MEMORIAL ON BEHALF OF THE PETITIONER

BEFORE THE SUPREME COURT OF INDIA

UNDER ARTCILE 136 OF THE CONSTITUTION OF INDIA

PROFESSOR ………………...PETITIONER

VERSUS

ROYAL BANK OF SPRAIN AND OTHERS ……………….RESPONDENT

MEMORIAL FILED ON BEHALF OF THE PETITIONER

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 MEMORIAL ON BEHALF OF THE PETITIONER

TABLE OF CONTENTS

LIST OF ABBREVIATIONS....................................................................................................................III

INDEX OF AUTHORITIES..................................................................................................................... IV

STATEMENT OF JURISDICTION........................................................................................................ VIII

STATEMENT OF FACTS....................................................................................................................... IX

STATEMENT OF ISSUES.......................................................................................................................XI

SUMMARY OF ARGUMENTS...............................................................................................................XII

ARGUMENTS ADVANCED.................................................................................................................- 1-

[Link] THE PARALLEL PROCEEDINGS AGAINST THE HAPL AND THE PROFESSOR CANNOT BE

INITIATED.....................................................................................................................................- 1-

1.1 RIGHTS OF GUARANTORS WOULD UNNECESSARILY BE PUT IN PERIL AS DEBT IS NOT

CRYSTALLISED YET........................................................................................................- 1-

1.2 DOUBLE DIVIDEND IS PROHIBITED UNDER INSOLVENCY LAW..................................- 2 -

1.3 IT WOULD LEAD TO CREATING A CHARGE ON THE ASSETS OF THE CORPORATE

DEBTOR..........................................................................................................................- 2-

1.4 ALLOWING UNLIMITED LIABILITY OF GUARANTORS WILL DISCOURAGE INVESTMENTS.

.......................................................................................................................................- 3 -

2. THAT THE APPROVAL OF RESOLUTION PLAN PROHIBITS THE INITIATION OF PROCEEDINGS

AGAINST THE PROFESSOR.............................................................................................................- 3-

2.1 APPROVAL OF RESOLUTION PLAN DISCHARGES THE PROFESSOR OF ITS LIABILITY..- 4 -

2.2 RESOLUTION PLAN BINDS THE GUARANTORS IMPAIRING THEIR RIGHT TO

SUBROGATION................................................................................................................- 4-

2.3 NCLT DOES NOT HAVE THE JURISDICTION IN THE INSTANT MATTER.......................- 5 -

2.4 CLAUSE 22 OF THE RESOLUTION PLAN IS NOT VALID..............................................- 6 -

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

15.08.2018 STANDS DISCHARGED UNDER APPLICABLE LAW.......................................................- 7 -

3.1 THE LIABILITIES OF GUARANTOR AND CORPORATE DEBTOR ARE CO-EXTENSIVE....- 7 -

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 MEMORIAL ON BEHALF OF THE PETITIONER

3.2 DISCHARGE OF PRINCIPAL DEBTOR ALSO DISCHARGES THE SURETY.......................- 8 -

3.3 LACK OF RIGHT OF SUBROGATION DISCHARGES THE GUARANTOR..........................- 9 -

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

UNDER, THE GUARANTOR RULES AND THE GUARANTOR REGULATIONS ARE ULTRA VIRES THE

IBC AND THE CONSTITUTION OF INDIA.......................................................................................- 10 -

4.1 THAT THE NOTIFICATIONS ARE ULTRA VIRES THE PROVISO TO SECTION 1(3) OF THE

IBC................................................................................................................................- 10 -

4.2 THAT PART III OF THE CODE DOES NOT DEAL WITH A PERSONAL GUARANTOR OF A

CORPORATE DEBTOR....................................................................................................- 11 -

4.4 THE IMPUGNED RULES INSOFAR AMOUNT TO MAKING CLASS LEGISLATION WITH

RESPECT TO PERSONAL GUARANTORS TO CORPORATE DEBTOR...................................- 12 -

4.5 THE PROVISIONS OF THE CODE BROUGHT INTO EFFECT BY THE NOTIFICATION DATED

15.11.2019 READ WITH THE GUARANTOR RULES AND THE GUARANTOR REGULATIONS,

WHEN ENFORCED ONLY IN RESPECT OF PERSONAL GUARANTORS TO CORPORATE

DEBTORS, ARE MANIFESTLY ARBITRARY AND VIOLATIVE OF ARTICLE 14 FOR THE

FOLLOWING REASONS:.................................................................................................- 13 -

5. THAT THE HONB’LE DELHI HIGH COURT HAD THE JURISDICTION TO ENTERTAIN W.P.(C)

3911/2020 UNDER ARTICLE 226 AND 227 OF THE CONSTITUTION OF INDIA.............................- 14 -

5.1 THAT THE AVAILABILITY OF ALTERNATE REMEDY DOES NOT BAR THE PARTIES FROM
FILING WRIT PETITION UNDER HIGH COURT.................................................................- 14 -

5.2 THAT THE EXCEPTIONAL CONDITIONS UNDER WHICH HIGH COURT CAN EXERCISE

JURISDICTION IN WRIT PETITIONS ARE FULFILLED.......................................................- 15 -

5.3 THAT THE REQUIREMENTS FOR INVOKING SUPERVISORY OR ORIGINAL JURISDICTION

UNDER ARTICLE 227 AND 226 REMAIN FULFILLED......................................................- 17 -

PRAYER............................................................................................................................................ XIII

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 MEMORIAL ON BEHALF OF THE PETITIONER

LIST OF ABBREVIATIONS

Abbreviation Expansion

ARPL Arturo Rex Private Limited

CIRP Corporate Insolvency Resolution Process
Co Company
COC Committee of Creditors
HAPL Heist Artillery Private Limited
HC High Court
IBBI Insolvency and Bankruptcy Board of India
IBC Insolvency and Bankruptcy Code
ICA Indian Contract Act
Ltd Limited
NCLAT National Company Law Appellate Tribunal
NCLT National Company Law Tribunal
RBS Royal Bank of Sprain
RP Resolution Professional
SC Supreme Court
SLP Special Leave Petition
TLA Term Loan Agreement
V versus
WP Writ Petition

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 MEMORIAL ON BEHALF OF THE PETITIONER

INDEX OF AUTHORITIES

CASES
ALSPPl Subramania Chettiar (Deceased) And Anr v Moniam P Narayanaswami Goundan
AIR 1951 Mad 48........................................................................................- 4 -,- 5 -,- 8 -,- 9-
Amrit Lai Goverdhan Lalan v State Bank of Travancore 1968 AIR SC 1432.................-5-, -9-
Ashok Mahajan v State of Uttar Pradesh (2006) 10 SCC 332..............................................- 3 -
Assistant Collector of Central Excise West Bengal v Dunlop India Ltd and Others AIR 1985
SC 330.............................................................................................................................- 16 -
B G Vasantha v Corporation Bank (2005) 10 SCC 215.......................................................- 7 -
Committee of Creditors of Essar Steel India Limited v Satish Kumar Gupta and Ors 2019
SCC OnLine SC 1478.......................................................................................................- 7 -
Cravethorne v Swinburne (1807) 14 Ves 160.......................................................................- 9 -
Darshak Enterprise Pvt Ltd v Chhaparia Industries Pvt Ltd & Ors 2018 SCC OnLine
NCLAT 224.......................................................................................................................- 6 -
Dr Vishnu Kumar Agarwal v M/s Piramal Enterprises Ltd 2019 SCC OnLine NCLAT 542.. .-
2-
Dwarikesh Sugar Industries Ltd v Prem Heavy Engineering Works P Ltd [1997] 6 SCC 450. -
17 -
Ferro Alloys Corporation Ltd v Rural Electrification Corporation Ltd2018 SCC OnLine
NCLAT 71.........................................................................................................................- 5 -
First ITO v Short Bros (P) Ltd AIR 1967 SC 81; State of UP v Indian Hume Pipe Co Ltd
[1977] 2 SCC 724............................................................................................................- 16 -
Gadsden vBrown (1843) Speers Eq (SC) 37.........................................................................- 9 -
Harshad S Mehta v CBI 1992 SCC OnLine Del 461..........................................................- 10 -
IDBI Bank Ltd v EPC Constructions India Limited 2018 SCC OnLine NCLT 24901.........- 9 -
Indian Young Lawyers’ Association v State of Kerala (2019) 11 SCC 1............................- 12 -
Jekkannu Sami Aiyar v Muthukumara Ramaswami Chettiar (1923) 44 MLJ 171...............- 8 -
JSW Steel Ltd v Mahender Kumar Khandelwal & Ors2020 SCC OnLine NCLAT 55........- 4 -
Khurshed Modi v Rent Controller Bombay AIR 1947 Bom 46 (G)....................................- 15 -
Krishna Pillai Rajasekharan Nair v Padmanabha Pillai (2004) 12 SCC 754.....................- 9 -

