The New Delhi bench of the National Company Law Tribunal ( NCLT) had held that the threshold limit for initiating insolvency process against the personal guarantors under section 95 of the insolvency Bankruptcy Code ( IBC ), 2016 would be the same as is with respect to the corporate debtor under section 4 of the IBC i.e. 1 crore.
Mudraksh Investfin Pvt. Ltd., the applicant submitted that the threshold limit of default in respect of an individual under Part III of the Code is only Rs. One Thousand and thus, when in the present case the amount of default is more than Rs. Ten Lakhs, the application is maintainable and deserves to be admitted.
The Future of Tax and Finance: Upskill with Us
It was evident from Section 78 (Part III of Insolvency and Bankruptcy Code, 2016), that the default limit of Rs. One Thousand is fixed for fresh start, insolvency and bankruptcy of individuals and partnership firms. Section 79(1) clearly provides that the Adjudicating Authority in respect of the persons referred to Section 78 is Debt Recovery Tribunal (DRT) constituted under sub-section 1 of Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
It was noted that it would not be out of context to make a reference to Rule 3(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency. As can be seen from Rule 3 (1)(a) for the purpose of Section 60, the National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013 would be the Adjudicating Authority for a Personal Guarantor and in cases other than sub-clause (i) of clause (a) of sub-rule (1) of Rule 3, the Debt Recovery Tribunal established under sub-section (1A) of Section 3 of the Recovery of Debt and Bankruptcy Act, 1993 would be the Adjudicating Authority.
The Future of Tax and Finance: Upskill with Us
It was found that when a reference to Corporate Debtor for the purpose of CIRP is to be made, the same needs to be made with reference to the provision of Section 4 (as amended) and only in such cases where threshold limit is Rs. 1 Crore or more, this Tribunal would have jurisdiction.
“A conjoint reading of Rule 3(1)(a) of Insolvency and Bankruptcy (Application to Adjudication Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) 2019, Section 4 and Section 60(1) of the Code reveals that the threshold limit for invoking the provisions of Section 95 of IBC, 2016 qua the Personal Guarantor to Corporate Debtor would be Rs. One Crore only.”, the Tribunal held.
The Future of Tax and Finance: Upskill with Us
The bench of Shri Subrata Kumar Dash (Technical Member) and Shri Ashok Kumar Bhardwaj (Judicial Member) observed that when Section 105 of the Code provides for repayment plan, the proceedings under Section 95 may, in a way, be treated as proceedings for recovering debt.
While dismissing the application, the Tribunal concluded that where the amount defaulted to be paid by the Corporate Debtor and Personal Guarantor is less than Rs. 1 Crore, proceedings before the Adjudicating Authority for the purpose of Section 7, 9, 10, 94 & 95 of Code cannot be maintained.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
