Proceedings Against Personal Guarantor Of Corporate Debtor Can Be Continued Independently - Supreme Court Lifts The Stay

NCLAT held that even in the absence of any pending Corporate Insolvency Resolution Process or Liquidation proceedings, the application under Section 95(1) of the Insolvency Bankruptcy Code, 2016 against the personal guarantors of the Corporate Debtor is maintainable by the virtue of Section 60(1) of the Code before the National Company Law Tribunal having territorial jurisdiction over the place where the Registered office of the Corporate Person is located.

There was a confusion concerning as to where the insolvency proceedings will be filed against the Personal Guarantor and the NCLAT vide its order dated 27.01.2022 order cleared the same but the confusion continues as the Supreme Court vide its order dated 21.03.2022 by relying on the observations in the case of Lalit Kumar Jain versus Union of India, 2021 (9) SCC 321 stayed the operation of the judgment of the NCLAT.

NCLAT in its order dated 27.01.2022 allowed the appeal filed by the State Bank of India against the Order dated 05.10.2021 of NCLT Kolkata wherein NCLT Kolkata dismissed the application filed by SBI under Section 95 of the code on the ground that since no CIRP or Liquidation is pending against the Corporate Debtor, application under Section 95 is not maintainable before the NCLT. The NCLAT set aside the order and held that;

"11. The Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor are pending the application under Section 95(1) filed by the Appellant is not maintainable. The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT. In result, we set aside the order dated 05th October, 2021 passed by the Adjudicating Authority. The Application filed by the Appellant under Section 95(1) of the Code is revived before the NCLT which may be proceeded in accordance with the law."

The Supreme Court has now vide its order dated 06.05.2022 dismissed the appeal and upheld the NCLAT order dated 27.01.2022 by stating that we find no cogent reason to interfere with the order of NCLAT and therefore, application under Section 95 of the Code can be filed against personal guarantor of Corporate Debtor before NCLT even in the absence of any pending CIRP or Liquidation proceedings against the Corporate Debtor before such NCLT.