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Kundanmal Dabriwala v Haryana Financial Corporation and Ors 2011 SCC OnLine P&H
17373......................................................................................................................-4-, -5-,-8 -
Kurnool Chief Funds (P) Ltd v P Narasimha & Ors AIR 2008 AP 38...........................- 4-,-8 -
Lima Leitao & Co v Union of India AIR 1968 Goa 29.........................................................- 8 -
Mohd Yunus v Mohd Mustaqim [1983] 4 SCC 566...........................................................- 17 -
Morgan v Seymore (1638) 1 Rep Ch 120..............................................................................- 5 -
Motilal s/o Khamdeo Rokde & Ors v Balkrushna Baliram Lokhande & Ors 2020 AIR Bom
39.....................................................................................................................................- 16 -
Navtej Singh Johar v Union of India (2018) 10 SCC 1.......................................................- 13 -
Oshi Foods Ltd and Ors v State Bank of India 1997 (2) MPLJ 643.....................................- 1 -
Padmawati v Harijan Sewak Sangh (2012) 6 SCC 640........................................................- 2 -
Rex v Postmaster-General, Ex parte Carmichael [1928] 1 KB 291 DC............................- 15 -
S Seshachalam v Bar Council of Tamil Nadu (2014) 16 SCC 72.......................................- 12 -
Sanjeev Shriya v State Bank of India 2017 SCC OnLine All 2717.................................-2 -,-5 -
Sheik Suleman v Shivzan Bhikaji (1887) ILR 12 Bom 71.....................................................- 8 -
Standard Chartered Bank and Ors v Satish Kumar Gupta and Ors 2019 SCC OnLine
NCLAT 388.......................................................................................................................- 8 -
State Bank of India v Anil Dhirajlal Ambani 2020 SCC OnLine NCLT 779.......................- 2 -
State Bank of India v Calyx Chemicals & Pharmaceuticals Limited 2018 SCC OnLine NCLT
9073...................................................................................................................................- 9 -
State Bank of India v Century Appliances Limited 2018 SCC OnLine NCLT 27028..........- 7 -
State Bank of India v V Ramakrishnan (2018) 17 SCC 394...............................................- 14 -
State of Jharkhand v Ambay Cements (2005) 1 SCC 368...................................................- 11 -
Surya Devi Rai v Ram Chander Rai 2003 (6) SCC 675......................................................- 17 -
Swiss Ribbons (P) Ltd v Union of India [2019] 152 SCL 365 (SC............................- 6 -, - 13 -
Swynson Ltd v Lowick Rose LLP [2017] UKSC 32..............................................................- 9 -
UP State Spinning Company Ltd v RS Pandey and Anr [2005] 8 SCC 264.......................- 15 -
V Ramakrishnan v M/s Veesons Energy Systems Pvt Ltd and Ors 2018 SCC OnLine NCLAT
238.....................................................................................................................................- 3 -
Whirlpoorl Corporation v Registrar of Trade Marks Mumbai [1998] 8 SCC 1.................- 15 -

STATUTES
Constitution of India 1950, art 226.....................................................................................- 14 -
Constitution of India 1950, art 227.....................................................................................- 14 -

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 MEMORIAL ON BEHALF OF THE PETITIONER

Indian Contract Act 1872, s 128...................................................................................- 7 -, - 8 -

Indian Contract Act 1872, s 134............................................................................................- 8 -
Indian Contract Act 1872, s 134, 135...........................................................................- 8 -, - 4 -
Indian Contract Act 1872, s 140...................................................................................- 5 -, - 2 -
Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution
Process for Personal Guarantors to Corporate Debtors) Rules 2019, Rule 7..................- 12 -
Insolvency and Bankruptcy Code 2016, s 1(3)...................................................................- 10 -
Insolvency and Bankruptcy Code 2016, s 101....................................................................- 13 -
Insolvency and Bankruptcy Code 2016, s 111......................................................................- 9 -
Insolvency and Bankruptcy Code 2016, s 239....................................................................- 12 -
Insolvency and Bankruptcy Code 2016, s 30(4)...................................................................- 4 -
Insolvency and Bankruptcy Code 2016, s 31(1)...................................................................- 4 -
Insolvency and Bankruptcy Code 2016, s 31........................................................................- 7 -
Insolvency and Bankruptcy Code 2016, s 5(8).....................................................................- 2 -
Insolvency and Bankruptcy Code 2016, s 60(2)...................................................................- 5 -
Insolvency and Bankruptcy Code 2016, s 60........................................................................- 5 -
Insolvency and Bankruptcy Code 2016, s 95......................................................................- 12 -
Insolvency and Bankruptcy Code 2016, s 96......................................................................- 13 -
SARFAESI Act 2002, s 13....................................................................................................- 5 -

ONLINE RESOURCES
‘Close to half of claims were settles in FY19: RBI’ ( The Economic Times, 30 December
2019) <[Link]
half-of-claims-under-ibc-were-settled-in-fy19-rbi/articleshow/[Link]?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst> accessed 30
September 2020.................................................................................................................- 6 -
‘Personal Guarantors to Corporate Debtors - New Regime Unfolding New Issues’ (2020)
IRCCL <[Link]
debtors-new-regime-unfolding-new-issues> accessed 29 September 2020......................- 6 -
‘Personal Guarantors to Corporate Debtors - New Regime Unfolding New Issues’ (2020)
IRCCL <[Link]
debtors-new-regime-unfolding-new-issues> accessed 29 September 2020......................- 4 -
Akaant Kumar Mittal, ‘Issues Under The Insolvency and Bankruptcy Code Post Admission
of Insolvency Application’ (2018) 8 SCC J

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<[Link]
4/> accessed 21 September 2020.......................................................................................- 1 -
Namrata Dubey, ‘The New Conundrum: Guarantor In Insolvency Regime’
<[Link]
df> accessed 29 September 2020......................................................................................- 6 -

ONLINE RESOURCES
‘Close to half of claims were settles in FY19: RBI’ ( The Economic Times, 30 December
2019) <[Link]
half-of-claims-under-ibc-were-settled-in-fy19-rbi/articleshow/[Link]?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst> accessed 30
September 2020.................................................................................................................- 6 -
‘Personal Guarantors to Corporate Debtors - New Regime Unfolding New Issues’ (2020)
IRCCL <[Link]
debtors-new-regime-unfolding-new-issues> accessed 29 September 2020......................- 6 -
‘Personal Guarantors to Corporate Debtors - New Regime Unfolding New Issues’ (2020)
IRCCL <[Link]
debtors-new-regime-unfolding-new-issues> accessed 29 September 2020......................- 4 -
‘Report of the Insolvency Law Committee’ (March 2018)
<[Link]
accessed 21 September 2020.............................................................................................- 1 -
Akaant Kumar Mittal, ‘Issues Under The Insolvency and Bankruptcy Code Post Admission
of Insolvency Application’ (2018) 8 SCC J
<[Link]
4/> accessed 21 September 2020.......................................................................................- 1 -
Namrata Dubey, ‘The New Conundrum: Guarantor In Insolvency Regime’
<[Link]
df> accessed 29 September 2020......................................................................................- 6 -

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 MEMORIAL ON BEHALF OF THE PETITIONER

STATEMENT OF JURISDICTION

The Petitioner, Professor on his behalf has approached the Hon’ble Supreme Court of India
by way of Special Leave to Petition under Article 136 of Constitution of India against the
judgement dated 02.09.2020 passed by the Delhi High Court.

The RBS, IBBI and the Government of India (through the Ministry of Corporate Affairs)
being parties to the case have recognised the jurisdiction of the Supreme Court and have
agreed to accept the decision of the Court.

