Alerts & Updates 26th Jul 2024
The question of whether a guarantor is discharged from liability when a resolution plan for the principal debtor is approved under the IBC, has garnered a significant judicial debate.
This update delves into the evolving jurisprudence on the discharge of guarantors, examining the implications under the Indian Contract Act, 1872, and exploring the scenarios under the IBC before and after the approval of a resolution plan. The doctrine of subrogation, which allows guarantors to step into the shoes of creditors upon fulfilling the principal debtor’s obligations, faces a critical gap under the IBC.
This inconsistency highlights the need for a legal and policy re-evaluation to align subrogation rights under traditional contract law with the objectives of the IBC, ensuring equitable treatment of guarantors while achieving effective insolvency resolution.