Banks Have Inherent Power To Classify Account Of Personal Guarantor As NPA During Moratorium Period: NCLT New Delhi

The NCLT, Delhi comprising of Justice Bachu Venkat Balaram Das, Member (Judicial) and Justice Atul Chaturvedi (Technical Member), accepted a Section 95 application filed by the applicant bank to initiate Corporate Insolvency Resolution Process (CIRP) against the Personal Guarantor of M/s CMYK Printech Limited.

Background of the Case

The Central Bank of India filed an application under Section 95(1) of the IBC Code, 2016 read with rule 7(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 against the Personal Guarantor to the Principal Borrower (M/s CMYK Printech Limited) for a default amount of Rs, 11,50,98,244.

The Corporate Debtor also availed several credit facilities from the applicant which were in total of approx. Rs 15 crores. In the month of January 2021, one of the directors of the company filed an application under Section of 7 of the Code stating that the company should be admitted under the CIRP process as it has defaulted in payments to the applicant.

The Applicant served a Demand Notice under section 95(4)(b) of the Insolvency and Bankruptcy Code, 2016 to the Personal Guarantor for seeking repayment of dues. The Respondent despite having been served with the Demand Notice did not pay the outstanding amount. The Personal Guarantor has failed to repay the debt amount of the Financial and as a result the financial creditor preferred this application.

Contention of Parties

The Applicant argued that the liability of the Personal Guarantor is co-existing with that of the Principal Borrower as per Section 128 of the Indian Contract Act, 1872 and that it will be personally and independently held liable in case of any default.

The Applicant also classified the account of the Personal Guarantor as NPA stating that the due period of 90 days was surpassed in accordance to the policy of the RBI and that the Section 14 of the Code does not prevent the bank from classifying any account as an NPA.

The Applicant also stated many cases in its argument. It placed reliance on the case of Laxmi Pat Surana vs Union of India & Anr while arguing that the default of the personal gurantor will be classified on the date when its account was considered as an NPA. The Appellant also cited the case of Syndicate Bank vs Channaveerappa Beleri & Ors. and stated that the it is not essential to consider the default of the personal guarantor and principal borrower to be same and that the both can also occur at different time.

The Personal Guarantor argued that its liability does not exist independently and is directly inclined upon the default of the Principal Borrower. It was also stated by the Personal Guarantor that before the commencement of the CIRP, no default was made by the Guarantor and that under Section 14, the Applicant is prohibited from filing for any new claims.

The Principal Borrower also challenged the classification of its bank as Non-Performing Asset during the moratorium period.

Tribunal's Decision

The tribunal decided to admit the Section 95 application against the Personal Guarantor and initiate CIRP against the same. The Tribunal was satisfied with the argument of the Applicant in relation to the co-extensive liability of the Personal Guarantor with that of the corporate debtor and agreed that it falls under the ambit of Section 128 of the Indian Contract Act, 1872. The court also stated that it was just to classify the account of the Personal Guarantor as NPA stating that the Moratorium only plays key role during the recovery of debts but does not bar the applicant from classifying that account as an NPA.

The Tribunal decided to initiate the process of CIRP against the Personal Gurantor and the Interim Application was disposed.

Case Title: Central Bank of India vs Kushan Mitra

Case Number: IA-3290/2024

Tribunal: National Company Law Tribunal, New Delhi

Coram: SHRI BACHU VENKAT BALARAM DAS, HON'BLE MEMBER (JUDICIAL) and SHRI ATUL CHATURVEDI, HON'BLE MEMBER (TECHNICAL)

For Applicant: Mr. Brijesh Kumar Tamber, Mr. Prateek Kushwaha Advs.For Respondent: Mr. Saurabh Kalia, Mr. Yatinder, Ms. Tanvi Bansal Advs.For the RP: Mr. Devvart Rana (RP), Ms. Purti Singhal Adv.

Date of Judgement: 24.10.2024

Read/Download Order Here