Bank Must Take Clear Steps Before Targeting Personal Guarantors, NCLT Rules Dismissal of Early Application.

The NCLT dismissed the application under Section 94(1) of the IBC, 2016, filed by the Personal Guarantor, as premature and without cause. The Tribunal emphasized the absence of specific invocation of the Personal Guarantee by the Bank and noted insufficient grounds for initiating CIRP against the Personal Guarantor. The judgment highlighted the distinction between enforcing security interest under the SARFAESI Act and invoking Personal Guarantees, stressing the necessity for clear actions by the Bank to recover dues from Guarantors. The Tribunal granted liberty but required explicit steps by the Bank before initiating proceedings against the Guarantor.

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Issues:
Application under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 by the Personal Guarantor, absence of Deed of Guarantee in the application, notices issued by State Bank of India under SARFAESI Act, invocation of Personal Guarantee, interpretation of borrower under SARFAESI Act, relevance of pending adjudication under RDB Act, dismissal of the application.

Analysis:
The judgment pertains to an application filed under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 by the Personal Guarantor seeking initiation of proceedings. The Applicant, a guarantor to the Corporate Debtor, filed the application without annexing the Deed of Guarantee. The Respondent, State Bank of India, issued notices under the SARFAESI Act for enforcing security interest but not to invoke any Personal Guarantee. The absence of any notice specifically to invoke the Personal Guarantee or steps taken to recover dues from the Guarantor's personal assets was noted.

The judgment references a decision by the NCLAT in another matter, emphasizing the enforcement of security interest under the SARFAESI Act and the wide definition of 'borrower' to include Guarantors. The Tribunal highlighted that the foundation for initiating Corporate Insolvency Resolution Process (CIRP) against the Guarantor was insufficient, especially when CIRP against the Corporate Debtor was already initiated. The Tribunal dismissed the application, citing no cause for initiating CIRP against the Personal Guarantor due to the Bank's inaction against the Guarantor.

Additionally, the Applicant submitted an additional affidavit with documents related to recovery proceedings under the RDB Act. However, the mere filing of such applications against the Principal Borrower and other Guarantors did not amount to the invocation of the guarantee. As the guarantee was not invoked by the Respondent Bank, and no recovery certificate was issued by the Debt Recovery Tribunal, Ahmedabad, the Tribunal found the application premature and dismissed it with liberty.

In conclusion, the Tribunal dismissed the application under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 as premature and without cause, emphasizing the need for specific invocation of the Personal Guarantee by the Bank and the insufficiency of grounds for initiating CIRP against the Personal Guarantor. The judgment underscores the importance of clear actions by the Bank to recover dues from Guarantors and the distinction between enforcing security interest and invoking Personal Guarantees.

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