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STATEMENT OF FACTS

I. THE PARTIES

1. Heist Artillery Private Limited (HAPL) is a company registered under India,

conceptualized by Mr. Professor and Mr. Berlin (also directors and shareholders)
2. Royal Bank of Sprain (RBS), headquartered in New Delhi gave Term Loan
Agreement to the tune of Rs. 6,00,00,00,000/- (Rupees Six Hundred Crores) to HAPL
which was to be paid phase wise in the next 5 years.
II. THE CONFLICT

3. HAPL repaid 1,00,00,00,000/- (Rupees One Hundred Crores) but since its foreign
vendors dried up resulting in huge revenue losses, HAPL started defaulting and its
account was declared as NPA.
4. RBS filed application under Section 7 before NCLT which issued a moratorium as
prescribed under Section 14. Appeal against it was dismissed by NCLAT and was
confirmed by SC.
5. Once the Resolution Professional’s (RP) appointment was confirmed by COC, claims
were invited by RP in reply to which RBS also filed its claim of Rs. 5,00,00,00,000/-
(Rupees Five Hundred Crores)
6. Resolution Plan by ARPL which was inspired by ‘Make-In-India’ initiative and
repaid secured financial creditors to the tune of 75% of their outstanding debt was
approved by all the creditors and was filed under section 31(1) before NCLT which
approved it. Because of OVID 19, section 7, 9 and 10 were suspended and an official
press note was released.
7. Meanwhile, Professor and Berlin had reluctantly agreed to the resolution plan in
hopes of RBS not coming after them but RBS invoked the deeds of Guarantees
entered into with the Professor and Berlin on account of default of [Link] no
reply was received from them, RBS filed this before NCLT under section 95 and IBBI
Regulations 2019. This led to interim moratorium under section 96 and eventually
moratorium under section 101.
8. Taking early action, Professor and Berlin challenged this NCLT order in Delhi HC
vide a Writ Petition being W.P. (C) 3911/2020 titled ‘Professor v Royal Bank of
Sprain and Others’.

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III. JUDICIAL PROCEEDINGS BEFORE THE DELHI HIGH COURT

9. The issues before Delhi HC were:

i. Whether RBS has any authority under law to initiate parallel proceedings against
HAPL and Professor, both of which arise out of the same debt under the TLA
ii. Whether proceedings were maintainable under section 95 even after approval of the
plan
iii. Whether the notification dated 15.11.2019 and the Sections notified therein under, the
Guarantor Rules and the Guarantor Regulations are all ultra viresthe IBC and the
Constitution of India and liable to be struck down
iv. Whether the demand notice and all consequent proceedings emanating therefrom are
wholly without jurisdiction or not
v. Whether the Writ Petition ought to be dismissed at the outset on account of an
alternate efficacious remedy available under Section 61 of the IBC
IV. JUDICIAL PROCEEDINGS BEFORE THE SUPREME COURT

10. With the dismissal by the Delhi HC, professor filed a Special Leave Petition (Civil)
before the Hon’ble Supreme Court which resulted in staying the order of NCLT.
11. The issues before the Supreme Court were:
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 Berlin in CP(IB)-22(ND)/2020?
iii. Whether the obligations of Berlin 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 viresthe 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?

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 MEMORIAL ON BEHALF OF THE PETITIONER

STATEMENT OF ISSUES

Issue 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?

Issue II

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

Issue III

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

Issue 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?

Issue V

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

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 MEMORIAL ON BEHALF OF THE PETITIONER

SUMMARY OF ARGUMENTS

[Link] THE PARALLEL PROCEEDINGS AGAINST THE HAPL AND THE PROFESSOR CANNOT

BE INITIATED.

The creditor cannot initiate Parallel proceedings against the corporate debtor and the personal
as the debt is not crystallised yet and going against guarantor will put them in unnecessary
peril, discouraging future entrepreneur [Link] dividend is prohibited under insolvency
law and allowing proceeding against guarantor will create a charge on the assets of corporate
debtor
2. THAT THE APPROVAL OF RESOLUTION PLAN PROHIBITS THE INITIATION OF

PROCEEDINGS AGAINST THE PROFESSOR.

Approval of resolution plan discharges the corporate debtor of its liability and as a result
guarantor is also discharged as the resolution plan is binding on the guarantors and right of
subrogation cannot be exercised now thus, clause 22 is invalid. Also, it is submitted that DRT
is the forum for invoking deed of guarantee and not NCLT.
3. THAT THE OBLIGATIONS OF PROFESSOR UNDER THE DEED OF GUARANTEE DATED

15.08.2018 STANDS DISCHARGED UNDER APPLICABLE LAW.

The liabilities of a Corporate Debtor and a Personal Guarantor are co-extensive, i.e. the
guarantor will be liable for all of surety’s liabilities that come under their contract of
guarantee. However, the liabilities of a guarantor cannot exceed the liabilities of the debtor.
Since the debtor has been discharged, the guarantor is also discharged under the applicable
laws.
[Link] THE NOTIFICATION DATED 15.11.2019, THE GUARANTOR RULES AND THE

GUARANTOR REGULATIONS ARE ALL ULTRA VIRES THE IBC AND THE CONSTITUTION OF

INDIA.
The notifications are in contradiction with the objective of IBC and create anomalous
situations which hamper the smooth implementation of Insolvency laws. They are
unconstitutional as they violate Article 14, since the distinctions made by them have no
intelligible differentia.
5. THAT THE HONB’LE DELHI HIGH COURT HAD THE JURISDICTION TO ENTERTAIN W.P.(C)
3911/2020 UNDER ARTICLE 226 AND 227 OF THE CONSTITUTION OF INDIA.

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That Hon’ble high court had the jurisdiction to entertain the writ petition since merely the
availability of an alternate remedy does not bar the parties from filing writ petition in the high
court and that the exceptional conditions under which high court can exercise jurisdiction in
writ petitions are fulfilled along with all the requirements for invoking high court’s
jurisdiction under article 226 and 227 of the constitution of India.

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ARGUMENTS ADVANCED

[Link] THE PARALLEL PROCEEDINGS AGAINST THE HAPL AND THE PROFESSOR CANNOT

BE INITIATED.

Parallel proceedings against the corporate debtor and the personal guarantor cannot be
initiated as (1.1) rights of guarantors would unnecessarily be put in peril as debt is not
crystallised yet. (1.2) Double dividend is prohibited under the insolvency laws (1.3) it will
lead to creating a charge on the assets of corporate debtors (1.4) allowing unlimited Liability
of guarantor will hamper the future entrepreneur initiatives.

1.1 RIGHTS OF GUARANTORS WOULD UNNECESSARILY BE PUT IN PERIL AS DEBT IS NOT

CRYSTALLISED YET

Unless the liability of the corporate debtor is crystallized, a creditor cannot proceed against
the guarantor for recovery.1 Once CIRP begins, the liability of the corporate debtor is subject
to change depending on the resolution plan arrived at by the COC which would subsequently
affect the liability of the guarantor. Even if the plan is not passed, the result of CIRP is not
certain, thus the liability of debtor and guarantor cannot be crystallised during the pendency
of the CIRP. Hence, the present enforcement of guarantee is premature and cannot be
maintained under the law and if allowed, it would be detrimental to guarantors. Although the
creditors are protected against undue delays in repayment by proceeding against the
guarantor,2 CIRP generally lasts for 6-9 months, and such a delay is not detrimental to the
interests of the creditors.3 Nonetheless, if parallel proceedings are allowed the guarantors
would be subjected to grave prejudice, irreparable loss and injury and a corporate debtor’s
liability under the CIRP only crystallizes once the NCLT approves the resolution plan under
section 31(1) of the Code or passes an order for liquidation of the corporate debtor under
section 33 of the Code. The Court held that until the liability of the company is decisively
crystallized, the guarantors cannot be held liable4

1
Oshi Foods Ltd and Ors v State Bank of India 1997 (2) MPLJ 643.
2
‘Report of the Insolvency Law Committee’ (March 2018)
<[Link] accessed 21 September
2020.
3
Akaant Kumar Mittal, ‘Issues Under The Insolvency and Bankruptcy Code Post Admission of Insolvency
Application’ (2018) 8 SCC J <[Link]
2018-part-4/> accessed 21 September 2020.
4
SanjeevShriya v State Bank of India 2017 SCC OnLine All 2717.

