLA as per its terms till about March 2019, repaying about
1,00,00,00,000/- (Rupees One Hundred Crores). However, it started defaulting in its
repayments and thereafter; the account was declared as a Non-Performing Asset by RBS in
August 2019. Settlement talks between RBS and HAPL failed since HAPL insisted upon
huge haircuts which were not agreeable to the senior management of RBS. RBS was thus
constrained to file an application under Section 7 of the Insolvency and Bankruptcy Code,
2016 (IBC) being CP(IB)-11(ND)/2019 before the National Company Law Tribunal, Delhi
(NCLT) seeking to initiate the Corporate Insolvency Resolution Process (CIRP) of HAPL on
25.08.2019. The application being accepted, an order of moratorium was issued under section
14 of IBC relating to the assets of HAPL, commencing the CIRP of HAPL. An appeal against

8
the said order was also dismissed by the Hon’ble National Company Law Appellate Tribunal
and the same was confirmed by the Hon’ble Supreme Court.

5. As Ms. Rachel was appointed as the Resolution Professional, she admitted the claim filed
by RBS of 5,00,00,00,000/- (Rupees Five Hundred Crores) along with interest and of four
other creditors. The Resolution Plan filed by Arturo Rex Pvt. Ltd. (ARPL) provided for a
clause, giving a right to RBS, the leading financial creditor, to proceed against the
stakeholders of HAPL under independent contracts and the repayment to creditors to the tune
of 75% of their outstanding debt and thus, was accepted by Committee of Creditors as well as
approved by the NCLT on 30.05.2020 under section 31(1) of IBC.

6. RBS invoked the Deed of Guarantee and served notices dated 15.06.2020, to both
Professor and Berlin under Section 95(4)(b) of the IBC read with Rule 7(1) of the
‘Insolvency and Rules, 2019’ issued by the Ministry of Corporate Affairs, Government of
India, contending the entire debt of Rs. 5,00,00,00,000/-(Rupees Five Hundred Crores) along
with interest but they neither responded to it nor made any payments. Being so aggrieved, on
22.07.2020, RBS filed an Application under Section 95 of IBC read with the Guarantor Rules
and the ‘Insolvency and Bankruptcy Board of India Regulations, 2019 being CP(IB)-
22(ND)/2020 before NCLT Delhi, seeking to initiate the insolvency resolution process of the
Professor. After hearing RBS and the Professor, the NCLT admitted the said Application
preferred by RBS and issued a moratorium under Section 101 of the IBC.

7. On 01.08.2020, the Order dated 22.07.2020 was challenged by the Professor before the
Hon’ble Delhi High Court vide a Writ Petition being W.P. (C) 3911/2020 titled ‘Professor v
Royal Bank of Sprain and Others’ under various contentions. The Government of India
(through the Ministry of Corporate Affairs) and the IBBI were also impleaded as Respondent
Nos. 2 and 3 respectively to the said Writ Petition. However, Professor’s Writ Petition was
eventually dismissed vide the Judgment dated 02.09.2020.

8. The Hon’ble Supreme Court admitted a Special Leave Petition by Professor against the
Judgment dated 02.09.2020 passed by the Hon’ble Delhi High Court. The Hon’ble Supreme
Court stayed the Order dated 22.07.2020 passed by the NCLT and listed it for final disposal
on 17.10.2020 and 18.10.2020.

9
 STATEMENT OF ISSUES

I. Whether RBS had the locus to initiate parallel proceedings against HAPL and Professor by
way of CP(IB)-11(ND)/2019 and CP(IB)-22(ND)/2020?

II. Whether the approval of the Resolution Plan by the NCLT prohibits the initiation of
proceedings against Professor in CP(IB)-22(ND)/2020?

III. Whether the obligations of Professor under the Deed of Guarantee dated 15.08.2018 stand
discharged under applicable law?

IV. Whether the notification dated 15.11.2019 and the Sections notified therein under, the
Guarantor Rules and the Guarantor Regulations are all ultra vires the IBC and the
Constitution of India?

V. Whether the Hon’ble Delhi High Court had the jurisdiction to entertain the W.P. (C)
3911/2020?

10
 SUMMARY OF ARGUMENTS

I. THAT RBS HAS THE LOCUS TO INITIATE PARALLEL PROCEEDINGS AGAINST HAPL AND

PROFESSOR BY WAY OF CP(IB)-11(ND)/2019 AND CP(IB)-22(ND)/2020

1. It is most humbly submitted before this Hon’ble Court RBS has the locus to initiate
parallel proceedings against HAPL and Professor by way of CP(IB)-11(ND)/2019 and
CP(IB)-22(ND)/2020. This is because HAPL and the Professor have co-extensive liabilities
particularly allowing for simultaneous proceedings. Also, the provisions under Insolvency
and Bankruptcy Code impliedly provide for parallel proceedings.

2. Furthermore, allowing simultaneous proceedings is in consonance with the principles of

natural justice because of the limitation act and the probability that the Professor may alienate
his assets. Moreover, the NCLAT decision in Piramal case is bad in law and parallel claims
for the same debt are allowed by the virtue of common law.

II. THAT THE APPROVAL OF THE RESOLUTION PLAN BY THE NCLT DOESN’T PROHIBIT THE
INITIATION OF PROCEEDINGS AGAINST PROFESSOR IN CP(IB)-22(ND)/2020

3. It is most humbly submitted before this Hon’ble Court that the approval of the Resolution
Plan by the NCLT doesn’t prohibit the initiation of proceedings against the Professor in
CP(IB)-22(ND)/2020. This is because the Professor is not discharged of his liabilities by the
approval of the resolution plan against HAPL as discharge of the debtor by law doesn’t and
cannot discharge the guarantor.

4. Furthermore, the Professor is bound to the Resolution Plan by the virtue of section 31 of
I&B Code and the Plan provides for initiation of Deed of Guarantee any time after the plan’s
approval.

III. THAT THE OBLIGATIONS OF PROFESSOR UNDER THE DEED OF GUARANTEE DATED

15.08.2018 IS NOT DISCHARGED UNDER APPLICABLE LAW

5. It is humbly submitted before this Hon’ble court that the obligation of Professor under the
Deed of Guarantee dated 15.08.2018 is not discharged under applicable law. This is because
the exercise of statutory rights doesn’t alter the contractual obligations. Moreover the
discharge of borrower by law does not discharge the surety and the I&B Code overrides the
provisions of the Indian Contract Act providing for discharge of surety

11
IV. THAT THE NOTIFICATION DATED 15.11.2019 AND THE SECTIONS NOTIFIED THEREIN

UNDER, THE GUARANTOR RULES AND THE GUARANTOR REGULATIONS ARE NOT ULTRA

VIRES THE IBC AND THE CONSTITUTION OF INDIA

6. It is humbly submitted that the aforesaid notification, rules and regulations are not arbitrary
and are in constitutional in nature. The Supreme Court in its various judicial pronouncements
has allowed the implementation of the legislation in phases, enforcing against particular
entities also there exists a intelligible differentia with respect to guarantors as compared to
other entities mentioned in Part III of the IBC. The Working Committee Report also
advocates for phased implementation.

