NCLT allows IRP Against Personal Guarantor in Absence of CIRP of Corporate Debtor: Supreme Court stays Order [Read Order]

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The Supreme Court has stayed the order of the NCLAT in the matter of State Bank of India v. Mahendra Kumar Jajodia, wherein the Appellate Tribunal had settled the widely contended position on whether Insolvency Resolution Process (IRP) can be initiated against the Personal Guarantor in the absence of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and held that cases not covered under Section 60(2) will fall under Section 60(1) of the Code.

Justice S. Abdul Nazeer and Justice Vikram Nath was considering an appeal filed by the Personal Guarantor, Mahendra Kumar Jajodia against the order of the NCLAT, which allowed initiation of IRP against him u/s 95(1) of the Code.

The appellant challenged a paragraph wherein it was stated that “Section 60(2) prescribes that 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. Therefore, 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.”

Granting an interim relief, the Supreme Court held that “Issue notice. Until further orders, there shall be stay of the operation of the impugned Order passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi.”

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