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 MEMORIAL ON BEHALF OF THE PETITIONER

1.2 DOUBLE DIVIDEND IS PROHIBITED UNDER INSOLVENCY LAW

It is pertinent to mention the definition of financial debt enshrined under § 5 (8) of the Code,
which includes money borrowed against the payment of interest as well as any counter-
indemnity obligation in respect of a guarantee. 5 On perusal of the aforesaid, it cannot be
denied that both the principal borrower and guarantor has been included in the definition of
the financial debt qua the same debt, thus, guarantor is also a debtor to the creditor.
Therefore, allowing creditors to go against both the debtor as well as the guarantors will be
unjust enrichment to the creditors and is against the principles of justice and equity which is
both prohibited6. It is also contended that enforcing the personal guarantee would lead to
duplicity of remedy, with the creditor gaining credit from both the personal guarantee and as
a financial [Link] fairness can only be achieved by putting personal bankruptcies in
abeyance, when there is a serious prospect of the resolution of the corporate debt in the
resolution process of the corporate debtors. 7

Furthermore, a creditor cannot make a double proof for the the same debt against the debtors,
same has been upheld by NCLAT in the Piramal Enterprises case8 held that “once an
application has been filed by the 'Financial Creditor' for a particular set of claim and the
same is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate
Guarantor(s)'), a second application by the same 'Financial Creditor' for the same set of
claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate
Guarantor(s)' or the 'Principal Borrower')”.

1.3 IT WOULD LEAD TO CREATING A CHARGE ON THE ASSETS OF THE CORPORATE

DEBTOR.

If the creditors are allowed to proceed against the guarantor during the CIRP of the corporate
debtor for the due amount, after the satisfaction of the guarantee, the guarantor will have the
right to recover such amounts from the corporate debtor 9 and then the guarantor would have a
charge upon the property of the corporate debtor for recovering such amounts. Thus, a charge
on the assets of the corporate debtor (equivalent to the amount of guarantee paid) which are
already under CIRP would be created in favour of the guarantor, during the continuance of
the moratorium period, From the provisions of the IBC and on the basis of the Bankruptcy

5
Insolvency and Bankruptcy Code 2016, s 5(8).
6
Padmawati v Harijan Sewak Sangh (2012) 6 SCC 640.
7
State Bank of India v Anil Dhirajlal Ambani 2020 SCC OnLine NCLT 779.
8
Dr Vishnu Kumar Agarwal v M/s Piramal Enterprises Ltd 2019 SCC OnLine NCLAT 542.
9
Indian Contract Act 1872, s 140.

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 MEMORIAL ON BEHALF OF THE PETITIONER

Law Report, it transpires that the window for revival of the Corporate Debtor is very limited
and during that period there should be a strict calm period and absolute moratorium in all
cases where the primary liability is that of the Corporate Debtor. Thus, even the proceedings
against the Guarantors or the Directors of the Corporate Debtor should also be stayed till such
verdict on revival of Corporate Debtor is delivered by the Committee of Creditors.10

1.4 ALLOWING UNLIMITED LIABILITY OF GUARANTORS WILL DISCOURAGE INVESTMENTS.

By allowing enforcement of personal guarantee at a stage when even the debt is not
crystallised, unlimited liability of the guarantor will be established and if liability was
unlimited, fewer risky projects would be undertaken11 thus discouraging future entrepreneurs
from exploring new avenues. The researchers worry that this might give a chance to a
vindictive creditor to not only secure his debt but also to initiate a CIRP against the guarantor
and the other consequence of this may be “forum shopping”. 12Furthermore, the action against
personal guarantor cannot be taken until property of principal debtor is sold off, 13 Thus all the
available remedies to the creditor shall be first exhausted before processing against the
guarantor, as it was the corporate debtor for whom the credit was taken and used, establishing
unlimited liability of guarantors would put them in excessive loss.

2. THAT THE APPROVAL OF RESOLUTION PLAN PROHIBITS THE INITIATION OF

PROCEEDINGS AGAINST THE PROFESSOR.

The approval of resolution plan by the NCLT prohibits the initiation of proceedings against
the professor as (2.1) Approval of Resolution Plan discharged the professor of its liability
(2.2) Resolution plan binds the guarantors impairing their right to subrogation.
(2.3) NCLT does not have the jurisdiction in the instant case (2.4) Clause 22 of the resolution
plan is not valid.

2.1 APPROVAL OF RESOLUTION PLAN DISCHARGES THE PROFESSOR OF ITS LIABILITY.

Once the resolution plan is approved and accepted, the corporate debtor is discharged of its
liabilities14 and there is an automatic discharge of the personal guarantor’s liability once the

10
V Ramakrishnan v M/s Veesons Energy Systems Pvt Ltd and Ors 2018 SCC OnLine NCLAT 238.
11
‘Bankruptcy Law Reforms Committee Report’ (2015) Vol 1
<[Link] accessed 29 September 2020.
12
Namrata Dubey, ‘The New Conundrum: Guarantor In Insolvency Regime’
<[Link] accessed 29
September 2020.
13
Ashok Mahajan v State of Uttar Pradesh (2006) 10 SCC 332.
14
JSW Steel Ltd v Mahender Kumar Khandelwal & Ors 2020 SCC OnLine NCLAT 55.

3
 MEMORIAL ON BEHALF OF THE PETITIONER

principal debtor is discharged of the same. 15 A guarantee becomes ineffective in view of

payment of debt by way of resolution to the lenders. If the principal’s debt is extinguished,
then there cannot be any claim against the guarantors for payment of the debt. 16 Moreover,
when a majority of creditors approve a scheme that requires further statutory approval, but
results in the discharge of the principal, it squarely falls within the ambit of §§ 134 and 135
of the ICA.17Only when the creditor takes no part in releasing the principal debtor from its
liability and it is solely through operation of law, is the guarantor still liable for the debt
under the contract.18Although the NCLT sanctions the resolution plan, this approval arises
only subsequent to the approval by a majority of creditors and in the instant case the
Resolution Plan was approved unanimously by the CoC including RBS 19 (the lead financial
creditor with highest voting percentage and debt value)20 in terms of section 30 (4) of the
code21. Since the RBS and other creditors are involved in the resolution which discharges the
principal of its liability, the guarantors’ liability is also extinguished and there cannot be any
claim against the guarantors’ assets.

2.2 RESOLUTION PLAN BINDS THE GUARANTORS IMPAIRING THEIR RIGHT TO

SUBROGATION.

It is pertinent to note that the resolution plan has been accepted, HAPL has been restored to
its original position by clearing all its liabilities and allowing RBS to proceed against the
Professor would mean creating a fresh charge on HAPL to indemnify Professor, even though
§ 31 (1) of the Code22 suggests that liability of a personal guarantor stands extinguished upon
the approval of a resolution plan since it is binding on the guarantors. This is for the reason
that this provision ensures that the successful resolution applicant starts running the business
of the corporate debtor on a fresh slate as it were. 23
Furthermore, the Code does not specify any rights of the creditors qua the guarantors; the
ICA will govern the interse rights, obligations and liabilities arising from the contract of

15
Indian Contract Act 1872, s 134.
16
Kurnool Chief Funds (P) Ltd v P Narasimha & Ors AIR 2008 AP 38.
17
Shri Kundanmal Dabriwala v Haryana Financial Corporation and Anr 2011 SCC OnLine P&H 17373.
18
ALSPPL Subramania Chettiar (deceased) and Anr v Moniam P Narayanaswami Gounder AIR 1951 Mad 48.
19
Moot Proposition, para 10.
20
Moot Proposition, para 9.
21
Insolvency and Bankruptcy Code 2016, s 30(4).
22
Insolvency and Bankruptcy Code 2016, s 31(1).
23
‘Personal Guarantors to Corporate Debtors - New Regime Unfolding New Issues’ (2020) IRCCL
<[Link]
new-issues> accessed 29 September 2020.