7. Apart from it, when the provisions of Part III are read in consonance with the aforesaid
rules and regulations, it clearly meant for the enforcement of it in qua the “Personal
Guarantors to the Corporate Debtors”. Also, the provisions of the rules and regulations vouch
for achieving the intent of legislation by ensuring the speedy insolvency proceedings against
the guarantors in NCLT instead of DRT. Also, the Part III provides the provision of
moratorium for the personal guarantors that were extinguished by previous judicial
pronouncement, and in this way furthers the intent of the Code.

V. THAT THE HON’BLE HIGH COURT DOES NOT HAVE THE JURISDICTION
TO ENTERTAIN THE WRIT PETITION (C) 3911/2020.

8. It is humbly submitted before Hon’ble Court that the Hon’ble Delhi High Court does not
have the jurisdiction to entertain W.P. (C) 3911/2020 as IBC being an exhaustive and
complete code capable of dealing with any issue raised under it provides an alternate
efficacious remedy to the aggrieved party and it should be exhausted before pleading before
other courts and jurisdictions. Moreover, Jurisdiction of the Hon’ble High Court is
completely ousted in the matters of the IBC as expressed in the ouster clauses of the
provisions of the code and if Hon’ble High Court entertains the writ petition, it will amount
to judicial overreach. Also, the intent of speedy redressal would be defeated if Delhi High
Court is allowed to entertain the writ petition.

12
 ARGUMENTS ADVANCED

I. THAT RBS HAS THE LOCUS TO INITIATE PARALLEL PROCEEDINGS AGAINST HAPL AND

PROFESSOR BY WAY OF CP(IB)-11(ND)/2019 AND CP(IB)-22(ND)/2020

It is humbly submitted before this Hon’ble Court RBS had the locus to initiate parallel
proceedings against HAPL and Professor by way of CP(IB)-11(ND)/2019 and CP(IB)-
22(ND)/2020. This is because [1.1] HAPL and the Professor have co-extensive liabilities and
this allows for simultaneous proceedings; [1.2] the provisions under Insolvency and
Bankruptcy Code (hereinafter I&B Code) provide for parallel proceedings; [1.3] allowing
simultaneous proceedings is in consonance with the principles of natural justice and [1.4] the
NCLAT decision in Piramal case is bad in law; and [1.5] parallel claims for the same debt are
allowed.

1.1 THE CO-EXTENSIVE LIABILITY OF HAPL AND PROFESSOR ALLOWS FOR SIMULTANEOUS

PROCEEDINGS

Section 128 of Indian Contract Act 1867 provides for co-extensive liabilities of principle
borrower and surety.1 The liability of the surety is co-extensive with that of the principal
debtor, unless it is otherwise provided by the contract. 2 It is for the creditor to choose against
whom he wants to proceed. There is thus, no bar in the law which prevents any creditor to
proceed against both, the Principal Borrower and Guarantors. 3

The assets of the surety are separate from those of the corporate debtor, and proceedings
against the corporate debtor may not be seriously impacted by the actions against assets of
third parties like sureties. 4 Enforcement of guarantee may not have a significant impact on the
debt of the corporate debtor as the right of the creditor against the principal debtor is merely
shifted to the surety, to the extent of payment by the surety. Thus, contractual principles of
guarantee require being respected even when a moratorium against a corporate debtor under
Section 14 of the Code is in effect. 5

1
Indian Contract Act, s 128; Pollock & Mulla, Pollock & Mulla: Indian Contract and Specific Relief Act (RY
Vardhan, 15th edn, LexisNexis 2018) 728.
2
Bank Of Bihar Ltd v Damodar Prasad & Anr 1969 AIR 297; Lalit Mishra & Ors v Sharon Bio Medicine Ltd &
Ors [2018] ibclaw.in 47 NCLAT; Ram Kishun v State of UP (2012) 11 SCC 511.
3
IDBI Bank Ltd v BCC Estate Pvt Ltd 2017 SCC OnLine NCLT 11324.
4
State Bank of India v V Ramakrishnan & Anr (2018) 17 SCC 394.
5
ibid.

13
Furthermore, in the case of Ritu Rastogi vs ICICI, the National Company Law Tribunal at
Delhi relied on provisions of Section 128 of the Contract Act and allowed the simultaneous
claim of ICICI to be admitted against Edu Comp Solutions Limited ( principal borrower) as
well as Edu Smart Service Private Limited (the guarantor). 6

In the case at hand, the Professor has provided deed of guarantee for the repayment of the
entire amount to RBS sanctioned to HAPL by way of term loan agreement in case of default. 7
Therefore, RBS has the locus to initiate parallel proceedings against HAPL and the professor.

1.2 THE I&B CODE IMPLIEDLY PROVIDES FOR PARALLEL PROCEEDINGS

Section 14 of I&B Code provides for moratorium after the application for insolvency is
admitted. Clause 3 of the same section enlists that moratorium will not be applicable to the
surety in a contract of guarantee to a corporate debtor.8 Section 14 does not intend to bar
actions against assets of guarantors to the debts of the corporate debtor. The scope of the
moratorium may be restricted to the assets of the corporate debtor only. 9

Section 60 of the code in its second clause says that where a corporate insolvency resolution
process or liquidation proceeding of a corporate debtor is pending before a NCLT,
an application relating to the insolvency resolution of a corporate guarantor or personal
guarantor, as the case may be, shall be filed before such National Company Law Tribunal. 10

It is abundantly clear that when the words of the legislation are clear, the court must give
effect to them as they stand and cannot demur on the ground that the legislature must have
intended otherwise,11 thus, parallel claims must be allowed.

The Appellate Authority, in Dr. Vishnu Kumar Agarwal vs M/s. Piramal Enterprises Ltd.,
had opined that “for same set of debt, claim cannot be filed by same ‘Financial Creditor’ in
two separate ‘Corporate Insolvency Resolution Processes’”. However the principal borrower
and the surety being jointly and severally liable to the creditor 12 is a key feature of a contract
of guarantee. Therefore, the very object of a contract of guarantee would be prejudiced if the
creditor is prohibited from filing claims in the CIRP of both the principal borrower and the
6
ICICI v CA Ritu Rastogi (2018) 97 taxmann.com 227 (NCLT – PB).
7
Moot Proposition, para 5.
8
Insolvency and Bankruptcy Code 2016, s 14.
9
State Bank of India v V Ramakrishnan & Anr (2018) 17 SCC 394; Alpha & Omega Diagnostics (India) Ltd v
Asset Reconstruction Co of India Ltd [2017] ibclaw.in 14 NCLT.
10
Insolvency and Bankruptcy Code 2016, s 60.
11
Patheja Bros Forging & Stamping & Anr v ICICI Ltd & Ors AIR 2000 SC 2553.
12
Indian Contract Act 1872, s 129.

14
surety.13 Even in the First Insolvency Law Commission Report, the Committee, while
discussing the scope of moratorium under Section 14 vis-à-vis the assets of a surety of the
corporate debtor, had observed that having a remedy against both the surety and the corporate
debtor, without the obligation to exhaust the remedy against one of the parties before
proceeding against the other, is of utmost important for the creditor and is the hallmark of a
guarantee contract.14 If a creditor is denied the contractual right to proceed simultaneously
against the corporate debtor and the surety, the ability of the creditor to recover its debt may
be seriously impaired.

