2025 (1) TMI 1452 - AT - IBC

NCLT has jurisdiction over personal guarantor insolvency proceedings under Section 60(1) IBC regardless of corporate debtor status

NCLAT dismissed appeal challenging NCLT's jurisdiction over personal guarantor insolvency proceedings. Appellant argued NCLT lacked jurisdiction under ... Appointment of the Resolution Professional (RP) in accordance with Section 97, sub-section (3) of the Insolvency and Bankruptcy Code, 2016 (IBC) - submission of the Appellant is that the Adjudicating Authority ought to have directed the IBBI to nominate the RP for the insolvency resolution process, which was not done and the Adjudicating Authority relied on a Circular issued by the IBBI - HELD THAT:- There is no dispute with regard to interpretation of Section 60, sub-section (2), which provides that where a CIRP or liquidation proceedings of a Corporate Debtor is pending before a NCLT, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, shall be filed before such NCLT. The question to be answered is as to whether when no CIRP or liquidation proceedings of a Corporate Debtor is pending before the NCLT, whether an Application for personal insolvency against a Personal Guarantor has to be filed before the NCLT. Sub-section (2) of Section 60 begins with the expression “Without prejudice to sub-section (1)”. Thus, the provision of sub-section (2) are without prejudice to provisions of sub-section (1) of Section 60. The expression “without prejudice”, came for consideration before the Hon’ble Supreme Court in large number of cases. Reference made to judgment of the Hon’ble Supreme Court in Shri Shiv Kripal Singh vs. Shri V.V. Giri [1970 (9) TMI 127 - SUPREME COURT], where the Hon’ble Supreme Court held that the expression “without prejudice is to the generality of the provisions of sub-section (i)”. It is well settled that when this expression is used anything contained in the provisions following this expression is not intended to cut down the generality of the meaning of provision. Two judgments have been relied by learned Counsel for the Respondent, which need to be noticed. The first judgment, which has been relied by learned Counsel for Respondent is State Bank of India vs. Mahendra Kumar Jajodia [2022 (1) TMI 1294 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI], in which case, an Application under Section 95 was filed by the State Bank of India before NCLT, Kolkata Bench, seeking initiation of CIRP against Personal Guarantor, which Application came to be rejected by the Adjudicating Authority as premature relying on Section 60, sub-section (2) and holding that for an insolvency resolution process to be initiated against the guarantor there must be CIRP or liquidation process pending against the principal borrower/ Corporate Debtor. The above Notification dated 15.11.2019 came to be challenged before the Hon’ble Supreme Court in Lalit Kumar Jain vs. Union of India & Ors. [2021 (5) TMI 743 - SUPREME COURT]. One of the grounds to challenge the notification was whether provisions of IBC against Personal Guarantors have been enforced, which is discriminatory and is violative of Article 14 of the Constitution of India. In reference to challenge to the aforesaid Notification, the Hon’ble Supreme Court had occasion to consider the Scheme of IBC. The Hon’ble Supreme Court noticed the 2018 amendment and the Report of the Insolvency Law Committee - The above judgment of the Hon’ble Supreme Court also clearly emphasized that Personal Guarantor of the Corporate Debtor has been treated as a separate species of individuals. Hence, provision regarding Personal Guarantor of the Corporate Debtor have been enforced and when we read Section 60, sub-sections (1) and (2), the conclusion is inescapable that for insolvency resolution process of personal guarantor, the jurisdiction is with the NCLT. This Tribunal in its judgment in Mahendra Kumar Agarwal has noticed the judgment of the Delhi High Court in Axis Trustee Services Ltd. vs. Brij Bhushan Singal [2022 (11) TMI 297 - DELHI HIGH COURT], where the Delhi High Court had occasion to consider Section 60 of the IBC. After considering Section 60 and 179 of the IBC, the Delhi High Court held that NCLT will be the Adjudicating Authority in respect of insolvency proceedings against Personal Guarantors. Conclusion - The NCLT is the appropriate adjudicating authority for insolvency proceedings against personal guarantors