The Chennai bench of the National Company Law Appellate Tribunal (NCLAT) has held that Insolvency Proceedings on the Personal Guarantor of a Corporate Debtor can be initiated when no Corporate Insolvency Resolution Process (CIRP) is pending before National Company Law Tribunal (NCLT).
Mahendra Kumar Agarwal, the Appellant is the Personal Guarantor of M/s. Gati Infrastructure Bhamsey Power Private Limited challenged the `impugned order’, dated 21.07.2022, passed by the Adjudicating Authority (`National Company Law Tribunal’, Hyderabad Bench -I).
The Appellant stated that Rule 3(a) of the Insolvency and Bankruptcy Rules, 2019, defines an Adjudicating Authority, as the Debt Recovery Tribunal. Furthermore, the stand of the Appellant is that the Corporate Insolvency Resolution Process can say to be pending, only when an `Application’, under Section 7, 9 or 10, is admitted, by an `Adjudicating Authority’, as the `Insolvency Resolution Process’.
On the date when the application was filed under Section 95 by the Financial Creditor against the Personal Guarantor an application could have been filed against the Financial Service Provider based on the last Balance Sheet which had an asset size of more than Rs.500, the application filed by the Financial Creditor against the Personal Guarantor was fully maintainable.
The Adjudicating Authority has committed an error in allowing the applications filed by the Personal Guarantors and dismissing the Company Petitions. All Appeals are allowed. Order of the Adjudicating Authority dated 22.02.2022 is set aside.
The `Adjudicating Authority’, on 16.09.2022, had `Reserved Orders’ and passed the `Order’, on 27.09.2022, `allowing’ the `Application’, and closing the `Insolvency Process’, by grating `Liberty’, to the `Financial Creditors’, to take further steps, as per `Law’. There was no discussion on any `Plan’, because `no Repayment Plan’, was given by the `Appellant / Personal Guarantor’, and therefore, `No Meeting of Creditors’, was required to be `conducted’.
It was held that the impugned notification is not an instance of legislative exercise, or amounting to impermissible and selective application of provisions of the Code. There is no compulsion in the Code that it should, at the same time, be made applicable to all individuals, (including personal guarantors) or not at all.
There is sufficient indication in the Code by Section 2(e), Section 5(22), Section 60 and Section 179 indicating that personal guarantors, though forming part of the larger grouping of individuals, were to be, in view of their intrinsic connection with corporate debtors, dealt with differently, through the same adjudicatory process and by the same forum (though not insolvency provisions) as such corporate debtors.
A two-member bench comprising Justice M. Venugopal, Member (Judicial) and Shreesha Merla, Member (Technical) that approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.’’
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