SECTION 94 OF INSOLVENCY AND BANKRUPTCY CODE DOES NOT PERMIT AUTOMATIC ACCEPTANCE OF EVERY APPLICATION MERELY ON FILING

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for the insolvency resolution process for the personal guarantors to the corporate debtor. Section 94 of the Code provides that the Personal Guarantor may file an application before the National Company Law Tribunal (‘NCLT’ for short). There will be an automatic effect of interim moratorium on the date of filing the application before the NCLT. The Registry of NCLT will check the maintainability of the petition under Section 94 of the Code including limitation, threshold amount etc. Otherwise, the petition will not be admitted.

In Mr K.C.M. Gowda Versus Aditya Birla Capital Limited, Ace Embedded Intensive Care Units Private Limited (Under Corporate Insolvency Resolution Process) Bangalore - 2026 (6) TMI 770 - KARNATAKA HIGH COURT, the High Court dismissed the writ petition filed by the petitioner on the ground that the petitioner did not establish that he has given guarantee to the debtor for the loan availed by the debtor.

In the above said case, the petitioner filed a petition before the NCLT, Karnataka under Section 94(1) of the Code. In the said petition he contended that he had furnished a personal guarantee in favour of Aditya Birla Capital Limited in respect of credit facilities extended by the said financial creditor to ACE Embedded Intensive Care Units Private Limited. Since the Aditya Birla Capital Limited invoked the provisions of Section 13(2) of SARFAESI Act and issued notice to the petitioner on 20.05.2025, the petitioner contended that he was entitled to file a petition under Section 94(1) of the Code.

The NCLT, after hearing the parties, dismissed the petition filed by the petitioner. The NCLT held that the petitioner lacked the requisite locus standi to maintain the proceedings. The petitioner challenged the said order before the High Court. The petitioner prayed for the following prayers-

• To issue an appropriate writ in the nature of certiorari or any other appropriate writ, order or direction quashing and setting aside the impugned order dated 30.03.2026 (uploaded on 21.05.2026) passed by the Hon'ble NCLT, Bengaluru in CP (IB) No. 240//BB/2025;
• To direct the Hon'ble NCLT, Bengaluru to appoint a Resolution Professional in terms of section 97 of the Code in CP (IB) No. 240/BB/2025;
• To pass any such further orders as may be deemed just and expedient in the facts and circumstances of the present case, in the interest of justice and equity.

The petitioner submitted before the High Court that Section 94 of the Code enables a debtor to initiate an insolvency resolution process by making an application before the Adjudicating Authority and the expression ‘debtor’ in Section 94 is of sufficient amplitude to include a personal guarantor and, therefore, a personal guarantor is entitled to invoke the said provision.

The respondent submitted before the High Court that the writ petition is not maintainable since alternative way of remedy is available by filing an appeal before NCLT. The Petitioner is not a personal guarantor at all, but is, in fact, a co-borrower in respect of the credit facility extended by Aditya Birla Capital Limited.

On this, the petitioner was called upon by the NCLT to identify and place on record the personal guarantee allegedly executed by the petitioner in favour of Aditya Birla Capital Limited, on the strength of which the petitioner seeks to invoke Section 94 of the Code. The petitioner relied upon the sanction letter issued by Aditya Birla Capital Limited in favour of ACE Embedded Intensive Care Units Private Limited as the principal borrower and certain other persons associated with the transaction. He contended that the said sanction letter was also addressed to the petitioner, who is described therein as a co-borrower. The High Court found that the name of the petitioner finds place in Schedule I, Part B of the agreement. However, neither the recital nor the schedules make any reference to the petitioner as a personal guarantor. The deed evidencing the creation of an equitable mortgage by deposit of title deeds, under which properties belonging to the borrower as well as certain properties belonging to the petitioner were offered as security. On that basis, he contended that the demand and enforcement measures initiated by Aditya Birla Capital Limited are, in substance, referable to the obligations undertaken by the petitioner as a personal guarantor.