of corporate debtors, as per Section 60(1) of the IBC. Section 60(2) does not restrict the filing of applications against personal guarantors to situations where proceedings against the corporate debtor are pending. It is not required to accept the submissions of the Appellant that NCLT Delhi has no jurisdiction to entertain Section 95 Application filed by the Financial Creditor against the Personal Guarantor for initiating insolvency resolution process - there is no merit in the appeal - appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the appointment of the Resolution Professional (RP) was in accordance with Section 97, sub-section (3) of the Insolvency and Bankruptcy Code, 2016 (IBC).Whether the National Company Law Tribunal (NCLT) has jurisdiction to entertain an application under Section 95 of the IBC against a Personal Guarantor, or if such jurisdiction lies with the Debts Recovery Tribunal (DRT).ISSUE-WISE DETAILED ANALYSIS1. Appointment of the Resolution ProfessionalRelevant Legal Framework and Precedents: Section 97(3) of the IBC mandates that when an application under Section 94 or 95 is filed by the debtor or creditor, the Adjudicating Authority should direct the Insolvency and Bankruptcy Board of India (IBBI) to nominate a resolution professional.Court's Interpretation and Reasoning: The Tribunal examined the mechanism provided under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, which allows the IBBI to share a panel of insolvency professionals with the Adjudicating Authority.Key Evidence and Findings: The Adjudicating Authority relied on Form-C submitted by the Interim Resolution Professional (IRP), where the RP conveyed consent and confirmed no pending disciplinary proceedings.Application of Law to Facts: The Tribunal found that the appointment of the RP was in compliance with the legal framework and did not violate Section 97(3).Treatment of Competing Arguments: The Appellant's argument that the appointment was not in accordance with Section 97(3) was dismissed based on the Tribunal's interpretation of the rules and the absence of any procedural violation.Conclusions: The Tribunal concluded that the appointment of the RP was valid and in accordance with the IBC.2. Jurisdiction of the NCLTRelevant Legal Framework and Precedents: Section 60 of the IBC outlines the jurisdiction of the NCLT concerning insolvency resolution and liquidation for corporate persons, including corporate debtors and personal guarantors. Section 179 specifies the DRT's jurisdiction for individuals and partnership firms, subject to Section 60.Court's Interpretation and Reasoning: The Tribunal interpreted Section 60(1) as granting the NCLT jurisdiction over insolvency processes for personal guarantors, irrespective of whether proceedings against the corporate debtor are ongoing. The Tribunal referred to previous judgments, including State Bank of India vs. Mahendra Kumar Jajodia, which supported this interpretation.Key Evidence and Findings: The Tribunal noted the legislative intent to treat personal guarantors differently due to their connection with corporate debtors, as emphasized by the Hon'ble Supreme Court in Lalit Kumar Jain vs. Union of India.Application of Law to Facts: The Tribunal applied Section 60(1) to conclude that NCLT has jurisdiction over personal guarantors, even if no CIRP or liquidation is pending against the corporate debtor.Treatment of Competing Arguments: The Appellant's reliance on judgments from the Madras High Court and NCLT Kolkata Bench was dismissed as contrary to the binding precedents set by the Tribunal and the Supreme Court.Conclusions: The Tribunal held that the NCLT has jurisdiction to entertain Section 95 applications against personal guarantors, and the Appellant's objections were unfounded.SIGNIFICANT HOLDINGSCore Principles Established: The Tribunal reaffirmed that the NCLT is the appropriate adjudicating authority for insolvency proceedings against personal guarantors of corporate debtors, as per Section 60(1) of the IBC. The Tribunal emphasized that Section 60(2) does not restrict the filing of applications against personal guarantors to situations where proceedings against the corporate debtor are pending.Final Determinations on Each Issue: The Tribunal dismissed the appeals, affirming the validity of the RP's appointment and the NCLT's jurisdiction over the insolvency proceedings against the personal guarantors.