Consequently, RBS must be allowed to proceed against HAPL and the Professor
simultaneously.

1.3 ALLOWING SIMULTANEOUS PROCEEDINGS IS IN CONSONANCE WITH THE PRINCIPLES OF

NATURAL JUSTICE

A right not exercised for a long time is non-existent.15 According to Salmond, to prevent the
error that accrues with time which might lead to wrong presumptions of the facts of the
matter, it is necessary that the matter is disposed of as quickly as possible or the rights of the
parties cannot be dealt with effectively.16

Limitation Act ensures that a right acquired by a person over time due to long enjoyment is
not disturbed or tampered with. 17 By implementing the limitation act the rights of parties are
thereby not destroyed but it puts a check on the dilatory tactics resorted to by the parties. 18

The average time taken for resolution of cases under the insolvency law is 340 days as
according to the Economic Survey presented in the Parliament in January 2020. 19 Apart from
this, there is much interim litigation appealed for various reasons that take years to resolve.
The schedule to the Limitation Act states that money claims cannot be raised beyond a period
of 3 years from the date on which cause of action arises.20

13
Ministry of Corporate Affairs, Report of the Insolvency Law Committee (2020) paras 7.7-7.9.
14
Ministry of Corporate Affairs, Report of the Insolvency Law Committee (2018) para 5.9.
15
M/s Speculum Plast Pvt Ltd v PTC Techno Pvt Ltd 2017 SCC OnLine NCLAT 319.
16
Sir John William Salmond, On Jurisprudence (PJ Fitzgerald, 12th edn, Sweet and Maxwell 1966) 439.
17
Rajinder Singh v Santa Singh AIR 1973 SC 2537.
18
N Balakrishnan v MA Krishnamurthy AIR 1998 SC 3222.
19
Ministry of Finance, ‘Economic Survey 2019-20’ (2020) vol II
<https://www.indiabudget.gov.in/economicsurvey/> accessed 25 September 2020.
20
The Limitation Act 1963.

15
If the parallel claims against HAPL and the Professor are not allowed then there is much
probability that the limitation period of three years against the insolvency of the Professor
may be over. Furthermore, it will also give enough time to the guarantor(s) to alienate their
assets and wriggle out of their obligations towards the creditors, leaving RBS with no
options. This, primae facie, becomes a case of gross violation of principles of natural justice
and thus should not be upheld.

1.4 THE NCLAT DECISION IN PIRAMAL CASE IS BAD IN LAW

On a clear reading of sections 5 (8) (a) & (h) of the ‘Code’, 21 it would appear that both the
‘Principal Borrower’ and ‘Guarantor’ fit in the definitions of financial debtors with respect to
one debt, is a fact which hasn’t been denied by NCLAT in Dr. Vishnu Kumar Agarwal vs
M/s. Piramal Enterprises Ltd.22 However, it went on to hold that CIRP cannot proceed
against both debtors on substantially the same debt. Notably, there is no express bar in the
IBC or under its rules for initiation of CIRP against two debtors, on the grounds laid down in
Piramal.23 It may be fascinating that this principle was laid without any reasoning first in
Piramal, then in all the cases following Piramal as a precedent.

It is a settled principle among jurisdictions across the globe that judicial decisions without
appropriate and sturdy reasoning to back their assertions are inherently flawed. This point has
been affirmed by a plethora of Supreme Court decisions, some of which include, B. Shama
Rao vs The Union Territory, Pondicherry wherein the court observed, "It is trite to say that
decision is binding not because of its conclusion but in regard to its ratio and the principle
laid down therein" 24And then again in the case of State of Punjab vs Jagdev Singh Talwandi
where the court observed, “We would like to take this opportunity to point out that serious
difficulties arise on account of the practice increasingly adopted by the High Courts, of
pronouncing the final order without a reasoned judgment.”25

On these accounts, the unreasoned finding of the NCLAT in the aforementioned cases ought
to be set aside by the apex court, thus allowing for the simultaneous proceedings.

21
Insolvency and Bankruptcy Code 2016, s 5.
22
Dr Vishnu Kumar Agarwal v Piramal Enterprises Ltd 2019 SCC OnLine NCLAT 542.
23
ibid.
24
B Shama Rao v The Union Territory of Pondicherry AIR 1967 SC 1480.
25
State of Punjab v Jagdev Singh Talwandi (1984) 1 SCC 596.

16
1.5 PARALLEL CLAIMS FOR THE SAME DEBT ARE ALLOWED BY COMMON LAW

There is a precedence of parallel claim for the same debt being upheld by the principle bench
of NCLT Delhi in a similar case, ICICI Bank Ltd. vs CA Ritu Rastogi.26

The applicant ICICI Bank extended credit to Edu Comp Solutions (hereinafter ECS), to
which the Edu Smart Services Pvt. Ltd (hereinafter ESSL) furnished a guarantee in favour of
ICICI Bank. ECS defaulted on the repayment resulting in the initiation of the insolvency
proceedings against it by ICICI Bank. In the meanwhile the DBS Bank, a corporate lender f
ESSL filed for the insolvency of ESSL. On inviting proof of claim from the creditors of
ESSL, by the RP Ritu Rastogi, ICICI submitted its claim against ESSL corporate debtor
being a guarantor of ECS. RP refused to admit the claim on the objections of CRIP anomalies
and unjust enrichment. But the principal bench of NCLT upheld the claim of ICICI Bank for
simultaneously proceeding against both the debtor and the guarantor for the same claim. 27

The case at hand is not only similar to the referred case but is also less complex due to the
clear and sole claim of RBS against the Professor.

II. THAT THE APPROVAL OF THE RESOLUTION PLAN BY THE NCLT DOESN’T PROHIBIT THE
INITIATION OF PROCEEDINGS AGAINST PROFESSOR IN CP(IB)-22(ND)/2020

It is most humbly submitted before this Hon’ble Court that the approval of the Resolution
Plan by the NCLT doesn’t prohibit the initiation of proceedings against the Professor in
CP(IB)-22(ND)/2020. This is because [2.1] the Professor is not discharged by the approval of
the resolution plan against HAPL; and [2.2] the Professor is bound to the resolution plan by
the virtue of section 31 of I&B Code.

2.1 THE PROFESSOR ISN’T DISCHARGED AFTER APPROVAL OF RESOLUTION PLAN AGAINST HAPL

Section 134 of Indian Contract Act states that the surety is discharged by any contract
between the creditor and the principal debtor, by which the principal debtor is released, or by

26
ICICI v CA Ritu Rastogi (2018) 97 taxmann.com 227 (NCLT – PB).
27
ibid.

17
any act or omission of the creditor, the legal consequence of which is the discharge of the
principal debtor.28

But the aforementioned is not applicable since there has not been any contract between the
creditor and principal debtor whereby the principal debtor is released 29 as was referred to, by
the Hon’ble Calcutta High Court in the case of Gouri Shankar Jain vs PNB.30 The
Corporate Debtor in a proceeding under Section 7 of the Code 31 may stand discharged of its
liability to its creditors. Such discharge being held in a proceeding for bankruptcy and
insolvency, the same does not absolve the surety of the liability.32

When an application under Section 7 of the Code is admitted by the Adjudicating Authority,
the steps taken subsequent thereto flows out of the statute.33 A discharge which the principal
debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the
case of a company) does not absolve the surety of his liability. 34

The aforementioned makes it clear as a glass that the liability of the guarantor still remains
even after the approval of the resolution plan against the principal borrower. Furthermore,
Creditors have a right to proceed against the guarantor even after resolution plan is
approved.35 In the same lines, RBS has the authority to proceed against the Professor for the
impugned debt, even after the approval of resolution plan.