The petitioner further contended that the demand notice issued by Aditya Birla Capital Limited demonstrates that Aditya Birla Capital Limited itself treated and recognised the petitioner as a personal guarantor. Therefore, the petitioner satisfies the requirements of Section 94 of the Code and that the NCLT ought to have entertained the application and proceeded in accordance with law by appointing a Resolution Professional under Section 97(5) of the Code, either on the recommendation of the Board or otherwise in terms of the statutory scheme.

The petitioner further contended that at the stage of considering an application under Section 94, the Adjudicating Authority is not vested with the jurisdiction to adjudicate upon the disputed question as to whether the applicant is, in fact, a personal guarantor. By dismissing the petition, the NCLT exceeded the limits of its jurisdiction by undertaking such an adjudication and dismissing the application on that basis. Therefore, the petitioner prayed the High Court to set aside the impugned order passed by the NCLT and remanded the matter back to NCLT for consideration of the application afresh and for appointment of a Resolution Professional in accordance with the provisions of the Code.

The respondent submitted the following before the High Court-

• The filing of an application under Section 94 does not automatically result in the commencement of an insolvency resolution process requiring the appointment of a Resolution Professional.
• The provisions contained in Sections 94 to 100 of the Code contemplate a structured process involving scrutiny by the Adjudicating Authority at different stages, and the Tribunal is not expected to function as a mere post office mechanically forwarding every application for appointment of a Resolution Professional.
• Every judicial or quasi-judicial forum is required, at the threshold, to satisfy itself that the person invoking its jurisdiction possesses the requisite legal standing to do so.
• The requirement of locus standi is a foundational jurisdictional requirement and constitutes the minimum threshold that must be crossed before any statutory process can be set in motion.
• Unless the applicant demonstrates that he falls within the category of persons entitled to invoke the particular provision, the question of proceeding further under the statute would not arise.
• The material placed before it, the NCLT found that the documents relied upon by the petitioner consistently described him as a co-borrower and not as a personal guarantor.
• In such circumstances, the NCLT concluded that the petitioner had failed to establish the very basis upon which jurisdiction under Section 94 was sought to be invoked. It is this limited conclusion which forms the basis of the impugned order.
• There is a fundamental distinction between examining whether a person has the legal standing to maintain proceedings and adjudicating upon the substantive rights arising in such proceedings. While the former is a threshold jurisdictional inquiry, the latter involves a determination of disputed questions affecting the rights and liabilities of the parties. The NCLT, according to him, has confined itself entirely to the former exercise and has not ventured into the latter.
• The NCLT, being a creature of statute entrusted with the administration of the insolvency regime, necessarily possesses incidental and ancillary powers to ascertain whether the jurisdictional facts required for invocation of its authority exist. The determination of such jurisdictional facts cannot be equated with an adjudication of the substantive dispute between the parties.
• The impugned order is a reasoned order passed upon consideration of the documents relied upon by the petitioner himself and does not suffer from any jurisdictional error, perversity, procedural irregularity or patent illegality warranting interference under Articles 226.

Therefore, the respondent prayed the High Court to dismiss the writ petition.

The High Court heard the submissions of both the parties. Considering the facts of the case, the High Court framed the question for its decision - Whether, upon an application being filed under Section 94 of the Code, the NCLT is empowered to examine and determine the locus standi of the applicant to invoke the said provision and, if so, whether such an examination and determination would amount to an adjudication on the merits of the insolvency application or constitute a mere threshold jurisdictional scrutiny?

The High Court analysed the provisions of Section 94 of the Code. The High Court observed that section 94makes it clear that the right to initiate an insolvency resolution process is not conferred upon every person who approaches the Adjudicating Authority. The very invocation of jurisdiction under Section 94 is predicated upon the existence of certain foundational requirements. The applicant must demonstrate, at least prima facie, that he falls within the category of persons entitled to invoke the provision, that the statutory conditions prescribed therein are satisfied, and that none of the disqualifications contained in the provision operate against him. Sub-sections (2) to (6) of Section 94 prescribe various conditions, limitations and disqualifications governing the maintainability of an application. The legislative scheme therefore does not contemplate automatic acceptance of every application filed under Section 94. The entitlement to invoke the provision is conditioned by statutory requirements which necessarily require examination by the Adjudicating Authority before the statutory process can be permitted to proceed further.

