Section 95 IBC insolvency action against personal guarantor challenged for no borrower CIRP and territorial jurisdiction; writ withdrawn

Proceedings under s.95 IBC against a personal guarantor were challenged on maintainability and NCLT's territorial jurisdiction, principally on the ground that no CIRP under s.7 IBC had been initiated against the principal borrower and that no fresh guarantee was executed after restructuring. Relying on SC authority that, at the s.95 stage, there is no judicial adjudication and appointment of a resolution professional is only for fact-collation to enable consideration of commencement, the HC declined to intervene at that stage. On the petitioner's request, the writ petition was dismissed as withdrawn with liberty to re-approach, and NCLT was requested to decide the jurisdictional objection expeditiously.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 against a personal guarantor are premature in the absence of initiation of a corporate insolvency resolution process against the principal borrower.

(ii) Whether the adjudicating authority is required to first decide preliminary objections on maintainability/territorial jurisdiction before appointing a Resolution Professional under Section 97 in a Section 95 process.

(iii) What final order ought to be passed in the writ petition once the petitioner seeks withdrawal with liberty to re-approach, in the context of the above legal position.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Prematurity of Section 95 proceedings against a personal guarantor in absence of CIRP against principal borrower

Legal framework: The Court considered the scheme of the Insolvency and Bankruptcy Code, 2016 as it applies to initiation of insolvency resolution against a personal guarantor under Section 95, and the role of the Resolution Professional in that scheme.

Interpretation and reasoning: The Court rejected the contention that the Section 95 proceeding was premature merely because no insolvency proceeding had been initiated against the principal borrower. The Court held that the "architecture" of the IBC permits proceedings against the personal guarantor to run independently/parallel to proceedings (or absence of proceedings) against the principal borrower.

Conclusions: Absence of initiation of CIRP against the principal borrower does not, by itself, render a Section 95 proceeding against an alleged personal guarantor premature. However, the Court noted that actual liability would arise only upon a finding that a personal guarantee was in fact offered, which the petitioner disputes.

Issue (ii): Whether maintainability/jurisdictional objections must be adjudicated before appointment of Resolution Professional under Section 97

Legal framework: The Court applied the governing position that, at the stage of Section 95 to Section 99, the process is not one of judicial adjudication and the Resolution Professional's function is facilitative, culminating in a recommendatory report; judicial determination occurs at the stage when the adjudicating authority decides whether to accept or reject the application under Section 100.

Interpretation and reasoning: The Court accepted that, at the Section 95 stage, appointment of a Resolution Professional is not preceded by adjudication of "jurisdictional facts" or preliminary objections, since no adjudicatory function is contemplated at that stage. Consequently, the grievance that appointment of the Resolution Professional amounted to "putting the cart before the horse" was not accepted as a ground to quash the appointment order at this stage.

Conclusions: The appointment of a Resolution Professional under Section 97 need not await prior judicial determination of maintainability/territorial jurisdiction objections; adjudication is contemplated later when the adjudicating authority exercises jurisdiction to accept or reject the application.

Issue (iii): Disposition of the writ petition upon request to withdraw with liberty

Interpretation and reasoning: After the legal position was considered, the petitioner sought permission to withdraw the writ petition with liberty to approach the Court again if necessity arises. The Court found it appropriate to allow withdrawal on those terms and also requested the Tribunal to decide the jurisdictional issue expeditiously.

Conclusions: The writ petition was dismissed as withdrawn with liberty to re-approach, coupled with an observation/request that the Tribunal decide the jurisdictional issue at the earliest.

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