Application U/S 95(1) Of IBC Against Personal Guarantor Not Maintainable In Absence Of CIRP Proceedings Against Corporate Debtor: NCLT Kolkata

Background Facts:

The Resolution Professional and the Financial Creditor preferred the application to seek initiation of Insolvency Process against the Respondent Personal Guarantor to Corporate Debtor under Section 99 and Section 95(1) of IBC read with Rule 7(2) of IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019.

The Personal Guarantors contended that unless there is a CIRP initiated or continuing, the application for the IRP of the personal guarantor is not maintainable at NCLT, as the Adjudicating Authority in such cases shall be Debt Recovery Tribunal (DRT).

Issue:

Whether an application under Section 95(1) of IBC will be maintainable even if no CIRP is pending against the Corporate Debtor?

Whether the proceedings against the Personal Guarantor are maintainable before NCLT or the DRT?

Observations:

The Tribunal noted that no CIRP admittedly had been filed against the principal borrower.

The Tribunal held that as per section 60(1) of IBC, the Adjudicating Authority in relation to insolvency resolution and liquidation for corporate persons, including corporate debtors and personal guarantors thereof, shall be the NCLT.

It noted that the two proceedings were linked together, i.e., one against the Corporate Person and another against the Corporate Guarantor and/or Personal Guarantor. 'Personal Guarantor' is defined as 'an individual who is surety in a contract of guarantee to a Corporate Debtor.

The Tribunal referred to Rohit Nath v. KEB Hana Bank Ltd. where the Madras High Court held that Section 60 would apply to Personal Guarantors only when the Corporate Debtor is undergoing CIRP. Where no CIRP has been initiated against the Corporate Debtor, Personal Guarantor proceedings must necessarily be carried only to the jurisdictional DRT.

In Mahinder Jajodia case, the NCLAT held that the pendency of a CIRP or liquidation proceeding is not a sine qua non for maintaining a petition under Section 95. The application can be filed in the NCLT having territorial jurisdiction over the Corporate Person's registered office.

The Tribunal then referred to Mahendra Kumar Agarwal v. PTC India Financial Services Ltd., where the NCLAT Chennai held that the Tribunal has jurisdiction to entertain or initiate insolvency proceedings of personal guarantors, even when no CIRP proceedings are pending against the Corporate Debtor.

The Tribunal held, “Even in the absence of the CIRP or the Liquidation, proceedings against the personal guarantor are maintainable”. The Tribunal stated that whether the same is maintainable at NCLT or the DRT remains open. It observed that the proceedings in regard to the Corporate Debtor or Corporate Guarantor or even the Personal Guarantor must be filed before one entity only which can address the very essence of the value maximization.

The Tribunal observed that section 60(2) stipulates that when the CIRP or liquidation proceeding is pending before an NCLT, an application relating to the Insolvency resolution or Bankruptcy of a Corporate guarantor or Personal Guarantor shall be filed before such NCLT to avoid multiplicity of the judicial fora.

"When this is not so, the proceedings, in our humble opinion, are recovery proceedings only and, not being a recovery forum, the NCLT shall not be the Adjudicating Authority in such cases.", the Tribunal remarked.

The Tribunal noted that Section 60(4) stipulates that the NCLT shall be vested with all the powers of the DRT as contemplated under Part III of the code, for the purpose of Sub-section (2).

The Tribunal observed that the NCLT shall have jurisdiction on the matters “arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor” as provided under section 60(5). If any matter is not related to the insolvency or liquidation proceedings of the corporate debtor or corporate person under the code, NCLT shall not have jurisdiction.

The Tribunal held that since no application for insolvency had been filed against the Corporate Debtor, the petition was not maintainable before the Tribunal, but may be maintainable at other fora. Therefore, it dismissed the application.

Case Title: Tata Capital Financial Services Limited vs. Arjun Agarwal

Case Number: I.A.(IB) 1670/KB/2024 in C.P.(IB) 51/KB/2024

For Financial Creditor: Mr. Avishek Guha, Adv, Ms. Arunika Dutta, Adv

For Personal Guarantor: Ms. Labony Ray, Adv., Mr. Arkodeb Sinha, Adv., Ms. Simran More, Adv

For the Resolution Professional: Ms. Sneh Maheswari, RP

Date of Order: 20.12.2024