2.2 THE PROFESSOR IS BOUND TO THE RESOLUTION PLAN BY THE VIRTUE OF SECTION 31 OF IBC

Section 31 of the IBC states, “If the Adjudicating Authority is satisfied that the resolution
plan as approved by the committee of creditors under sub-section (4) of section 30 meets the
requirements as referred to in sub-section (2) of section 30, it shall by order approve the
resolution plan which shall be binding on the corporate debtor and its employees, members,
creditors, guarantors and other stakeholders involved in the resolution plan.” 36

28
Indian Contract Act, s 134.
29
Modern stores v United Bank of India AIR 1988 Cal 18.
30
Gouri Shankar Jain v Punjab National Bank & Anr AIR 2020 Cal 90.
31
Insolvency and Bankruptcy Code 2016, s 7.
32
Maharastra State Electricity Board, Bombay v Official Liquidator, High Court of Ernakulam AIR 1982 SC
1497.
33
ibid.
34
Jagannath Ganeshram Aggarwala v Shivnarayan Bhagirath AIR 1940 Bom 247; Maharastra State
Electricity Board, Bombay v Official Liquidator, High Court of Ernakulam AIR 1982 SC 1497.
35
Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta 2019 SCC OnLine SC 1478.
36
Insolvency and Bankruptcy Code, s 31(1).

18
Further, if there is any inconsistency in any other act in relation with the above provision,
which provides otherwise, like section 134 of Indian Contract Act 1872 (providing for the
discharge of guarantor if the debtor is relieved of the liability), then also section 31 of IBC
will prevail by the virtue of section 238 37 which states that I&B Code will override any other
statues or acts.38

In the case of SBI vs Ramakrishnan, while upholding the legitimacy of the resolution plan
approved by Committee of Creditors, which provided for the invocation of deed of guarantee
any time after the approval of the plan by Adjudicating Authority, stated in respect of section
31, “This Section only states that once a Resolution Plan, as approved by the Committee of
Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor.
This is for the reason that otherwise, Under Section 133 of the Indian Contract Act, 1872, any
change made to the debt owed by the corporate debtor, without the surety's consent, would
relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor
cannot escape payment as the Resolution Plan, which has been approved, may well include
provisions as to payments to be made by such guarantor”. 39

Professor has given a Deed of Guarantee of repayment (to RBS) of entire amount sanctioned
to HAPL by way of the TLA in case of default. 40 Further the resolution plan as approved by
the Adjudicating Authority in our case, lists in clause 22 of the said plan that RBS reserves its
rights to proceed against the stakeholders of HAPL under independent contracts if any in
terms of applicable law 41.

As the default has already occurred, 42 and as the impugned resolution plan has been approved
by the Adjudicating Authority, the Professor (the guarantor) 43 being bound by clause 22 (of
the resolution plan), is liable to repay the amount whenever the guarantee is invoked and
thus initiation of proceedings aren’t prohibited on him.

37
Insolvency and Bankruptcy Code, s 238.
38
Duncans Industries Ltd v AJ Agrochem 2019 SCC OnLine SC 1319.
39
State Bank of India v V Ramakrishnan & Anr (2018) 17 SCC 394.
40
Moot Proposition, para 5.
41
Moot Proposition, para 10.
42
Moot Proposition, para 7.
43
Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta 2019 SCC OnLine SC 1478; State
Bank of India v V Ramakrishnan & Anr (2018) 17 SCC 394.

19
III. THAT THE OBLIGATION OF PROFESSOR UNDER THE DEED OF GUARANTEE DATED

15.08.2018 IS NOT DISCHARGED UNDER APPLICABLE LAW

It is most humbly submitted before this Hon’ble court that the obligation of Professor under
the Deed of Guarantee dated 15.08.2018 is not discharged under applicable law. This is
because [3.1] the exercise of statutory rights doesn’t alter the contractual obligations; [3.2]
discharge of borrower by law does not discharge the surety; and [3.3] the I&B Code overrides
the provisions of the Indian Contract Act providing for discharge of surety.

3.1 THE EXERCISE OF STATUTORY RIGHTS DOESN’T ALTER THE CONTRACTUAL OBLIGATIONS

Various provisions of the Indian Contract Act provide for the discharge of the guarantor
regarding various engagements of principal borrower and financial creditor. Some of them
being: section 134, stating that a surety is discharged by any act or omission of the creditor,
the legal consequence of which is the discharge of the principal debtor; 44 section 135, stating
that a surety is discharged if the creditor makes a composition with the principal debtor; 45
section 139, stating that a surety is discharged if the creditor does any act inconsistent with
the rights of the surety and the eventual remedy of the surety against the principal debtor is
thereby impaired46 and several others. A simple reading of the provisions makes it clear that
all the acts of creditor or debtor being talked about in the aforementioned sections are
voluntary.

However, the application of insolvency by RBS against HAPL, filed under section 7 of I&B
Code47 (and every action emanating from it), is an exercise of statutory right and not a
contractual one. The exercise of statutory right being involuntary in nature will not alter the
contractual obligations of the financial creditor and guarantor.48 Consequently, the discharge
of HAPL’s liability under the insolvency proceedings doesn’t discharge the Deed of
Guarantee of the Professor.

44
Indian Contract Act 1872, s 134.
45
Indian Contract Act 1872, s 135.
46
Indian Contract Act 1872, s 139.
47
Moot Proposition, para 8.
48
Gouri Shankar Jain v Punjab National Bank & Anr AIR 2020 Cal 90.

20
3.2 DISCHARGE OF BORROWER BY LAW DOESN’T DISCHARGE THE SURETY

Paragraph 192 of Halsbury’s Laws of England contains the following passage:

"Whatever expressly or impliedly discharges the principal debtor from liability usually
discharges the surety also by implication, as his position is thereby altered without his
consent, notwithstanding that the alteration is accomplished by operation of law."49

A statutory discharge of the whole or any part of a principal debtor's debt will not discharge
the surety pro tanto as the creditor has taken no part in releasing the principal debtor from his
liability.50 Furthermore, discharge of the borrower by operation of law for which none of the
parties had any control, does not discharge the guarantor even if the consent of the guarantor
is not taken.51

According to section 128 of the Contract Act, liability of the guarantor is co-extensive with
that of the principle debtor. 52 It is generally contended that liability of the principal debtor is
extinguished upon approval of resolution plan, i.e., principal debt becomes zero and,
consequently, in light of section 128 of the Contract Act, liability of the guarantor also stands
extinguished. However, the Supreme Court in Maharashtra State Electricity Board, Bombay
vs Official Liquidator observed that it is a well settled principle of law that a discharge
which is secured by a principal debtor by operation of law (i.e., by bankruptcy or insolvency
or liquidation proceedings) does not absolve surety of his liability. 53

As the liability of HAPL is discharged 54 by the operation of insolvency proceedings under the
I&B Code, therefore, the liability of the Professor is not discharged under the Deed of
Guarantee.