4
 MEMORIAL ON BEHALF OF THE PETITIONER

guarantee.24 A guarantor has an equitable right 25to step into the shoes of the creditor and
enjoy all the rights that the creditor had against the principal debtor, once it satisfies the debt.
This right is not merely a statutory right, 26 but is also founded upon natural justice. 27
Extinguishing the debtor’s liability implies that a guarantor cannot recover the guarantee
amount from the debtor, thereby discharging the guarantor under the contract. 28 The
guarantor’s right of subrogation is, therefore, essential to the existence of a guarantee
contract, and extinguishing such right would lead to unmerited loss for the guarantor 29 that
too when the credit was taken for the benefit of HAPL and not for the personal use by the
Professor.
2.3 NCLT DOES NOT HAVE THE JURISDICTION IN THE INSTANT MATTER

The application filed by RBS for invoking personal guarantee of the promoter should be
dismissed. NCLT may be used as a forum for initiating insolvency proceedings against the
personal guarantors30; however, it is not the correct forum for invoking personal guarantee of
the promoter.31 The correct forum shall be Debt Recovery Tribunal under the SARFAESI
Act, 200232. Furthermore, NCLT is considered to be the forum u/s 60(2)33 when a CIRP of a
Corporate Debtor is pending before a NCLT, an application relating to the insolvency
resolution of the personal guarantor shall be filed before such NCLT. However, in the instant
case, the CIRP has been completed and the resolution plan has been accepted by the NCLT. 34
Therefore, the Adjudicating authority will be DRT and not NCLT. A contract of guarantee
focuses upon the breaking of a promise whereas the Code focuses upon existence of a default.
The forum for both the relief is different. The nature of both the Acts can be drawn from their
long titles. Where one focuses solely on the recovery of debts, the other focuses on a plethora
of things, neither of which is the recovery of debts. The debt recovery part is a by-product of
the insolvency process35
24
Ferro Alloys Corporation Ltd v Rural Electrification Corporation Ltd 2018 SCC OnLine NCLAT 71.
25
Morgan v Seymore (1638) 1 Rep Ch 120.
26
Indian Contract Act 1872, s 140.
27
Amrit Lai Goverdhan Lalan v State Bank of Travancore AIR 1968 SC 1432.
28
Kundanmal Dabriwala v Haryana Financial Corporation and Ors 2011 SCC OnLine P&H 17373.
29
ALSPPL Subramania Chettiar (deceased) and Anr v Moniam P Narayanaswami Gounder AIR 1951 Mad 48.
30
Insolvency and Bankruptcy Code 2016, s 60.
31
Sanjeev Shriya v State Bank of India 2017 SCC OnLine All 2717.
32
SARFAESI Act 2002, s 13.
33
Insolvency and Bankruptcy Code 2016, s 60(2).
34
Moot Proposition, para 12.
35
Namrata Dubey, ‘The New Conundrum: Guarantor In Insolvency Regime’
<[Link] accessed 29
September 2020.

5
 MEMORIAL ON BEHALF OF THE PETITIONER

2.4 CLAUSE 22 OF THE RESOLUTION PLAN IS NOT VALID.

Clause 22 of the approved resolution plan is not valid and therefore should be removed as
the liability of guarantor is discharged once the resolution plan is accepted (elaborated in 2.1).
While submitting the resolution plan for the corporate debtor, every prudent applicant seeks
extinguishment of all the liabilities, including those arising out of the right of subrogation.
This prevents the personal guarantor from claiming the amount, if any, that he paid on behalf
of the corporate debtor36 and having such a clause in the Resolution plan defeats the whole
purpose of the code and it is well within the power of the Adjudicating authority to modify
the resolution plan if found discriminatory in nature. 37 Also, it is pertinent to note that 75% of
the total credit given has been repaid through the resolution plan which is a lot more than42.5
% what banks recovered on average of the claims filed by them in the financial year 2018-
19.38
Furthermore, the Government of India has suspended operation of Section 7,9 and 10 vide
ordinance date 05.06.202039 , although the notices have been services u/s 95 (4)(b) 40, it is
important to consider the intent of the government that is to prevent corporates and
individuals involved in such companies from the adverse effect of COVID-19 and by
allowing the RBS to go against the Professor will defeat the very purpose of passing such an
order.

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

15.08.2018 STANDS DISCHARGED UNDER APPLICABLE LAW.

It is humbly submitted thatthe obligations of Professor under the Deed of Guarantee dated
15.08.2018 stands discharged under applicable law, on the grounds that [1] The liabilities of
guarantor and corporate debtor are co-extensive, and cannot exceed the liability of the debtor;
[2] Discharge of principal debtor also discharges the surety; [3] Lack of right of subrogation
discharges the guarantor.

36
‘Personal Guarantors to Corporate Debtors - New Regime Unfolding New Issues’ (2020) IRCCL
<[Link]
new-issues> accessed 29 September 2020.
37
Swiss Ribbons (P) Ltd v Union of India [2019] 152 SCL 365 (SC); Darshak Enterprise Pvt Ltd v Chhaparia
Industries Pvt Ltd & Ors 2018 SCC OnLine NCLAT 224.
38
‘Close to half of claims were settles in FY19: RBI’ ( The Economic Times, 30 December 2019)
<[Link]
were-settled-in-fy19-rbi/articleshow/[Link]?
utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst> accessed 30 September 2020.
39
Moot proposition, para 13.
40
Moot Proposition, para 15.

6
 MEMORIAL ON BEHALF OF THE PETITIONER

3.1 THE LIABILITIES OF GUARANTOR AND CORPORATE DEBTOR ARE CO-EXTENSIVE.

It is submitted that the liabilities of a personal guarantor and a corporate debtor are co-
extensive in nature41, which implies that a guarantor would only be liable to the extent to
which a debtor is liable, but the guarantor’s liability does not exceed the liability of the
principal debtor.42
It is well established that the IBC aims for asset value maximisation and insolvency
resolution of corporate debtors, so that their business may become viable again and they can
start with a clean slate. The mechanism of arriving at and implementing Resolution Plans are
meant to fulfil these objectives of the legislation. The Resolution Plan is meant to find ways
through which the debtor’s debts can be settled, in order for it to come out of insolvency. The
payment to the financial creditors in accordance with the Resolution Plan is treated as full
and final payment of all outstanding dues of the Corporate Debtor to each of the Financial
Creditors.43 Hence, acceptance and subsequent implementation of the plan essentially settles
the debt of the Corporate debtor.44
The Hon'ble Supreme Court, in the case of Committee of Creditors of Essar Steel India Ltd.
v. Satish Kumar Gupta45, has held that "Section 31 (1) of the Code 46 makes it clear that once a
resolution plan is approved by the Committee of Creditors it shall be binding on all
stakeholders. This is for the reason that this provision ensures that the successful resolution
applicant starts running the business of the corporate debtor on a fresh slate.
The Resolution Plan being accepted47 by the CoC and the NCLT thereby symbolizes an end
of the debt, and hence, extinguishes the liability of HAPL 48. The liability of the guarantor and
principal debtors is co-extensive49 and not in alternative.50 Hence, where CD is discharged
from the liability through the approval of a Resolution Plan, the Guarantors must also be
considered discharged.51

41
Indian Contract Act 1872, s 128.
42
B G Vasantha v Corporation Bank (2005) 10 SCC 215.
43
Committee of Creditors of Essar Steel India Limited v Satish Kumar Gupta and Ors 2019 SCC OnLine SC
1478.
44
State Bank of India v Century Appliances Limited 2018 SCC OnLine NCLT 27028.
45
Committee of Creditors of Essar Steel India Limited v Satish Kumar Gupta and Ors 2019 SCC OnLine SC
1478.
46
Insolvency and Bankruptcy Code 2016, s 31.
47
Moot Proposition, para 10, 12.
48
Kundanmal Dabriwala v Haryana Financial Corporation and Ors 2011 SCC OnLine P&H 17373.
49
Indian Contract Act 1872, s 128.
50
Kundanmal Dabriwala v Haryana Financial Corporation and Ors 2011 SCC OnLine P&H 17373.
51
Sanjeev Shriya v State Bank of India 2017 SCC OnLine All 2717.

