Insolvency Application Against Personal Guarantor Is Maintainable U/S 60(1) Of IBC Even If No CIRP Process Is Pending Against CD: NCLAT

Brief Facts

The present appeals have been filed against an order passed by the Adjudicating Authority by which an application under section 95 was admitted and the RP was directed to proceed in accordance with laws.

The appellants submitted that the appointment of the RP was not in accordance with section 97(3) of the code. The Adjudicating Authority was required to direct the IBBI to nominate the RP for the insolvency resolution process as per section 97(3). The NCLT is not an appropriate authority to entertain an application for initiating insolvency process against the personal guarantor.

It was also argued that even if no insolvency or liquidation proceedings are initiated or pending against the corporate debtor, an insolvency application against the personal guarantor can be filed before the NCLT under section 60(1) of the Code.

Per contra, the respondents submitted that since objections with respect to jurisdiction of the NCLT were not raised before the Adjudicating Authority, the appellant cannot be allowed to raise objections in the present appeal. It was further argued that the RP appointed by the Adjudicating Authority was eligible and qualified and no disciplinary proceedings are pending against the RP.

Observations:

The tribunal at the outset while referring to Rule 8 of Personal Guarantors Rules, 2019 observed that no error was committed by the AA in appointing the RP as in the Form C submitted By IRP in which RP has clearly given his consent and certified that there are no disciplinary proceedings pending against him therefore there was no infraction of section 97(3) of the code.

The next issue before the tribunal was whether an application against the personal guarantor can be maintained before the NCLT under section 60 of the code when no insolvency or liquidation process is pending against the corporate debtor.

It added that section 60(2) uses the word “without prejudice” and this phrase was interpreted by the Supreme Court in Shri Shiv Kripal Singh vs. Shri V.V. Giri (1970) where it was held that wherever this expression is used, it means that anything contained following this expression is not intended to cut down the generality of the provision.

Based on the above, the tribunal held that the applicability of section 60(1) of the code cannot be ruled out which means that the Adjudicating Authority for the purpose of entertaining the application against the personal guarantor shall be the NCLT even if under section 60(2) of the code it is stated that when an insolvency or liquidation proceedings against the corporate debtor before the NCLT then application against the personal guarantor of the CD should also be filed before the NCLT.

In State Bank of India vs. Mahendra Kumar Jajodia (2022) the NCLAT held that “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.”

Based on the above, the tribunal observed that the above fully covers the present case which means that an application under 95 can be filed against the personal guarantor before the NCLT even if no insolvency or liquidation proceedings are pending against the corporate debtor before the same NCLT.

Similarly, the NCLAT in Mahendra Kumar Agarwal vs. PTC India Financial Services (2023) held that it is not a condition precedent that CIRP or liquidation proceedings should be pending against the corporate debtor then only an application against the personal guarantor can be maintained before the NCLT.

Based on the above, the tribunal concluded that “from the above it is clear that with regard to maintainability of Application under Section 95 by a Financial Creditor against a Personal Guarantor, even if no insolvency resolution process or liquidation proceedings of a Corporate Debtor is pending, has been held to be maintainable and the view taken by this Appellate Tribunal in Mahendra Kumar Jajodia has also received the approval of the Hon'ble Supreme Court.”

Accordingly, the present appeals were dismissed.

Case Title: Anita Goyal Versus Vistra ITCL (India) Ltd. & Anr

Case Number:Company Appeal (AT) (Insolvency) No.2282 of 2024

Judgment Date: 23/01/2025

For Appellants : Mr. Virender Ganda, Sr. Advocate with Mr. Raghav Kakkar, Mr. Ayandeb Mitra, Mr. Ashraf Belal, Advocates.

For Respondents : Dr. U. K. Chaudhary, Sr. Advocate with Mr. Ankur Singh, Ms. Pallavi Sengupta, Mr. Mansumyer Singh, Advocates for R-1. Mr. Abhishek Anand, Mr. Karna Kohli, Ms. Palak Kalra, Advocates for RP.