The National Company Law Tribunal (NCLT) Kolkata bench has held that an application under Section 95(1) of the Insolvency and Bankruptcy Code (IBC) to initiate insolvency proceedings against a personal guarantor is not maintainable before the NCLT if no Corporate Insolvency Resolution Process (CIRP) or liquidation proceeding is pending against the Corporate Debtor.
The matter arose from an application filed by the Resolution Professional and the Financial Creditor seeking the initiation of insolvency proceedings against the Respondent Personal Guarantor under Sections 95(1) and 99 of the IBC, read with Rule 7(2) of the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019.
The Personal Guarantor argued that in the absence of a CIRP or liquidation proceeding against the Corporate Debtor, the jurisdiction to entertain such an application lies with the Debt Recovery Tribunal (DRT) and not the NCLT.
The Tribunal noted that no CIRP had been filed against the Corporate Debtor. It referred to judicial precedents, including Rohit Nath v. KEB Hana Bank Ltd., where it was held that proceedings against Personal Guarantors under Section 60 of the IBC are linked to CIRP proceedings against the Corporate Debtor. The Tribunal emphasized that without an ongoing CIRP, the NCLT does not have jurisdiction, as proceedings involving the insolvency of Personal Guarantors in such circumstances must be pursued before the DRT. At the same time, the Tribunal acknowledged conflicting decisions, such as Mahinder Jajodia and Mahendra Kumar Agarwal v. PTC India Financial Services Ltd., which held that the NCLT could entertain proceedings against Personal Guarantors even in the absence of a CIRP against the Corporate Debtor.
After examining Section 60(2) of the IBC, the Tribunal observed that its jurisdiction extends to matters "arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor." Where no such proceedings are pending, the Tribunal held that the application is effectively a recovery action, which does not fall within the purview of the NCLT.
The Tribunal concluded that the application against the Personal Guarantor was not maintainable before the NCLT, although it may be maintainable at other fora, such as the DRT. Consequently, the application was dismissed.
Tata Capital Financial Services Limited vs. Arjun Agarwal
I.A.(IB) 1670/KB/2024 in C.P.(IB) 51/KB/2024
Comments