3.3 THE PROVISIONS OF I&B CODE OVERRIDE THE PROVISIONS OF INDIAN CONTRACT ACT

The provisions of the Indian Contract Act provide for the discharge of liability of guarantor
under various arrangements of creditor and borrower. By the virtue of section 128, the
guarantor is discharged along with the extinguishment of liability of the borrower as their

49
Halsbury’s Laws (2nd edn, 1935) vol 16, para 192.
50
Nellore Co-operative Urban Bank Ltd v Mallikarjunayya AIR 1948 Mad 252; Jagannath v Shivnarayan AIR
1940 Bom 387.
51
Industrial Finance Corporation of India v Cannonore Spinning and Weaving Mills Ltd (2002) 5 SCC 54.
52
Indian Contract Act 1872, s 128.
53
Maharastra State Electricity Board, Bombay v Official Liquidator, High Court of Ernakulam AIR 1982 SC
1497.
54
Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta 2019 SCC OnLine SC 1478;
Insolvency and Bankruptcy Code, s 31.

21
liability is co-extensive.55 Section 134 explicitly states that surety will be discharged if any of
creditor’s act or omission discharges the debtor. 56 Section 135 states that a surety is
discharged if the creditor makes a composition with the principal debtor.57 Similarly, there
are other sections forwarding the same (i.e. the discharge of guarantor’s liability under
various contentions), like section 139, section 140 and section 145.

But section 238 of I&B Code states that the provisions of this Code shall have effect,
notwithstanding anything inconsistent therewith contained in any other law for the time being
in force or any instrument having effect by virtue of any such law.

Section 31 of I&B Code binds all the stakeholders including guarantor with the resolution
plan once it is approved by the Adjudicating Authority.58 And in clause 22 of the subject
Resolution Plan59 mentions the right of RBS to proceed against the stakeholders of HAPL
under independent contracts if any in terms of applicable law.

Therefore, when section 238 of I&B Code is read along with section 31 of the said code and
the resolution plan, it emerges that the Deed of Guarantee dated 15.05.2018 is not discharged.

IV. THAT THE NOTIFICATION DATED 15.11.2019 AND THE SECTIONS NOTIFIED THEREIN

UNDER, THE GUARANTOR RULES AND THE GUARANTOR REGULATIONS ARE NOT ULTRA

VIRES THE IBC AND THE CONSTITUTION OF INDIA

It is most humbly submitted before this Hon’ble Court that the notification dated 15.11.2019
and the Sections notified therein under, the Guarantor Rules 60 and the Guarantor
Regulations61 are constitutional inasmuch as [4.1] Part III of IBC can be enforced in respect
to a single entity also and is as much as constitutional; [4.2] a meaningful reading establishes
that the said rules and regulations when read in consonance with Part III establishes that it is

55
Indian Contract Act 1872, s 128.
56
Indian Contract Act 1872, s 134.
57
Indian Contract Act 1872, s 135.
58
Insolvency and Bankruptcy Code, s 31; Committee of Creditors of Essar Steel India Ltd v Satish Kumar
Gupta 2019 SCC OnLine SC 1478; Lalit Mishra & Ors v Sharon Bio Medicine Ltd & Ors [2018] ibclaw.in 47
NCLAT.
59
Moot Proposition para 10.
60
Insolvency (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors
to Corporate Debtors) Rules 2019.
61
Insolvency (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors
to Corporate Debtors) Regulation (2019).

22
applicable to guarantors; and [4.3] Provisions of Part III sought to achieve the intent of
legislation.

4.1 ENFORCEMENT OF PART III IN RELATION TO A PARTICULAR ENTITY IS CONSTITUTIONAL

AND JUSTIFIABLE IN NATURE

It is being noticed that constant anxiety arising from inability to pay or from harassment by
creditors can cause serious emotional and other problems for debtors, including depression
and social withdrawal. Ironically, overwhelming debt burdens might cause debtors to be
unable to concentrate on work and other responsibilities, thus preventing them from
responsibly managing their own financial distress and plunging debtors into a descending
spiral of failure.

In the quest of it, the working group committee in its report62 has proposed that a separate set
of rules and regulations be made for separate categories of individuals under Part III of the
Code- (i) individuals who are personal guarantors to corporate debtors, (ii) individuals
engaged in partnership or proprietorship firms, and (iii) individuals without businesses.

It was also contended on its part that, ‘Personal guarantors and individuals who are partners
in partnership firms carrying out economic activities may require a somewhat different
treatment due to economic considerations, number of creditors involved, personal guarantee
and assets of guarantors, if any and other relevant factors involved.’ And it also recommends
that implementation of the provisions of the Code dealing with insolvency and bankruptcy of
the three classes of individuals should be done in a phased manner due to the
abovementioned grounds.

We humbly admit that the phased implementation could be challenged under the proviso
mentioned under section 1(3) of IBC but we humbly contend to draw the honourable court’s
attention on Basant Kumar Sarkar case,63in which the petitioner had contended that Section
1(3) of the ESI Act was violative of Article 14 of the Indian Constitution, insofar as it
allowed different provisions of the ESI Act to be implemented at different points in time for
different parts of the state of Bihar. The Supreme Court after noting the beneficial nature of

62
The Insolvency and Bankruptcy Board of India, ‘First Report of the Reconstituted Working Group for
recommending strategy and approach for implementation of the provisions of the Insolvency and Bankruptcy
Code, 2016 in respect of (i) Personal Guarantors to Corporate Debtors; (ii) Partnership Firms and Proprietorship
Firms; and (iii) Other Individuals’ (2018) <https://www.ibbi.gov.in/uploads/resources/wgreport.pdf> accessed
23 September 2020.
63
Basant Kumar Sarkar and ors v Eagle Rolling Mills Ltd and ors AIR 1964 SC 1260.

23
the ESI Act held that such legislations cannot be introduced in toto for the whole country at
once. This was because “such beneficial measures which need careful experimentation have
sometimes to be adopted by stages and in different phases, and so, it should be left to the
discretion of the appropriate government.”

There is a similar decision of the Supreme Court in Biswambhar Singh64, wherein a similar
challenge was brought in the context of Section 1(3) of Orissa Estates Abolition Act, 1892.
Even in this case, the Supreme Court while rejecting a challenge based out of Article 14 of
the Indian Constitution, had held such a provision cannot be considered discriminatory as
long as the legislative discretion is exercised within the contours of the object of the statute.

Also, there is intelligible differentia in enforcing the provisions under Part III only qua the
‘personal guarantors’ and no other classes of debtors as specified under Part III of the IBC.
The expression “intelligible differentia” means difference capable of being understood. A
factor that distinguishes or in different state or class from another which is capable of being
understood. The test was laid down in Anwar Ali65 i.e. the differentia or classification must
have a rational nexus with the object sought to be achieved by the statute in question. We
humbly want to register here that differentiating ‘personal guarantors’ with that of the other
entities has a rational nexus to the object of the act that the aim of the Code has been to
establish a creditor-in-control regime,66 increase reliance on market mechanism for
insolvency and introduce strict timelines for insolvency processes.

