In Civil Appeal No(s). 1871-1872/2022-SC- Top Court stays NCLAT Order whereby Insolvency Resolution Process against Personal Guarantor was asked to be revived before NCLT Justice S.Abdul Nazeer and Justice Vikram Nath [21-03-2022]

Read Order: MAHENDRA KUMAR JAJODIA VERSUS  STATE BANK OF INDIA

LE Correspondent

New Delhi, April 2, 2022: The Supreme Court has recently stayed the order of the NCLAT passed in State Bank of India v. Mahendra Kumar Jajodi. The National Company Law Appellate Tribunal had ordered that the application filed u/s 95(1) of the IBC, seeking initiation of the Corporate Insolvency Resolution Process against the Personal Guarantor, be revived before the NCLT.

In its Order dated January 27, 2022, the Appellate Tribunal extensively considered the interpretation of section 60 of the Insolvency and Bankruptcy Code. Section 60(1) provides that Adjudicating Authority for the corporate persons including corporate debtors and personal guarantors shall be the NCLT and Section 60(2) requires that where a CIRP or Liquidation Process of the Corporate Debtor is pending before ‘a’ National Company Law Tribunal the application relating to CIRP of the Corporate Guarantor or Personal Guarantor as the case may be of such Corporate Debtor shall be filed before same National Company Law Tribunal. 

The Appellate Tribunal was of the view that when proceedings are pending in ‘a’ National Company Law Tribunal, any proceeding against Corporate Guarantor should also be filed before the same National Company Law Tribunal so that both the proceedings can be entertained by one and the same NCLT. It was also observed therein that Section 60(2) does not in any way prohibit filing of proceedings under Section 95 of the Code even if no proceedings are pending before NCLT.

The Appellate Tribunal had also mentioned that when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before a NCLT, the application relating to Insolvency Process of a Corporate Guarantor or Personal Guarantor should be filed before the same NCLT. It had also come to the conclusion that the NCLT, Kolkata Bench had erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor was pending, the application under Section 95(1) filed by the Appellant was not maintainable.

Aggrieved by Appellate Tribunal’s order of initiating the CIRP, the personal guarantor filed an appeal before the Apex Court. The appellant’s counsel referred to the judgment in Lalit Kumar Jain vs. Union of India & Ors, wherein it was observed that under Section 60(2) in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with NCLT concerned seized of the resolution process or liquidation.

It was also stated  therein, “..the Adjudicating Authority for personal guarantors will be NCLT, if a parallel resolution process or liquidation process is pending in respect of a corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3), when any insolvency or bankruptcy proceeding pending against the personal guarantor in a court or tribunal and a resolution process or liquidation is initiated against the corporate debtor. Thus if A, an individual is the subject of a resolution process before the DRT and he has furnished a personal guarantee for a debt owed by a company B, in the event a resolution process is initiated against B in an NCLT, the provision results in transferring the proceedings going on against A in the DRT to NCLT.”

Keeping these aspects into consideration, the Division Bench of Justice S.Abdul Nazeer and Justice Vikram Nath ordered the stay of the operation of the impugned Order passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi on January 27, 2022.