2018 (6) TMI 763 - AT - Insolvency and Bankruptcy

Moratorium under Insolvency Code extends to personal guarantors, protecting them from legal actions during proceedings.

State Bank of India Versus D.S. Rajendra Kumar, R. Siddharth Kumar, R. Arihant, D.S. Raj Kumar And R. Inderjeeth

The High Court of Allahabad held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code applies to personal guarantors, providing ... Corporate insolvency procedure - ‘Moratorium’ period - Held that:- Order of ‘Moratorium’ will be applicable only to the proceedings against the ‘Corporate Debtor’ and the ‘Personal Guarantor’, if pending before any court of law/Tribunal or authority but the will not be applicable for filing application for triggering ‘Corporate Insolvency Resolution Process’ under Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) against the ‘Guarantor’ or the ‘Personal Guarantor’ under Section 60(2). As noticed that Part-III of ‘I&B Code’ has not been given effect but Part-II Section 60(2) having come into force, if ‘Corporate Insolvency Resolution Process’ has been initiated against the ‘Corporate Debtor’, the Insolvency and Bankruptcy Resolution Process against the ‘Personal Guarantor’ can be filed under section 60(2) before the same Adjudicating Authority (National Company Law Tribunal) and not before the Debt Recovery Tribunal (DRT). Issues:1. Interpretation of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 regarding personal guarantors.2. Applicability of moratorium to personal guarantors during insolvency proceedings against the corporate debtor.3. Jurisdiction of the Adjudicating Authority in initiating insolvency proceedings against personal guarantors.Analysis:1. The appeals were filed against an order by the Adjudicating Authority regarding the recovery of financial credit extended to a corporate debtor. The issue revolved around whether the moratorium under Section 14 of the IBC applies to personal guarantors. The High Court of Allahabad's decision emphasized the need for safeguards for banks and stayed proceedings against personal guarantors until the resolution plan is approved or liquidation is ordered. The Adjudicating Authority's direction was challenged, citing a previous judgment by the Appellate Tribunal.2. The Adjudicating Authority's decision was based on the interpretation of the moratorium's applicability to personal guarantors. The Appellate Tribunal clarified that the moratorium extends to personal guarantors as well, prohibiting actions against them during insolvency proceedings against the corporate debtor. The Tribunal highlighted the restrictions imposed by Section 14 of the IBC, including the prohibition on transferring assets or enforcing security interests of the corporate debtor.3. The Adjudicating Authority's jurisdiction to initiate insolvency proceedings against personal guarantors was examined in light of Section 60(2) of the IBC. The Appellate Tribunal affirmed that if insolvency proceedings are initiated against the corporate debtor, similar proceedings against personal guarantors can be filed before the National Company Law Tribunal, not the Debt Recovery Tribunal. The Tribunal provided clarity on the process and jurisdiction for initiating insolvency proceedings against personal guarantors, aligning with the provisions of the IBC.Overall, the judgment addressed the complexities surrounding the moratorium's application to personal guarantors, ensuring consistency in interpreting the IBC's provisions and establishing the appropriate forum for initiating insolvency proceedings against personal guarantors.