Individual guarantors can face insolvency proceedings under the Insolvency and Bankruptcy Code, 2016.

The court ruled that individual guarantors can be subjected to insolvency proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016, rejecting the argument that it only applies to partnership debts. The court confirmed the appropriateness of the Debts Recovery Tribunal as the adjudicating authority for such proceedings and held that the liability of a guarantor is co-extensive with that of the principal debtor under Section 128 of the Contract Act, 1872. The petition was dismissed, and the petitioner was ordered to pay costs to the respondent bank.

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Issues Involved:
1. Whether an individual guarantor can be proceeded against by way of insolvency proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016.
2. The appropriateness of the Debts Recovery Tribunal as the adjudicating authority for such proceedings.
3. The applicability of Section 128 of the Contract Act, 1872 regarding the liability of the guarantor.

Issue-Wise Detailed Analysis:

1. Insolvency Proceedings Against Individual Guarantor:
The main issue is whether an individual, in his capacity as a guarantor for credit facilities granted to a corporate entity, can be subjected to insolvency proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). The petitioner argued that Section 95(1) should be restricted to partnership debts and not apply to individual guarantors. However, the court rejected this argument, stating that Section 95(1) applies to any debtor, not just partnership firms or their partners. The court emphasized that statutory interpretation does not permit rendering any provision redundant, and Section 95(1) should be applied broadly to include individual guarantors.

2. Appropriateness of Debts Recovery Tribunal:
The court examined Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019, which provides for a creditor to issue a demand notice in Form B and submit an application in Form C to the Debts Recovery Tribunal (DRT). The court confirmed that the prescribed forms were adhered to, and the notice was issued in accordance with the rules. The court further clarified that the DRT is the appropriate adjudicating authority for insolvency proceedings against individual guarantors, as defined in Section 79(1) of the IBC and Rule 3 of the 2019 Rules. The court noted that the statutory source of authority for such applications is found in Section 95 of the IBC, which permits creditors to initiate insolvency resolution processes against debtors, including individual guarantors.

3. Applicability of Section 128 of the Contract Act, 1872:
The court highlighted Section 128 of the Contract Act, 1872, which states that the liability of a guarantor is co-extensive with that of the principal debtor unless otherwise provided by the contract. The petitioner did not claim any agreement obliging the creditor to exhaust remedies against the corporate entity before proceeding against the guarantor. Therefore, the court held that the rule embodied in Section 128 applies equally to guarantors of credit facilities obtained by corporate entities, allowing the creditor to proceed against the guarantor without first exhausting remedies against the corporate entity.

Conclusion:
The court found no merit in the petition, deeming it a complete waste of time by an admitted defaulter. The court dismissed the petition and ordered the petitioner to pay costs of Rs. 50,000 to the respondent bank, which the bank could recover during the insolvency resolution process before the appropriate DRT. The court emphasized that the petitioner's attempts to restrict the application of Section 95(1) were unfounded and that the DRT is the correct forum for such insolvency proceedings. The court also reinforced the principle that a guarantor's liability is co-extensive with that of the principal debtor under Section 128 of the Contract Act, 1872.

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