2022 (8) TMI 69 - AT - Insolvency and Bankruptcy

Tribunal upholds order on Personal Guarantor's citizenship change affecting Guarantee Deed enforceability

The Tribunal dismissed both appeals, affirming the orders of the Adjudicating Authority. It held that the Guarantee Deed remains enforceable despite the ... Maintainability of application - insolvency resolution process was initiated against the Appellant – Personal Guarantor - Principal challenge to the impugned order by the Appellant is that the Adjudicating Authority has returned finding of default in the order by appointing the Resolution Professional which is not permissible - whether Personal Guarantee given by the Appellant by Guarantee Deed dated 19.10.2015 shall extinguish, on Appellant, the Personal Guarantor acquiring citizenship of Singapore w.e.f. 18.06.2018? - Whether it was necessary for the Central Government to enter into an agreement as required under Section 234-235 of the Code to enable the Adjudicating Authority to proceed against the Appellant, a Singapore citizen’ under Section 95(1) where the Appellant has executed Guarantee Deed dated 19.10.2015? - HELD THAT:- Section 60(1) categorically provides that the Adjudicating Authority, in relation to insolvency resolution for corporate persons including Corporate Debtors and Personal Guarantors shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate persons locate. Hence, the insolvency resolution process is to be initiated before the Adjudicating Authority within whose territorial jurisdiction registered office of the Corporate Person is located. The provision under Section 60(1) makes it clear that the residence of Personal Guarantor is not taken into consideration when proceedings against the Personal Guarantor are initiated - The ‘personal guarantors’ as used under Section 60(1) are personal guarantors irrespective of the fact as to whether they are Indian citizen or foreign nationals. In event for a Corporate Debtor a personal guarantee has been given by a person who is residing outside of India or is a foreign national, in event personal guarantee is accepted, he shall be bound by the personal guarantee. Further, there is no indication in the statutory scheme that a Personal Guarantor who has given guarantee to a Corporate Debtor can escape from his liability under the Guarantee Deed only for the reason that he has after execution of the Guarantee Deed has obtained citizenship of a foreign country. In event, such Personal Guarantors are allowed to wash off from their obligation under the Guarantee Deed, the easiest way for a Personal Guarantor is to run away out of the country and say that now I am not liable to perform my obligation under the Deed of Guarantee since I am no more Indian citizen. Applicability of Section 234 of IBC - HELD THAT:- The key word in Section 234 of the Code is “in relation to assets or property of corporate debtor or debtor, including a personal guarantor of a corporate debtor, as the case may be, situated at any place in a country outside India”. Applicability of Section 234 arises only in a case where assets or property of personal guarantor are situated at any place in a country outside India. Present is a case where assets of the Personal Guarantor, as claimed in application under Section 95, are not claimed to situate in any place outside India. Present is not a case where CIRP has been initiated with regard to any of the assets of the Personal Guarantor which are situated outside the country, hence, reliance on Section 234 and 235 are wholly misplaced. Thus, the Deed of Guarantee of the Appellant executed on 19.10.2015 still continues and bind him and he cannot escape his obligation under the Personal Guarantee given by him on mere fact that he has obtained citizenship of Singapore w.e.f. 18.06.2018. The statutory scheme of the code does not contain any indication that the Personal Guarantor of a Corporate Debtor can escape from its liability under the Personal Guarantee Deed merely on the ground that he is now started residing in another country and acquired citizenship of another country and is no more an Indian citizen. It is well settled principle of statutory interpretation that such interpretation of a statute should be adopted which makes the statute functional and does not make a statute non-functional - The Adjudicating Authority is well within its jurisdictions to initiate insolvency resolution process against the Appellant, the Personal Guarantor of the Corporate Debtor, in accordance with the scheme of Section 95(1) r/w Section 60 of the Code. Appeal dismissed. Issues Involved:1. Whether a Personal Guarantee given by the Appellant by Guarantee Deed dated 19.10.2015 shall extinguish on the Appellant acquiring citizenship of Singapore.2. Whether proceedings under Section 95(1) against the Appellant as a Personal Guarantor could not have been initiated by State Bank of India before the NCLT, Kolkata Bench due to the Appellant obtaining citizenship of Singapore.3. Whether it was necessary for the Central Government to enter into an agreement as required under Section 234-235 of the Code to enable the Adjudicating Authority to proceed against the Appellant, a Singapore citizen, under Section 95(1).Issue-wise Detailed Analysis:1. Personal Guarantee and Citizenship Change:The Appellant, who was the Director/Managing Director of the Corporate Debtor, executed a Guarantee Deed dated 19.10.2015. The Adjudicating Authority confirmed the execution of this deed. The Appellant's claim that acquiring Singapore citizenship extinguishes the guarantee was dismissed. The Tribunal held that the Deed of Guarantee continues to bind the Appellant despite the change in citizenship. The Tribunal emphasized that allowing a Personal Guarantor to evade obligations by acquiring foreign citizenship would undermine the legislative intent of the Code.2. Jurisdiction of NCLT over Foreign Citizens:The Tribunal clarified that the jurisdiction of the NCLT is determined by the registered office of the Corporate Debtor, not the residence or citizenship of the Personal Guarantor. Section 60(1) of the I&B Code specifies that the NCLT having territorial jurisdiction over the Corporate Debtor's registered office is the appropriate forum for insolvency proceedings. The Tribunal rejected the argument that the Appellant's foreign citizenship exempts him from the jurisdiction of the NCLT, emphasizing that the Code applies to Personal Guarantors irrespective of their citizenship.3. Necessity of Agreement under Sections 234-235:Sections 234 and 235 of the I&B Code pertain to the enforcement of the Code in relation to assets or property situated outside India. The Tribunal noted that these provisions are relevant only when the assets of the Personal Guarantor are located outside India. In this case, the assets of the Personal Guarantor were within India, making Sections 234 and 235 inapplicable. The Tribunal concluded that the absence of an agreement between the Central Government and the Government of Singapore does not preclude the initiation of insolvency proceedings against the Appellant under the I&B Code.Conclusion:The Tribunal dismissed both appeals, affirming the orders of the Adjudicating Authority. The Tribunal held that the Deed of Guarantee remains enforceable despite the Appellant's change in citizenship. It also confirmed that the NCLT has jurisdiction over the Appellant as a Personal Guarantor, irrespective of his foreign citizenship, and that Sections 234-235 do not apply in this case as the assets are within India. The Tribunal emphasized the statutory scheme of the I&B Code, which allows Financial Creditors to initiate insolvency proceedings under Section 95(1) despite the availability of other legal remedies.