Also, the Hon’ble Supreme Court in Swiss Robbins67 recently placed reliance on R.K. Garg68
to hold that the laws relating to economic activities should be viewed with greater latitude .
Also, The Court, therefore, should exercise judicial restraint in interfering with legislations
like the Code, and question the constitutionality only when such legislations are ‘palpably
arbitrary, manifestly unjust and glaringly unconstitutional’.

64
Biswambhar Singh v State of Orissa AIR 1954 SC 139.
65
State of West Bengal v Anwar Ali Sarkar AIR 1952 SC 75.
66
The Insolvency and Bankruptcy Board of India, ‘First Report of the Reconstituted Working Group for
recommending strategy and approach for implementation of the provisions of the Insolvency and Bankruptcy
Code, 2016 in respect of (i) Personal Guarantors to Corporate Debtors; (ii) Partnership Firms and Proprietorship
Firms; and (iii) Other Individuals’ (2018) <https://www.ibbi.gov.in/uploads/resources/wgreport.pdf> accessed
23 September 2020.
67
Swiss Ribbons Private Limited & Anr v Union of India 2019 SCC OnLine SC 73.
68
RK Garg and Ors v Union Of India (UoI) And Ors 1981 1 SCR 947.

24
Consequently, Part III of IBC can be applied to personal guarantors till the time the Central
Government is satisfied that satisfactory conditions exist for the extension of application of
part III of the IBC to other class of individuals and partnership firms.

4.2 PART III WHEN READ IN CONSONANCE WITH THE GUARANTOR RULES AND REGULATIONS
ESTABLISHES THAT IT HAS BEEN SPECIFICALLY MADE APPLICABLE TO PERSONAL GUARANTORS

The notification,69 S.O. 4126(E) dated 15th November, 2019 explicitly states that the
provisions of Part III of the Code have only been brought into effect in so far as they are
applicable to a Guarantor. Thus, if an individual is not a guarantor to a corporate debtor, then
the provisions shall not be applicable to such individual.

It is quite pertinent to note here that powers conferred on account of delegated legislation by
sub-section (1), clauses (g), (h), (i), (m), (n) and (o) of sub-section (2) of section 239 read
with clause (e) of section 2 and sub-section (2), clauses (c) and (e) of sub-section (14) and
clause (e) of sub-section (15) of section 79 of the Insolvency and Bankruptcy Code, 2016 (31
of 2016), empowers the Central Government to notify certain rules.

Also, the Application of the said rules mentioned in the Rule 2 establishes that these rules
shall apply to insolvency resolution process for personal guarantors to corporate debtors.

Further in terms of the definition of "Guarantor" under Section 3(e) of the Insolvency Rules
issued by Ministry of Corporate Affairs, the Code is only applicable to those Guarantors
where the guarantee has been invoked by the creditor and remains unpaid in full or in part.

We want to humbly draw the attention of the hon’ble court that rules issued, clearly establish
their tandem with the Part III of IBC.

“7. Application by creditor ― (1) A demand notice under clause (b) of sub-section (4) of
section 95 shall be served on the guarantor demanding payment of the amount of default, in
Form B. (2) The application under sub-section (1) of section 95 shall be submitted in Form
C, along with a fee of two thousand rupees.”

69
Ministry of Corporate Affairs, ‘NOTIFICATION’ (15 November 2019) THE GAZETTE OF INDIA:
EXTRAORDINARY <https://ibbi.gov.in//uploads/legalframwork/1fb8c2b785f35a5126c58a2e567be921.pdf>
accessed 23 September.

25
“9. Copy of application ― The applicant shall provide a copy of the application filed under
subsection (1) of section 94 or sub-section (1) of section 95, as the case may be, if not
provided earlier, to the resolution professional within three days of his appointment under
sub-section (5) of section 97, and to the Board for its record.”

Similarly, power is conferred by a set of clauses that empowers IBBI to bring certain
regulations.

Also, the glance over certain regulations clearly establishes it, like,“3(g) ‘resolution process’
means the insolvency resolution process of a guarantor”

Although the term guarantor has not been defined in the said regulations, but when we take
note of 3(k) of it, it says that, ‘words and expressions used and not defined in these
regulations but defined in the Code and the Guarantor Rules shall have the respective
meanings assigned to them in the Code and the said rules’.

Also, the concept of personal guarantor stems out of Section 5(22) of IBC that clearly defines
the personal guarantor as an individual who is the surety in a contract of guarantee to a
corporate debtor.

In addition to it, the judicial pronouncements warrant the clear demarcation of the rules to try
guarantors by invoking the guarantee deeds since the law stands settled that after culmination
of the CIRP, even in the event a Resolution Plan comes to be passed, the liability of a
Personal Guarantor to such a Corporate Debtor will not cease to affect. 70

Further, from the tone and tenor of the intent of Part III of IBC, it can be stated that the
Insolvency Resolution Plan is not a debt recovery process by one creditor alone, but is a
collective process where all creditors of a debtor sit across the table to negotiate a plan
according to which all debts of the debtor are to be repaid. 71 Hence, the above sections, rules
and regulations establish that the implementation of Part III along with the introduction of
Guarantor rules and regulations in relation to “personal guarantors to corporate debtors”
stands justified.

70
Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta 2019 SCC OnLine SC 1478.
71
The Bankruptcy Law Reforms Committee Report, Rationale and Design (2015) para 3.2.1.

26
4.3 THAT THE PROVISIONS OF PART III READ WITH RULES AND REGULATIONS SOUGHT TO

ACHIEVE THE INTENT OF LEGISLATION

Certain rules and sections are there that further the objective of the legislation by speeding up
the insolvency proceedings and by facilitating the recovery proceedings. First (4.3.1)
empowers the NCLT to take up insolvency proceedings against the personal guarantor and
the second (4.3.2) that the moratorium provisions under part III facilitate the intent of
legislation.

4.3.1 Ensuring the speedy recovery by subjecting the proceedings of Personal Guarantor to
NCLT

When the corporate debtor is in default, then the process for insolvency resolution requires
prompt action as the entity, its employees’ livelihood, and its assets are at stake. Therefore,
one of the important objectives of the insolvency and bankruptcy code is speeding up of
CIRP.72 Also, time and again, enforcement of personal guarantee has posed difficulty for
creditors. One of the reasons is that recovery of dues through DRTs is inefficient and time-
consuming, as they are struggling with huge delays due to insufficient number of presiding
members. In fact, recoveries often take up to two years instead of the statutorily mandated six
months and lack of consistency exists in decision-making process.73

Thus, very objective of speedy redressal is very much advanced to an extent by the
introduction of guarantor rules by MCA74, as the Rule 3(1)(a) provides the adjudicating
authority to be NCLT in the matters pertaining to personal guarantors to corporate debtors.
Also, in addition to it, it has been clearly provided under Section 60(2) under Chapter IV,
Part II of the IBC states that the application for resolution of personal guarantors must be
filed before such NCLT where resolution proceedings against the corporate debtor or
ongoing. In case the insolvency application is filed against the personal guarantor prior to
such proceedings being instituted against the corporate debtor, the former proceedings shall
stand transferred to the tribunal before which the CIRP against the corporate debtor is
ongoing75. This has been also upheld by the apex court in the very recent case of Embassy

72
Innoventive Industries Ltd v ICICI Bank 2017 SCC OnLine NCLAT 70.
73
Ministry of Finance, ‘Economic Survey 2019-20’ (2020) vol II
<https://www.indiabudget.gov.in/economicsurvey/> accessed 25 September 2020.
74
Insolvency (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors
to Corporate Debtors) Rules, 2019.
75
Sanjeev Shriya v State Bank of India & Ors Writ C No 30285 of 2017.

