Tribunal Approves Insolvency Application Against Guarantor: Key Procedures & Obligations

The Tribunal approved the application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against the personal guarantor for outstanding debt. The default in payment by the guarantor led to the initiation of insolvency proceedings, resulting in the appointment of a Resolution Professional to oversee the resolution process. The Tribunal imposed an interim moratorium and directed the Resolution Professional to provide recommendations within a specified timeframe. The judgment highlights the legal procedures for initiating insolvency against personal guarantors, emphasizing their obligations and the importance of Resolution Professionals in safeguarding stakeholders' interests.

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Issues:
1. Application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against a personal guarantor.
2. Default in payment by the personal guarantor leading to the initiation of insolvency resolution process.
3. Appointment of a Resolution Professional for the insolvency resolution process.

Analysis:

Issue 1: Application under Section 95 of the Insolvency and Bankruptcy Code, 2016 against a personal guarantor
The application was filed by Bank of Baroda under Section 95 of the Insolvency and Bankruptcy Code, 2016 against Mr. Saurabh Rathi, the personal guarantor to the Corporate Debtor, 'M/s. RGTL Industries Ltd.' The application sought to initiate the insolvency resolution process against the personal guarantor for the outstanding debt amounting to Rupees Twenty Crore Ten Lakh Twenty-Seven Thousand Three Hundred and Fifty-Eight, as on the insolvency commencement date of the Corporate Debtor.

Issue 2: Default in payment by the personal guarantor leading to the initiation of insolvency resolution process
The Counsel for the Applicant highlighted that the personal guarantor, Mr. Saurabh Rathi, had provided a guarantee to Bank of Baroda for the amounts advanced to the Corporate Debtor. Despite the demand notice issued and the failure of the respondent to make payments, the continuing guarantee provided by the respondent remained in force as per the Indian Contract Act, 1872. The Tribunal found that there was a clear default on the part of the personal guarantor in fulfilling the debt owed to the Corporate Debtor, leading to the approval of the application under Section 95 of the Code.

Issue 3: Appointment of a Resolution Professional for the insolvency resolution process
The Tribunal allowed the application filed by Bank of Baroda and initiated the interim moratorium as per Section 96(1) of the Code from the date of filing. The appointment of a Resolution Professional, Mr. Anil Matta, was proposed and confirmed by the bench to oversee the insolvency resolution process. The Resolution Professional was directed to make recommendations within the stipulated time and provide a copy of the report to the Creditor. The matter was listed for further proceedings on 08th November 2021.

This judgment underscores the legal process involved in initiating insolvency proceedings against a personal guarantor under the Insolvency and Bankruptcy Code, emphasizing the obligations and liabilities of guarantors in case of default. The appointment of a Resolution Professional is crucial for managing the insolvency resolution process and safeguarding the interests of all stakeholders involved.

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