7
 MEMORIAL ON BEHALF OF THE PETITIONER

3.2 DISCHARGE OF PRINCIPAL DEBTOR ALSO DISCHARGES THE SURETY.

Section 134 of the ICA52 discharges the surety on the discharge of liabilities of the [Link]
liability of a guarantor or surety presupposes the existence of a separate liability of the
principal debtor, and is thus only secondary to that of the principal debtor. 53 There is an
automatic discharge of the personal guarantor’s liability once the principal debtor is
discharged of the same54, as surety’s liability would diminish in like proportion. 55 The rule
may also be put upon the less technical ground that, if the release of the surety did not follow
from that of the debtor, the latter's release would be purely illusory, because the consequence
would be that the surety on being compelled to pay, would-immediately turn round on the
debtor.56
The deed of guarantee is with regard to clearance of debt of HAPL. Once the debt payable
by the Corporate Debtor stands cleared in view of the approval of the plan for making
payment in favour of the lenders, the effect of ‘Deed of Guarantee’ comes to an end as the
debt is considered paid. The guarantee thus becomes ineffective in view of payment of debt
by way of resolution to the original lenders 57. Where there is no liability surviving against the
debtor for realization of the amount due to the creditor, i.e. once the liability of the principal
debtor is extinguished, the surety's liability gets automatically terminated 58, surety being
merely accessory to the principal obligation.59
Moreover, when a majority of creditors approve a scheme that requires further statutory
approval, but results in the discharge of the principal, it squarely falls within the ambit of
Sections 134 and 13560 of the ICA61. Only when the creditor takes no part in releasing the
principal debtor from its liability and it is solely through operation of law, is the guarantor
still liable for the debt under the contract.62
Although the NCLT sanctions the resolution plan, this approval arises only subsequent to the
approval by a majority of creditors 63. Since the creditors are involved in the resolution which

52
Indian Contract Act 1872, s 134.
53
Lima Leitao & Co v Union of India AIR 1968 Goa 29.
54
Indian Contract Act 1872, s 134.
55
Sheik Suleman v Shivzan Bhikaji (1887) ILR 12 Bom 71.
56
Jekkannu Sami Aiyar v Muthukumara Ramaswami Chettiar (1923) 44 MLJ 171.
57
Standard Chartered Bank and Ors v Satish Kumar Gupta and Ors 2019 SCC OnLine NCLAT 388.
58
Kurnool Chief Funds (P) Ltd v P Narasimha& Ors AIR 2008 AP 38.
59
ALSPPl Subramania Chettiar (Deceased) And Anr v Moniam P Narayanaswami Goundan AIR 1951 Mad 48.
60
Indian Contract Act 1872, s 134, 135.
61
Shri Kundanmal Dabriwala v Haryana Financial Corporation and Anr 2011 SCC OnLine P&H 17373.
62
ALSPPl Subramania Chettiar (Deceased) And Anr v Moniam P Narayanaswami Goundan AIR 1951 Mad 48.
63
Insolvency and Bankruptcy Code 2016, s 111.

8
 MEMORIAL ON BEHALF OF THE PETITIONER

discharges the principal of its liability, the guarantors’ liability is also extinguished and there
cannot be any claim against the guarantors’ assets.
3.3 LACK OF RIGHT OF SUBROGATION DISCHARGES THE GUARANTOR.
The right of subrogation is an equitable and natural right of the guarantor against the
Corporate Debtor on whose behalf he has paid the [Link] surety paying off a debt shall
stand in the place of the creditor and have all the rights which he has, for the purpose of
obtaining reimbursement.64 This rule here is undoubted, and it is founded upon the plainest
principles of natural reason and justice. 65 Subrogation rests upon the doctrine of equity and is
a settled common law principle.66 The doctrine of subrogation is a pure, unmixed equity,
having its foundation in the principles of natural justice.67 The principles of natural justice
ensure that a justice is met out to all and not only to one of the parties in a judicial
proceeding. One person’s justice shouldn’t jeopardize it for another. The foreign
jurisprudence considers the right of subrogation as one of the ways to cure the ‘unjust
enrichment’ under the law of restitution.68 However, in case of a guarantor of a corporate
debtor, the right of subrogation has been denied to the guarantor. In the Essar Steel69 case, the
Court approved the resolution plan that rest the guarantors devoid of their right of
subrogation and did not hold anything substantial, backed by reasoning in this regard.
Further, NCLT Mumbai in the case of State Bank of India v. Calyx Chemicals &
Pharmaceuticals Limited70 and IDBI Bank Ltd. v. EPC Constructions India Limited 71 again
approved a resolution plan that had not given the right of subrogation to the guarantors of the
Corporate Debtor on whose behalf the payment was made.
In the case of Kundanmal Dabriwala72, the Court absolved the surety of the liability on the
ground inter alia that the surety cannot be placed in the shoes of the creditor i.e. cannot have
the right of subrogation. This case becomes significant as it stresses the importance of
subrogation right, in absence of which, the liability of the surety stands pointless.

64
Indian Contract Act 1872, s 140.
65
Amrit Lai Goverdhan Lalan v State Bank of Travancore 1968 AIR SC 1432; Cravethorne v Swinburne (1807)
14 Ves 160.
66
Krishna Pillai Rajasekharan Nair v Padmanabha Pillai (2004) 12 SCC 754.
67
Gadsden v Brown (1843) Speers Eq (SC) 37.
68
Swynson Ltd v Lowick Rose LLP [2017] UKSC 32.
69
Committee of Creditors of Essar Steel India Limited v Satish Kumar Gupta and Ors 2019 SCC OnLine SC
1478.
70
State Bank of India v Calyx Chemicals & Pharmaceuticals Limited 2018 SCC OnLine NCLT 9073.
71
IDBI Bank Ltd v EPC Constructions India Limited 2018 SCC OnLine NCLT 24901.
72
Shri Kundanmal Dabriwala v Haryana Financial Corporation and Anr 2011 SCC OnLine P&H 17373.

9
 MEMORIAL ON BEHALF OF THE PETITIONER

In the present case, the personal guarantor’s liability ought to stand discharged on the basis of
the precedents shown above, for it would be unjust and unfair to compel the guarantor to pay
for the corporate debtor, with no remedy available to it to claim the amount back. The right of
subrogation is the backbone of the concept of guarantee, which is an integral part of any
commercial transaction. Allowing the guarantor to suffer would undermine the contract of
guarantee as established under the Contract Act. Therefore, the personal guarantor in the
present case, i.e. Professor, should be held discharged of his liabilities under the applicable
laws.
4. THAT THE NOTIFICATION DATED 15.11.2019 AND THE SECTIONS NOTIFIED THEREIN

UNDER, THE GUARANTOR RULES AND THE GUARANTOR REGULATIONS ARE ULTRA VIRES

THE IBC AND THE CONSTITUTION OF INDIA.

It is respectfully submitted that the notification dated 15.11.2019 and the Sections notified
therein under, the Guarantor Rules and the Guarantor Regulations all are unlawful, arbitrary,
ultra vires the IBC and the Constitution of India, and deserve to be struck down on the
following grounds.
4.1 THAT THE NOTIFICATIONS ARE ULTRA VIRES THE PROVISO TO SECTION 1(3) OF THE

IBC

As per the proviso to Section 1 (3) 73 of the Code, Parliament has delegated the power to
enforce different provisions of the Code at different points in time to the Central
Government.
It is respectfully submitted that the power delegated under Section 1 (3) is only as regards the
point(s) in time when different provisions of the Code can be brought into effect. Legislature
speaks its mind by use of correct expression and unless there is an ambiguity in the language
of the provision the Court should adopt literal construction if it does not lend to
absurdity74. The provisions of the law should be strictly constructed, it should not be left open
for multiple interpretations, and the court cannot ignore the conditions prescribed in the
provision.75 It does not permit the Central Government to notify parts of provisions of the
Code, or to limit the application of the provisions to certain categories of persons. However,
in the Notification dated 15.11.2019, the Central Government has notified certain provisions

73
Insolvency and Bankruptcy Code 2016, s 1(3).
74
Harshad S Mehta v CBI 1992 SCC OnLine Del 461.
75
State of Jharkhand v Ambay Cements (2005) 1 SCC 368.

10
 MEMORIAL ON BEHALF OF THE PETITIONER

of the Code only as far as they relate to personal guarantors to corporate debtors. Thus, the
Notification dated 15.11.2019 is ultra vires the proviso to Section 1 (3) of the Code.
4.2 THAT PART III OF THE CODE DOES NOT DEAL WITH A PERSONAL GUARANTOR OF A

CORPORATE DEBTOR.

It is submitted that the Notification dated 15.11.2019 is ultra vires the provisions of the IBC,
2016 insofar as it seeks to notify provisions of part III of the Code in respect of personal
guarantors to corporate debtors.
4.2.1 PART III DEALS ONLY WITH INDIVIDUALS AND PARTNERSHIP FIRMS, AND PERSONAL

GUARANTORS TO CORPORATE DEBTORS STAND SPECIFICALLY EXCLUDED FROM THE

DEFINITION OF INDIVIDUALS.

