“IBC Does Not Contemplate Multiplicity Of Applications Against The Same Personal Guarantor”: NCLAT Chennai

Background Facts

On 31.12.2021 the Union Bank of India (“Appellant”) filed an application under Section 95 of IBC, seeking initiation of Insolvency Resolution Process against Mr. P.K. Balasubramanian, who is the Personal Guarantor of M/s. Tebma Shipyard Ltd. (“Corporate Debtor”). Subsequently on 03.01.2022, the State Bank of India (“SBI”) also filed application under Section 95 of IBC against the same Personal Guarantor. The application of SBI was registered on 12.01.2022, whereas, the application of Union Bank of India was registered on 09.02.2022.

On 07.06.2022, the NCLT appointed an Interim Resolution Professional (“IRP”) as per Section 97 of IBC in the proceedings filed by SBI. The IRP was directed to submit a report under Section 100 of IBC, based on which the NCLT would decide upon admission/dismissal of the application. On the same day, the NCLT dismissed the application of Union Bank of India while holding that an IRP has already been appointed in a similar application filed by SBI against the same Personal Guarantor.

The Union Bank of India filed an appeal against the order dated 07.06.2022 before NCLAT. It was argued that as per Section 96 of IBC when an application under Section 95 is filed, an Interim Moratorium will commence and hence no application against the same Personal Guarantor can be filed before any forum. Therefore, the application of Union Bank of India being filed prior in time, ought to have been admitted first.

NCLAT Verdict

The Bench observed that under Section 95 of IBC, it is the Date of Filing of the Application and not the date on which when the Application is numbered, which has to be considered. Further, Section 96(1)(a) of IBC provides that an interim-moratorium shall commence on the date of the Application, in relation to all the debts.

“Section 96(1)(b) of the Code, also specifies that during the Moratorium period (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and (ii) the Creditors of the Debtor, shall not initiate any legal action or proceedings in respect of any debt. The use of expression Creditors of the Debtor, means that all other Creditors of the Debtor, apart from the Creditor, on whose Application, interim Moratorium, has commenced.”

The Bench held that IBC does not contemplate multiplicity of applications against the same Personal Guarantor. Therefore, when the Insolvency Resolution Process commences against a Personal Guarantor, the claims of all Creditors are taken care of under the scheme of IBC.

Accordingly, the Bench observed that no prejudice has been caused to the Union Bank of India since the SBI’s application has not yet been admitted. Further, Union Bank of India can always file its claim before the Resolution Professional. The appeal has been dismissed.

Case Title: Union Bank of India v Mr. P.K. Balasubramanian

Case No.: Comp. App. (AT) (CH) (Ins.) No. 293 of 2022

Counsel For Appellant: Mr. N. Somasundaar, Advocate

Counsel For Respondent No.1: Mr. Kaushik N. Sharma, Advocate

Counsel For Respondent No.2: Mr. K. Chandrasekaran, Advocate.

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