TaxTMI 
TaxTMI 
2021 (7) TMI 1429
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....ved ignorance of the tenets of corporate law. 3. Shorn of the irrelevant and the rubbish, the main issue involved is whether an individual, in his capacity as a guarantor in connection with credit facilities granted by a bank or financial institution to a corporate entity, may be proceeded against by way of insolvency proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 before an appropriate Debts Recovery Tribunal. 4. In this case, a notice was issued on February 18, 2020 by the respondent bank under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019. The notice was in accordance with Form B prescribed in the said Rules of 2019. The notice was addressed to the petitioner. It indicated the total quantum outstanding and appended all documents in support of the details set out in the prescribed form. To boot, the notice enclosed copies of the deeds of personal guarantee dated July 27, 2016, October 26, 2016, February 21, 2017 and June 5, 2017 and, in addition, other documents and deeds of indemnity. 5. In its fourth paragraph, the n....
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....finitions provision for the said Rules. The expression "Adjudicating Authority" has been defined as follows: "3.Definitions.-(1) In these rules, unless the context otherwise requires, - (a) "Adjudicating Authority" means - (i) for the purpose of section 60, the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); or (ii) in cases other than sub-clause (i), the Debt Recovery Tribunal established under sub-section (1-A) of section 3 of the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993); (b) ..." 10. Since such rules of Rules, 2019 had been notified upon being published in the Gazette of India on November 15, 2019, there can be no doubt that the Adjudicating Authority in respect of a guarantor who has furnished a personal guarantee in connection with credit facilities obtained by a corporate entity, would be the appropriate Debts Recovery Tribunal. 11. The statutory source of authority for carrying such application to the Debts Recovery Tribunal is found in Section 95 of the Code of 2016. Section 95 is included in Chapter III of Part III of the Code. Part III of the Code is inti....
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....a debt to any person and a "corporate person", in turn, is defined in Section 3(7) of the Code to mean a company, a limited liability partnership firm or any person incorporated with limited liability under any law for the time being in force but not including any financial service provider. 13. Thus, by no stretch of imagination, may a human individual, whether as a guarantor or otherwise, be seen to be a corporate debtor or a corporate person within the definitions ascribed to such expressions in the Code. 14. Section 95(1) of the Code read with Section 79(1) thereof permits a creditor to apply to any Debts Recovery Tribunal for initiating an insolvency resolution process under such provision. "Debtor" is defined in the inclusive definition in Part III of the Code as including a judgment-debtor. 15. Section 95(1) of the Code, in its ordinary form, allows a creditor to initiate an insolvency resolution process. It does not specify as to who the debtor may be. The petitioner relies on Section 95(2) of the Code which covers partnership debts and conceives of an insolvency resolution process being initiated against a partnership firm or any one or more partners of the firm. ....
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....on 2 of the Code indicates how the provisions of the Code would operate in respect of the several classes of persons to which the Code applies. One such class is covered by Clause (e) pertaining to personal guarantors to corporate debtors. Section 2 of the Code was notified with effect from November 1, 2016 and Clause (e) has been enforced with effect from December 1, 2019 insofar as it relates to personal guarantors to corporate debtors vide S.O. 4126(E) dated November 15, 2019. The said Rules of 2019 were also given effect to around the same time. 21. Thus, notwithstanding it still being permissible to carry a personal insolvency case under the 1909 or 1920 statute, whichever is applicable, insolvency proceedings against guarantors to corporate debtors may not be carried under the statutes of 1909 or 1920 notwithstanding Section 243 of the Code not having been notified. That is because of the overriding operation of the Code under Section 238 thereof and Section 2(c) of the Code having been notified. There are other indicators in the body of the Code that point to the Debts Recovery Tribunal being an appropriate authority as in the present case. Section 179 of the Code, for in....