The National Company Law Tribunal, New Delhi Bench (“NCLT”) vide its decision in the case of PNB Housing Finance Limited v. Mr. Mohit Arora, [Company Petition No. (IB) 395/2021, decided on September 29, 2021], has held that an application under section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) filed for initiating insolvency resolution process (“IR process”) against the personal guarantor of a corporate debtor is maintainable before the NCLT, where the application for initiating corporate insolvency resolution process (“CIRP”) against a corporate debtor is pending.

Facts:

PNB Housing Finance Limited (“Applicant”) is a company engaged in the business of housing finance. The applicant extended loan facilities vide a loan agreement dated March 10, 2017 (“Agreement”) to Supertech Limited (“CD”). Further, an irrevocable deed of guarantee dated March 10, 2017 was also executed by the personal guarantor/ respondent, in terms of which the guarantor unconditionally agreed to pay all the amounts payable by the CD under the Agreement. Due to the default committed by the CD, the applicant recalled the facility and declared the account of the CD as a “Non-Performing Asset” on July 31, 2019 and simultaneously, invoked the personal guarantee provided by the respondent. Thus, the applicant filed a petition under section 95 of IBC for initiation IR process against the respondent, on the premise that, multiple CIRP proceedings are pending against the CD before the NCLT under IBC.  

Issue:

Whether initiation of the CIRP of the CD is a prerequisite for maintainability of an application under Section 95 of IBC filed for initiating IR process of the personal guarantor of that CD before the NCLT?

Decision of the NCLT

NCLT observed that, Rule 3(f) of the Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors Rules, 2019 (“PG Rules”), which defines the term ‘Guarantor’, nowhere stipulates that the CD shall be under CIRP or liquidation. Hence, the personal guarantor herein, is deemed to have been covered under the definition of the ‘guarantor’ as defined under Rule 3(f) of the PG Rules.

Further, the NCLT also observed that Adjudicating Authority, in relation to the insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the NCLT having territorial jurisdiction over the place where the registered office of a ‘corporate person’ is located. In the instant case, various applications under IBC for initiation of CIRP were pending against the CD before the NCLT.

Therefore, NCLT opined as follows:

1. the moment the application in relation to insolvency resolution of the CD is pending before this Adjudicating Authority, the provisions of section 60(1) of IBC gets attracted and the jurisdiction to entertain insolvency process against the personal guarantor would, therefore, lie with the NCLT.
2. section 60(2) of IBC is without prejudice to section 60(1) as held by the Supreme Court in the matter of Lalit Kumar Jain v. Union of India, [(2021) SCC OnLine SC 396)];
3. section 179(1) of IBC is subject to section 60 of IBC, which includes sub-section (1) and as such, the jurisdiction in relation to the insolvency resolution (and liquidation) for corporate persons including CD and personal guarantors shall be the NCLT in terms of Section 60(1) of IBC and not the Debt Recovery Tribunal.

Accordingly, it was held that in a situation wherein an application in relation to the CD for initiation of CIRP is pending at the NCLT, then, the initiation of CIRP of the Corporate Debtor is not a prerequisite for maintainability of an application under section 95 of IBC filed for initiating IR process against the personal guarantor of that CD before the NCLT.

Please find attached a copy of the judgment.

This update has been contributed by Soorjya Ganguli (Equity Partner) and Kiran Sharma (Associate).

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