Section 2(g) of the Code defines an individual to mean "individuals, other than persons
referred to in clause (e)". Clause (e) of Section 2 relates to personal guarantors to corporate
debtors. Thus, a combined reading of Section 2(e) with Section 2(g) and Part III of the Code
shows that personal guarantors to corporate debtors do not come under Part III of the Code.
Part III deals only with individuals and partnership firms, and personal guarantors to
corporate debtors stand specifically excluded from the definition of individuals.
This is further apparent from Section 95 of the Code, which permits a creditor to invoke
insolvency resolution process against an individual only in relation to a partnership debt.
Thus, there is no provision in Part III of the Code which permits the initiation of the
insolvency resolution process against a personal guarantor to a corporate debtor.
Accordingly, the Notification dated 15.11.2019, which alludes to the contrary, is ultra vires
and liable to be set aside.
4.2.2 THE NOTIFIED PROVISIONS DO NOT REGULATE INSOLVENCY PROCEEDINGS AGAINST
PERSONAL GUARANTORS TO CORPORATE DEBTORS.

The provisions only deal with individuals and partnership firms. Part III of the Code governs
"Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms". Part III does
not anywhere deal with a personal guarantor of a corporate [Link] a bare reading of the
provisions, it is not possible to separate and bring out a limited application of the provisions
which relate only to personal guarantors to corporate debtors.
Thus, the unlawful attempt of the Central Government to enforce provisions only in relation
to personal guarantors to corporate debtors is an exercise of legislative power by the Central
Government, which they, as Executive, do not have the power to do.

11
 MEMORIAL ON BEHALF OF THE PETITIONER

4.3 RULE 776 READ WITH RULE 3(E) OF THE GUARANTOR RULES ARE ULTRA VIRES

SECTION 95 OF THE CODE.

This is for the reason that they purport to permit a demand notice and application under
Section 9577 to be issued against a guarantor, which is defined under Rule 3(e) as a debtor
who is a personal guarantor to a corporate debtor. In so doing, Rule 7 read with Rule 3(e) is
contrary to and ultra vires Section 95 of the Code, which only permits the creditor to apply
under Section 95(1) in respect of a partnership debt. Thus, since Section 95 does not talk of
any application to be filed against a personal guarantor to a corporate debtor, Rule 7 and Rule
3(e) which provide to the contrary are ultra vires and liable to be set aside.
4.4 THE IMPUGNED RULES INSOFAR AMOUNT TO MAKING CLASS LEGISLATION WITH

RESPECT TO PERSONAL GUARANTORS TO CORPORATE DEBTOR.

For a rule to have the effect of a statutory provision, it must come within the scope and
purview of the rule-making power of the authority framing the rule, and if the condition is not
fulfilled, the rules so framed would be void. 78 The Guarantor Rules, being a subordinate piece
of legislation, could not have traversed beyond the parent statute in defining the term
"guarantor" as 'a debtor who is a personal guarantor to a corporate debtor and in respect of
whom guarantee has been invoked by the creditor and remains unpaid in full or part' when
there is no definition whatsoever in the parent statute which defines the term "guarantor". It is
pertinent to note that Section 239(1)79 of the Code, although empowers the government to
make rules to carry out the provisions of the Code, the Rules framed cannot define a term that
is not defined in the Code, when the same facilitates class legislation for one category of
guarantors, which goes against Article 14 of the Constitution. 80 Therefore, the Impugned
Rules insofar as they amount to making class legislation with respect to Personal Guarantors
to Corporate Debtor are ultra vires the Parent Statute as well as the Constitution and are
liable to be struck down.

76
Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for
Personal Guarantors to Corporate Debtors) Rules 2019, Rule 7.
77
Insolvency and Bankruptcy Code 2016, s 95.
78
Indian Young Lawyers’ Association v State of Kerala (2019) 11 SCC 1.
79
Insolvency and Bankruptcy Code 2016, s 239.
80
S Seshachalam v Bar Council of Tamil Nadu (2014) 16 SCC 72.

12
 MEMORIAL ON BEHALF OF THE PETITIONER

4.5 THE PROVISIONS OF THE CODE BROUGHT INTO EFFECT BY THE NOTIFICATION DATED
15.11.2019 READ WITH THE GUARANTOR RULES AND THE GUARANTOR REGULATIONS,

WHEN ENFORCED ONLY IN RESPECT OF PERSONAL GUARANTORS TO CORPORATE

DEBTORS, ARE MANIFESTLY ARBITRARY AND VIOLATIVE OF ARTICLE 14 FOR THE

FOLLOWING REASONS:

(i) There is no intelligible differentia or rational basis on which personal guarantors to

corporate debtors have been singled out for being covered by the impugned
provisions, particularly when the provisions of the Code do not separately apply to
one sub-category of individuals, i.e. personal guarantors to corporate debtors. Rather,
Part III of the Code does not apply to personal guarantors to corporate debtors at all.
The object of this classification is obscure, illogical, and unfair, and hence,
unreasonable.81
(ii) The provisions of Part III of the Code, which are partly brought into effect by the
notification dated 15.11.2019, provide a single procedure for the insolvency
resolution process of a personal guarantor, irrespective of whether the creditor is a
financial creditor or an operational creditor. Treating financial creditors and
operational creditors on an equal footing in Part III of the Code is in contrast to Part II
of the Code, which provides different sets of procedure for different class of creditors.
In Swiss Ribbons (P) Ltd. vs. Union of India 82, the Hon'ble Supreme Court has upheld
the difference in procedure for operational creditors and financial creditors on the
basis of inherent differences between the two classes of creditors, which require them
to be treated separately. Thus, the act of clubbing financial creditors and operational
creditors in relation to procedure for insolvency resolution of Personal Guarantors to
Corporate Debtors amounts to treating unequals equally and amounts to destroying
the classification carefully made by the Legislature in Part II of the Code. The same is
therefore arbitrary and violative of Article 14 of the Constitution.
(iii) Sections 9683 and 10184 of the Code when applied in the manner enforced by the
notification dated 15.11.2019 are manifestly arbitrary as they result in the absurd
consequence of staying the insolvency proceedings against the corporate debtor, as
soon as insolvency proceedings are initiated against the personal guarantor. Section
96 of the Code envisages an interim-moratorium in relation to the debt immediately

81
Navtej Singh Johar v Union of India (2018) 10 SCC 1.
82
Swiss Ribbons Pvt Ltd and Anr v Union of India and Ors (2019) 4 SCC 17.
83
Insolvency and Bankruptcy Code 2016, s 96.
84
Insolvency and Bankruptcy Code 2016, s 101.

13
 MEMORIAL ON BEHALF OF THE PETITIONER

on filing of an insolvency application before the Adjudicating Authority, while

Section 101 envisages a moratorium on admission of the application by the Hon'ble
NCLT. Under both provisions, all pending proceedings or legal actions in respect of
the debt are deemed to have been stayed, and no new proceedings in respect of the
debt can be initiated. It must be noticed that S. 96 talk about proceedings related to the
debt and not just the debtor.85 Since the debt for which insolvency proceedings are
initiated against the personal guarantor is indeed the debt of the Corporate Debtor, all
legal proceedings with respect to the said debt against Corporate Debtor, including the
CIRP against Corporate Debtor, are stayed. This is a totally absurd consequence
arising out of the application of Part III of the Code to personal guarantors of
corporate debtors, which could never have been the intent of the legislature.

Therefore, it is respectfully submitted that the impugned notification, provisions, rules and
regulations are manifestly arbitrary andviolative of Article 14 of the Constitution.

5. THAT THE HONB’LE DELHI HIGH COURT HAD THE JURISDICTION TO ENTERTAIN W.P.(C)
3911/2020 UNDER ARTICLE 226 AND 227 OF THE CONSTITUTION OF INDIA
That Hon’ble high court had the jurisdiction to entertain the writ petition since merely the
availability of an alternate remedy does not bar the parties from filing writ petition in the high
court and that the exceptional conditions under which high court can exercise jurisdiction in
writ petitions are fulfilled along with all the requirements for invoking High Court’s
jurisdiction under Article 226 and 227 of the Constitution of India.

5.1 THAT THE AVAILABILITY OF ALTERNATE REMEDY DOES NOT BAR THE PARTIES FROM
FILING WRIT PETITION UNDER HIGH COURT

Article 22686 give High Courts the power to issue any person or authority, including the
government in some cases, directions, orders or writs, including writs in the nature of Habeas
Corpus, Mandamus, Prohibition, Quo Warranto, Certiorari or any of them. Article 227 87 gives
every High Court power to have superintendence over all courts and tribunals throughout the
territories regarding which high court exercises its jurisdiction.

