Court dismisses challenge to Demand Notice under Insolvency Rules; directs petitioner to NCLT for resolution

The court dismissed the writ petition challenging a Demand Notice issued under Rule 7(1) of the Insolvency and Bankruptcy Rules, 2019, regarding personal guarantees for a debt. It held that the petitioner failed to establish a lack of jurisdiction and directed them to address the matter before the NCLT for a decision on the merits. The court highlighted that the NCLT was competent to adjudicate the issues raised in the petition.

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Issues Involved:
1. Jurisdiction of the Demand Notice issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.
2. Existence of Debt and the Assignment Agreement.
3. Effect of Resolution Plan on Personal Guarantees.
4. Availability of Alternative Remedies.
5. Applicability of the Doctrine of Merger and Reservation of Rights.

Summary:

1. Jurisdiction of the Demand Notice:
The petitioner sought quashing of the impugned Demand Notice dated 09.12.2022 issued by REC Ltd. under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, invoking the personal guarantees for the purported total outstanding debt of Rs. 1211,91,94,259. The court examined the nature of relief sought by the petitioner, primarily a writ of prohibition to prevent the respondent from approaching the NCLT under the provisions of the IBC, and an ancillary relief to quash the impugned demand notice.

2. Existence of Debt and the Assignment Agreement:
The petitioner argued that there exists no debt against FPL that the respondent can recover, as the debt was assigned to FACOR under the Resolution Plan and the Assignment Agreement dated 21.09.2020. The petitioner contended that the assignment of the loan extinguished the respondent's status as a creditor, thereby nullifying the personal guarantee. The court noted that the impugned demand notice was issued under Rule 7 of the Rules, 2019, which mandates the existence of a debt.

3. Effect of Resolution Plan on Personal Guarantees:
The petitioner argued that the Resolution Plan and the Assignment Agreement resulted in the respondent ceasing to be a creditor of FPL, thereby nullifying the personal guarantee. The court examined the clauses of the Resolution Plan and the Assignment Agreement, noting that personal guarantees were specifically excluded from the assignment. The court referenced the case of Hutchens v. Deauville Investments Pty. Ltd., which held that an assignment of the principal debt with an exclusion of guarantee results in the assignor being unable to invoke the guarantee.

4. Availability of Alternative Remedies:
The respondent argued that the writ petition was not maintainable as there existed an alternative efficacious remedy available to the petitioner before the NCLT. The court noted that the existence of an alternative remedy does not bar relief under Article 226 of the Constitution in cases where proceedings are wholly without jurisdiction. However, the court emphasized that a higher threshold needs to be met in such cases, requiring the petitioner to demonstrate a total and absolute lack of jurisdiction.

5. Applicability of the Doctrine of Merger and Reservation of Rights:
The respondent contended that the Resolution Plan did not affect the validity and enforceability of personal guarantees and that the terms of the Resolution Plan could not be altered. The court noted that the interpretation of contracts is typically not the subject matter of a writ petition and that the concerned NCLT must carefully scrutinize the deed of guarantee and the law on assignment and contract of surety.

Conclusion:
The court dismissed the writ petition, noting that the petitioner had not established a total want of jurisdiction on the part of the respondent. The court emphasized that the petitioner could present their case before the NCLT, which is competent to decide upon the issues on their merits. The court's observations on the merits of the case were considered prima facie, and the competent court/Tribunal was at liberty to deal with the issues on their merits.

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