27
Property Developments 76 where the court mentions that such amendment under Section 60
has been brought to ensure that “CIRP of a corporate debtor and the insolvency resolution of
the individual guarantors of the very same corporate debtor do not proceed on different
tracks, before different fora, leading to conflict of interests, situations or decisions.”

Thus it prevents the proceedings to be stuck into the legal quagmire and promotes the speedy
redressal of the CIRP of the corporate debtor. In this way, it furthers the intent of legislation
in a fluid and coherent manner.

4.3.2 The moratorium provisions under Part III facilitate the Intent of the Legislation

The moratorium under the Insolvency and Bankruptcy Code, 2016 (‘IBC’) means a period
wherein no judicial proceedings for recovery, enforcement of security interest, sale or transfer
of assets, or termination of essential contracts can be instituted or continued against the
Corporate Debtor.

The Insolvency Process for Guarantors, in terms of Section 96(a) provides for an "interim
moratorium" in relation to any debts of the Guarantor as soon as the application for
insolvency under Section 94 or Section 95 is filed before the Adjudicating Authority (AA), in
addition to a moratorium under Section 101 which comes into effect only upon admission.
This is a distinction from the CIRP regulations which imposes a single moratorium period
under Section 14 in relation to the assets of a Corporate Debtor only once the National
Company Law Tribunal (NCLT) passes an order imposing such moratorium on the admission
of an application filed before it.

The Apex court in the case of SBI v Ramakrishnan 77had analysed the difference in language
between Section 14, 96 and 101 to observe that the moratorium under section 14 applies on
the debtors whereas under section 96 and 101 it applies on debts. The Court also noted that a
plain reading of the said Section 14 leads to the conclusion that the moratorium referred to
therein can have no manner of application to personal guarantors of a corporate debtor. Since,
it is clear that the moratorium under section 14 doesn’t apply on personal guarantors, but as
contemplated by The UNCITRAL Guide78 notes that a moratorium is critical during
reorganization proceedings since it “facilitates the continued operation of the business and

76
M/s Embassy Property Developments Pvt Ltd v State of Karnataka & Ors 2019 SCC OnLine SC 1542.
77
State Bank of India v V Ramakrishnan & Anr (2018) 17 SCC 394.
78
United Nations Commission on International Trade Law, ‘Legislative Guide on Insolvency Law’ [2005]
<https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf> accessed
27 September 2020.

28
allows the debtor a breathing space to organize its affairs, time for preparation and approval
of a reorganization plan and for other steps such as shedding unprofitable activities and
onerous contracts, where appropriate.” Also, it is clearly mentioned in the statement and
object reason clause of the code that the interest of all the stakeholders involved in the
insolvency proceedings should be kept in mind. So, in this way the sections 96 and 101
further the object of the legislation.

Hence, it is submitted before the hon’ble court that the notification issued enforcing the
provisions of Part III of the code read with guarantor rules and regulations are intra vires to
the code and constitutional in nature.

V. THAT THE HON’BLE HIGH COURT DOES NOT HAVE THE JURISDICTION TO ENTERTAIN
THE WRIT PETITION (C) 3911/2020

It is most humbly submitted before Hon’ble Court that the Hon’ble Delhi High Court does
not have the jurisdiction to entertain W.P. (C) 3911/2020 as [5.1] IBC being an exhaustive
law provides complete procedures for redressal of the grievances; [5.2] the jurisdiction of the
Hon’ble High Court stands completely ousted in the matters of the IBC; and [5.3] time being
the essence of insolvency proceedings, the purpose of the code would be defeated if the writ
petition is entertained.
5.1 THE I&B CODE IS AN EXHAUSTIVE AND COMPLETE LAW IN ITSELF

The Hon’ble Supreme Court of India in its landmark ruling in Innoventive Industries79
relied, inter alia, on an earlier Division Bench judgment of the Hon’ble SC in Joseph
Peter 80 where the Supreme Court had observed and held that “A Code is complete and that
marks the distinction between a Code and an ordinary enactment…”. The Supreme Court
in Innoventive Industries, after examining various provisions of the IBC and the legislative
intent and factors behind the enactment thereof as well as the judicial rulings on the rule of
construction applicable to consolidating laws, held that “IBC is a Parliamentary law that is an
exhaustive code on the subject matter of insolvency in relation to corporate entities, and is
made under Entry 9, List III in the 7th Schedule…”.81 The Supreme Court had further
observed that “a consolidating and amending act like the present Central

79
Innoventive Industries Ltd v ICICI Bank (2018) 1 SCC 407.
80
Joseph Peter v State of Goa, Daman and Diu (1977) 3 SCC 280.
81
Innoventive Industries Ltd v ICICI Bank (2018) 1 SCC 407.

29
enactment (IBC) forms a code complete in itself and is exhaustive of the matters dealt with
therein.” In elaboration of it (5.1.1) Alternate efficacious remedies is provided to the
aggrieved party under Section 61 and should be exhausted before.

5.1.1 There Is Alternative Efficacious Remedy Available to the aggrieved party and it should
be exhausted to approach Writ Court

The IBC provides for a three-tier adjudicatory mechanism, for dealing with all issues that
may arise in relation to the insolvency resolution and liquidation for corporate persons and
insolvency resolution and bankruptcy for individuals and partnership firms, namely (i)
NCLT/DRT (ii) NCLAT/DRAT (iii) Supreme Court

In Anthony Raphael Kallarakkal82, the Bombay High Court had dismissed the writ petition
on ground of availability of alternate and equally efficacious remedies under Section 61 of
IBC to prefer an appeal before NCLAT and, a further remedy under Section 62 of IBC to
prefer an appeal before the Supreme Court from NCLAT . In several cases, both in England
and India, the ancient rule stated by Willes, J., in Wolverhampton New Waterworks Co83 to
the effect that where a liability not existing at Common Law is created by a statute, which
also gives a special and particular remedy for enforcing it, the remedy provided by the statute
must be followed, has been quoted with approval. In Satyawati Tandon84, it was held that the
availability of a remedy of appeal under the DRT Act85 and SARFAESI Act86 should deter
the High Courts from exercising the jurisdiction under Article 226 of the Indian Constitution.
Similarly, the availability of remedy of appeal under Section 173 87 as against an award of the
Accidents Claims Tribunal was held in Sadhana Lodh v. National Insurance Co.88 as
sufficient for the High Court to refuse to exercise its supervisory jurisdiction.

Thus, on the basis of the availability of alternative remedy provided under Section 61 and the
judicial pronouncements of the Hon’ble Courts, it is humbly submitted that the Writ Petition
should not be entertained in the Hon’ble High Court.