85
State Bank of India v V Ramakrishnan (2018) 17 SCC 394.
86
Constitution of India 1950, art 226.
87
Constitution of India 1950, art 227.

14
 MEMORIAL ON BEHALF OF THE PETITIONER

When writ petitions are filed under these articles before the High Court, then the fact that the
aggrieved party has another and adequate remedy may be taken into consideration by the
superior Court in arriving at a conclusion as to whether it should, in exercise of its discretion,
issue a writ of certiorari to quash the proceedings and decisions of inferior courts subordinate
to it and ordinarily the superior court will decline to interfere until the aggrieved party has
exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of
statutory remedies before the writ will be granted is a rule of policy, convenience and
discretion88 rather than a rule of law and instances are numerous where a writ of certiorari has
89
been issued in spite of the fact that the aggrieved party had other adequate legal remedies.
Likewise in Khurshed Modi v. Rent Controller, Bombay 90; it was held that the High Court
would not refuse to issue a writ of certiorari merely because there was a right of appeal. In
the present case at hand, the petitioner had nowhere tried to exceed the jurisdiction of the
High Court provided under the law. They merely brought the case before the High Court and
it was up to the Court whether they wished to take up the case or not and in case it did, then
even an alternative remedy would not be a bar to entertain the writ petition by HC since that
is a matter of discretionand not of compulsion.91
5.2 THAT THE EXCEPTIONAL CONDITIONS UNDER WHICH HIGH COURT CAN EXERCISE

JURISDICTION IN WRIT PETITIONS ARE FULFILLED

It is well accepted that when a specific forum has been allocated for adjudicating upon issues
of a certain subject matter then that forum is to be preferred over High Court in general view.
However, there are certain grounds as well as restrictions on the basis of which even in the
presence of a specific forum, the HC can/cannot be approached for a specific writ petition. In
the present case at hand, it is contended that the grounds and restrictions imposed on
approaching the High Court has been met with.
The alternative remedy has been consistently held by this Court not to operate as a bar in at
least three contingencies, namely, where the writ petition has been filed for the enforcement
of any of the Fundamental Rights or where there has been a violation of the principle of
natural justice or where the order or proceedings are wholly without jurisdiction or the vires
of an Act is challenged. In the above presented arguments, it has been clearly shown as to
how the jurisdiction vested with DRT instead of NCLT and how the notions of fundamental
rights have been violated through implication of certain sections of IBC Code.

88
Whirlpoorl Corporation v Registrar of Trade Marks Mumbai [1998] 8 SCC 1.
89
Rex v Postmaster-General, Ex parte Carmichael [1928] 1 KB 291 DC.
90
Khurshed Modi v Rent Controller Bombay AIR 1947 Bom 46 (G).
91
UP State Spinning Company Ltd v RS Pandey and Anr [2005] 8 SCC 264.

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 MEMORIAL ON BEHALF OF THE PETITIONER

The Court was of the opinion that Article 226 does not contemplate the quashing of an order
passed by a subordinate civil court. As stated above, certiorari pertains to the orders of an
“inferior court or tribunal or authority” which the Civil Courts were not. The Court held that
the expression “inferior Court” applies only to tribunals or quasi-judicial authorities whose
orders can be quashed or set aside by the High Court in exercise of its power under Article
226.92. Adding to that, since article 227 is made in itself for superintendence over all courts
and tribunals, it becomes clear that HC is empowered to exercise it powers under article
226/227 over tribunals, unlike in the cases of civil courts or a court formed under a law
related to armed forces, with NCLT not falling under either civil court or armed forces.
When the High Court entertains a writ petition notwithstanding existence of an alternative
remedy because of the reason that the alternative remedy is proving to be inefficacious, the
HC can be allowed to entertain the writ petition unless the High Court’s reasoning for
entertaining the writ petition is found to be palpably unsound and irrational. 93 In the present
case at hand, the petitioner had the option of approaching Debt Recovery Tribunal which
specifically dealt with issues like these instead of NCLT, which makes the NCLT forum
inefficacious in providing a comprehensive solution to the proceedings, this inefficaciousness
of NCLT when compared to DRT should be the sound and rational ground for allowing the
Delhi HC to exercise jurisdiction.
Where under a statute there is an allegation of infringement of fundamental rights or when on
the undisputed facts the adjudicating authorities are shown to have assumed jurisdiction
which they do not possess can be the grounds on which the writ petitions can be entertained.
Herein, it has been mentioned as to how fundamental rights have been violated.
Art. 226 is not meant to short circuit or circumvent statutory procedures. It is only where
statutory remedies are entirely ill suited to meet the demands of extraordinary situations, such
as when the very vires of the statute is in question, then recourse maybe made to article 226
of the Constitution.94In the above mentioned arguments it has already been proved as to how
certain unreasonable and irrational statutory provisions have been questioned in this case
which makes filing of Writ petition before HC maintainable.
Looking at how all the major grounds required to be met before filing a writ petition even
when there’s an alternative forum, it can be concluded that the Delhi High Court possessed
lawful jurisdiction to hear the writ petition.

92
Motilal s/o Khamdeo Rokde & Ors v Balkrushna Baliram Lokhande & Ors 2020 AIR Bom 39.
93
First ITO v Short Bros (P) Ltd AIR 1967 SC 81; State of UP v Indian Hume Pipe Co Ltd [1977] 2 SCC 724.
94
Assistant Collector of Central Excise West Bengal v Dunlop India Ltd and Others AIR 1985 SC 330.

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 MEMORIAL ON BEHALF OF THE PETITIONER

5.3 THAT THE REQUIREMENTS FOR INVOKING SUPERVISORY OR ORIGINAL JURISDICTION

UNDER ARTICLE 227 AND 226 REMAIN FULFILLED

This supervisory jurisdiction does not vest the High Court with any unlimited prerogative to
correct all decisions made within the limits of the jurisdiction of the Tribunal and therefore, it
must be restricted to ‘grave derelictions of duty and flagrant abuse of fundamental principle
of law or justice’ or to seeing that an inferior Court or Tribunal functions within the limits of
its authority.95 All in all, the HC would exercise supervisory jurisdiction only when there is
error apparent on the face of record i.e. violation of natural justice or failure to take into
account evidence, dereliction of duty or abuse of law. The law provides for very specific
exceptions to invoke writ jurisdiction in derogation of the existing alternate statutory remedy
on the basis of these grounds.96 In the present case at hand, the question of law has been
raised and the courts are to adjudicate upon it, thus fulfilling the requirements of section 227.
In regards to article 226 which has a wider scope when compared to article 227, the court
concluded that under Article 226 of the Constitution, writ is issued for correcting gross errors
of jurisdiction, i.e., when a subordinate court/tribunal is found to have acted (i) without
jurisdiction, by assuming jurisdiction where there exists none, or (ii) in excess of its
jurisdiction – by overstepping or crossing the limits of jurisdiction, or (iii) acting in flagrant
disregard of law or the rules of procedure or acting in violation of principles of natural justice
where there is no procedure specified, and thereby occasioning failure of justice. 97 In the
present case at hand, it has already been proved how matters were to be heard by DRT
instead of NCLT and how provisions of law were being questioned which were disregarded
by NCLT, thus fulfilling the requirements of Article 226 as well.

95
Mohd Yunus v Mohd Mustaqim [1983] 4 SCC 566.
96
Dwarikesh Sugar Industries Ltd v Prem Heavy Engineering Works P Ltd [1997] 6 SCC 450.
97
Surya Devi Rai v Ram Chander Rai 2003 (6) SCC 675.

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 MEMORIAL ON BEHALF OF THE PETITIONER

PRAYER

In light of the issues raised, arguments advanced and authorities cited, the Petitionermost
humbly and respectfully prays before this Hon’ble Court, that it may be pleased to adjudge
and declare that –
 That the creditor cannot initiate parallel proceedings against Corporate debtors and
personal guarantors.
 That the approval of the resolution plan prohibits initiating proceedings against the
Professor and Clause 22 of the resolution plan be removed.
 That the obligation of Professor under the Deed of Guarantee stands discharged.
 That 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.
 That the Delhi High Court had the jurisdiction to hear the writ petition W.P. (C)
3911/2020.

The Petitioner further prays that the Court may pass any such order, direction, or relief as it
may deem fit in the interest of equity, justice and good conscience.

(Respectfully Submitted)
-Counsel for the Petitioner

XIV