The High Court observed that it is a settled principle that every judicial and quasi-judicial authority possesses the power, and indeed the obligation, to ascertain whether the jurisdictional facts necessary for assumption of jurisdiction exist. The jurisdictional facts are those foundational facts upon the existence of which the authority's power to act depends. Unless such facts are established, the authority cannot be compelled to proceed further merely because an application has been presented before it. In this case the petitioner claimed to be a personal guarantor whereas the respondent contended that he is not a personal guarantor but co-borrower. The Adjudicating Authority cannot be expected to accept such assertion at face value and proceed mechanically. The existence of the jurisdictional fact must first be established before the authority proceeds to exercise powers under the statute.

The High Court, then, made the distinction between the adjudication on merits and inquiry into jurisdictional facts. An inquiry into jurisdictional facts is concerned only with determining whether the authority can validly entertain the proceedings. Adjudication on merits, on the other hand, concerns the determination of substantive rights, liabilities and entitlements of the parties. The former necessarily precedes the latter. When the NCLT examines whether an applicant possesses the requisite locus standi to maintain an application under Section 94, it is not adjudicating the insolvency claim itself. It is merely determining whether the applicant has crossed the threshold necessary for the invocation of the statutory mechanism.

The High Court was of the considered view that the power to determine whether an applicant satisfies the threshold requirements of Section 94 inheres in the jurisdiction of the Adjudicating Authority itself. Such a determination neither amounts to adjudication on merits nor constitutes an impermissible exercise of jurisdiction. The High Court did not accept the contention of that petitioner that upon presentation of an application under Section 94, the Adjudicating Authority is required to proceed under Section 97 and appoint a Resolution Professional and that no inquiry regarding the applicant's locus standi can be undertaken until a report is submitted under Section 99. The consequences flowing from an application under Section 94 are neither procedural nor insignificant. On filing of an application under Section 94, the interim moratorium contemplated under Section 96 comes into operation. Such moratorium affects the rights and remedies of creditors and places legal restraints on proceedings relating to the debt concerned. The legislature could not have intended that such consequences should follow merely upon a self-serving assertion made by an applicant without any scrutiny whatsoever by the Adjudicating Authority.

The High Court considered that the requirement of a preliminary examination by the Adjudicating Authority therefore serves an important statutory purpose. It acts as a safeguard against abuse of the insolvency process and ensures that only those persons who possess the requisite legal status are permitted to invoke the protections and consequences contemplated under the Code. The High Court observed that in this case the petitioner failed to establish the very jurisdictional fact upon which his application was founded. The sanction letter relied upon by the Petitioner describes him as a co-borrower. The Facility Agreement also categorises him as a co-borrower. Neither document records the execution of any contract of guarantee by the Petitioner. If the Petitioner had in fact executed a personal guarantee, the same would ordinarily find place either in the transaction documents themselves or in a separate deed of guarantee. The petitioner, despite given various opportunities, failed to produce deed of guarantee, contract of guarantee, undertaking of guarantee or any other instrument creating liability as a guarantor.

Whether a person is a guarantor must be established from the contractual documents governing the transaction. In the absence of any document evidencing the execution of a personal guarantee, the demand notice by itself cannot establish the jurisdictional fact upon which the maintainability of the application depends. The High Court held that the NCLT was, therefore, fully justified in concluding that the petitioner had failed to establish the foundational requirement necessary for invocation of Section 94. The High Court found no infirmity, illegality, perversity or jurisdictional error in the order passed by the NCLT warranting interference under Articles 226 and 227 of the Constitution of India. 

The High Court dismissed the writ petition and imposed cost Rs.1 lakh on the petitioner and shall be deposited by the Petitioner with the Karnataka State Legal Services Authority within a period of four weeks from the date of order.