82
Anthony Raphael Kallarakkal v National Company Law Tribunal, Mumbai Bench & Ors 2018 SCC OnLine
Bom 13865.
83
Wolverhampton New Waterworks Co v Hawkesford (1859) 6 CBNS.
84
United Bank of India v Satyawati Tandon & others 2010 (6) MhLJ 721.
85
DRT Act 1993.
86
SARFAESI Act 2002.
87
Motor Vehicles Act 1988.
88
Sadhana Lodh v National Insurance Co Ltd and Anr (2003) 3 SCC 524; Nivedita Sharma v Cellular
Operators Association of India (2011) 14 SCC 337.

30
5.2 THE JURISDICTION OF HON’BLE HIGH COURT STANDS COMPLETELY OUSTED IN THE

MATTERS OF THE IBC

It is humbly admitted that the Supreme Court 89 provides for very specific exceptions to
invoke writ jurisdiction in derogation of the existing alternate statutory remedy and the
present case does not fall under those exception. Thus, It is humbly contended that the
proceedings under IBC do not come under the scope of Article 226 of the Indian Constitution
due to the (5.2.1) Ouster Clauses present in the code deters the other court to take up the
proceedings and (5.2.2) the entertainment of petition would amount to judicial overreach.
5.2.1 Ouster Clauses present in the code bars the jurisdiction of other authorities
It is submitted that the Jurisdiction of Hon’ble HC is not applicable in the matters of IBC as
the sections 180 and 231 being the ouster clauses prohibit any court or other authority from
granting injunction over any action taken or to be taken under IBC..
Section 231 was interpreted by the Delhi HC in the case of Liberty House Group Pte ltd 90
whereby the Delhi HC categorically refrained from exercising jurisdiction with respect to the
action taken by the NCLT in pursuance of the powers conferred upon it by the IBC itself.
Also, the NCLT, Kolkata, in the case of Aryan Mining and Trading Corporation91 stated
that any injunction granted by any court, shall be nullity in law and cannot be given effect to,
by virtue of Section 231 of the IBC. Therefore, the legislature was of the firm view that the
any issue arising out of the IBC can only be looked into by NCLT, NCLAT and SC and ousts
the jurisdiction of HCs.
In addition to it, Section 60(5) (c) of the IBC empowers the tribunal to determine all matters
arising out of and incidental to the Insolvency proceedings.
5.2.2 Entertainment of the Writ Petition by the High Court would amount to judicial overreach
The higher judiciary has consistently demonstrated a trend to amass and concentrate greater
power and authority after the series of judges transfer cases 92. Such concentration is often in
derogation to the authority of the parliament executive and other quasi-judicial bodies.93
Wherever any the legislature provides for statutory adjudication of rights and dispensation of
claims through specific enactments, the courts cannot invoke writ jurisdiction as that shall be
tantamount to defeating the legislative intent and shall impede the parliament’s legislative

89
L Chandra Kumar v Union of India and Others 1995 AIR 1151.
90
Liberty House Group Pte Ltd v State Bank of India and Others (2019) 258 DLT 52.
91
Aryan Mining and Trading Corporation Private Limited v Ganesh Sponge Private [2017] ibclaw.in 10
NCLAT.
92
J Cottrell, ‘The Indian Judges' Transfer Case’ [1984] 33(4) ICLQ 1032.
93
E Jenks, ‘The Prerogative Writs in English’ [1923] 32(6) YLJ 523.

31
competence.94 The Court, therefore, should exercise judicial restraint in interfering with
legislations like the Code, and question the constitutionality only when such legislations are
‘palpably arbitrary, manifestly unjust and glaringly unconstitutional’ 95
If the ability to decide matters incidental to the CIRP is stripped away from the NCLT, the
tribunal shall become a mere paper tiger without the means to resolve complicated insolvency
cases. .96 Therefore, on the above grounds, we humbly submit that the high court should not
intervene in the matters of IBC to ensure the aims and objectives of the Code are achieved.

5.3 TIME IS THE ESSENCE AND HIGH COURT’S JURISDICTION DEFEATS THE PURPOSE OF IBC
2016

This is to bring the attention of the hon’ble court that in cases concerning bankruptcy and
insolvency, time is of essence. This is so because the recoverable money from a depreciating
asset systematically declines due to depreciation over time. Also, when the corporate debtor
is in default, then the process for insolvency resolution requires prompt action as the entity,
its employees’ livelihood, and its assets are at stake. Therefore, one of the important
objectives of the insolvency and bankruptcy code is speeding up of CIRP.97The average time
for disposal of cases in high courts is much higher, 98 than what is required for an efficient
insolvency regime. It is humbly contended that the writ will be dealt in ordinary course of
business at the high courts, as naturally the hon’ble high courts are overburdened with the
work. This will obviously turn to be very much counterproductive for the regime. 99

Hence it is humbly submitted before the hon’ble court on the basis of the above arguments
and sub-arguments that Hon’ble Delhi High Court don’t have the jurisdiction to entertain the
writ petition.

94
Commissioner of Income Tax v Chhabil Das Agarwal (2014) 1 SCC 603.
95
RK Garg And Ors v Union Of India (UOI) And Ors 1981 1 SCR 947.
96
Raghav Pandey & Akshal Agarwal, ‘WRIT JURISDICTION NCLT - A DEATH KNELL FOR THE
INSOLVENCY REGIME: COMMENT ON EMBASSY PROPERTY DEVELOPMENTS V. STATE OF
KARNATAKA’ (2019) II ILI Law Review <http://www.ili.ac.in/pdf/rpa.pdf> accessed 25 September 2020.
97
Innoventive Industries Ltd v ICICI Bank 2017 SCC OnLine NCLAT 70.
98
Pradip Thakur, ‘High Court Judges Get Just 5-6 Minutes to Decide Cases, says Study’ The Times of India (7
April 2016).
99
Raghav Pandey & Akshal Agarwal, ‘WRIT JURISDICTION NCLT - A DEATH KNELL FOR THE
INSOLVENCY REGIME: COMMENT ON EMBASSY PROPERTY DEVELOPMENTS V. STATE OF
KARNATAKA’ (2019) II ILI Law Review <http://www.ili.ac.in/pdf/rpa.pdf> accessed 25 September 2020.

32
 PRAYER

Wherefore in light of the issues raised, arguments advanced and authorities cited, it is humbly
prayed before this Hon’ble Court that this Hon’ble Court be pleased to dismiss the writ
petition filed by IPL and to adjudge and declare that:

I. That RBS has the locus to initiate parallel proceedings against HAPL and Professor by way
of CP(IB)-11(ND)/2019 and CP(IB)-22(ND)/2020.

II. That the approval of the Resolution Plan by the NCLT does not prohibit the initiation of
proceedings against Professor in CP(IB)-22(ND)/2020.

III. That the obligations of Professor under the Deed of Guarantee dated 15.08.2018 are not
discharged under applicable law.

IV. That the notification dated 15.11.2019 and the Sections notified therein under, the
Guarantor Rules and the Guarantor Regulations are all intra vires the IBC and the
Constitution of India.

V. That the Hon’ble Delhi High Court didn’t have the jurisdiction to entertain the W.P. (C)
3911/2020.

All of which is respectfully affirmed and submitted,

and pass any other order, direction or relief that this Hon’ble Court may deem fit in the
interests of justice, equity and good conscience.

Sd/-

(Counsels for the Respondents)

33
34