SC Stays Order Of NCLAT Which Allowed IRP Against The Personal Guarantor In Absence Of CIRP Of Corporate Debtor

The NCLAT in its order covered two aspects in its order dated 27.01.2022: One being Section 60(1), which states that the Adjudicating Authority for corporate persons, including corporate debtors and personal guarantors shall be the NCLT. The NCLAT clarified that in cases where Section 60(2) is not applicable, the proceedings can be initiated u/s 60(1) of the Code in the NCLT having territorial jurisdiction over a place where the Registered Office of the corporate person is located. Second, with respect to Section 60(2), the Appellate Tribunal held that initiation of CIRP against the Corporate Debtor is not a pre-requisite to initiate IRP against the Personal Guarantor of the Corporate Debtor.

The impugned order of the NCLAT states-

"10. Sub-Section 1 of Section 60 provides that Adjudicating Authority in relation to Insolvency or Liquidation for Corporate Debtor including Corporate Guarantor or Personal Guarantor shall be the NCLT having territorial jurisdiction over the place where the Registered Office of the Corporate Person is located. The substantive provision for an Adjudicating Authority is Section 60, sub-Section (1), when a particular case is not covered under Section 60(2) the Application as referred to in sub-section (1) of Section 60 can be very well filed in the NCLT having territorial jurisdiction over the place where the Registered Office of corporate Person is located.

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."

An appeal was filed in the Supreme Court by the Personal Guarantor, Mahendra Kumar Jajodia against the order of the NCLAT, which allowed initiation of IRP against him u/s 95(1) of the Code.

In its order, the Supreme Court has stayed the impugned order of the NCLAT dated 27.01.2022, citing para 108 of its judgment in Lalit Kumar Jain v. Union of India & Ors., which states-

"Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with NCLT concerned seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors will be NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT."

Case Title: Mahendra Kumar Jajodia v. State Bank of India

Counsel for the Appellants: Mr. Abhijeet Sinha, Adv., Mr. Arijit Mazumdar, Adv., Mr. Shambo Nandy, Adv., Mr. Supriyo Gole, Adv., Mr. Saikat Sarkar, Adv., Mr. Aditya Shukla, Adv., Mr. Abhinav Mukerji, AOR

Read/Download The Order Here