Threshold Limit For Initiating Insolvency Process Against Personal Guarantors Shall be same of Corporate Debtor: NCLT [Read Order]

The National Company Law Tribunal (NCLT) Chennai has held that the threshold limit for initiating the Personal Insolvency Resolution Process (PIRP) under Sections 94 or 95 of the Insolvency and Bankruptcy Code, 2016 (Code), shall be the same as that for a Corporate Debtor under Section 4 of the Code, i.e., ₹1 crore.

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In order to initiate the Insolvency Resolution Process against himself as the Personal Guarantor for SKV United Hospitals Limited Corporate Debtor, the applicant, Mr. Keerthan Kumar Upadhya, filed this application under section 94 of the code. Shreem Hreem Shreem Holdings had provided credit facilities to SKV United Hospitals Limited. The aforementioned loans were personally guaranteed by the applicant. The current application was filed because the corporate debtor was unable to pay back the debts.

The Tribunal noted that the applicant gave a personal guarantee for a loan of Rs. 75,000,000 that the corporate debtor had taken out. The creditor used the guarantee to seek the sum, which is obviously less than the one crore criterion for starting the insolvency procedure.

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The IBC classifies individuals into three categories- personal guarantors to corporate debtors, partnership firms and proprietorship firms and other individuals to enable implementation of individual insolvency in a phased manner. The provisions for personal guarantors to the corporate debtor came into effect on December 1 2019.

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The bench of Shri. Sanjiv Jain (Judicial Member) Shri. Venkataraman Subramaniam (Technical Member) ruled that the threshold limit for initiating insolvency proceedings against personal guarantors under Sections 94 and 95 of the Code shall be the same as that for Corporate Debtors under Section 4 of the Code, i.e., ₹1 crore. Based on the above, it held that the defaulted amount does not meet the threshold limit therefore, the application under section 94 of the code cannot be maintained.

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The Tribunal, while dismissing the petition,  further held that the Applicant also failed to send notice to all financial creditors and the corporate debtor as required under Rule 6(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.

To Read the full text of the Order CLICK HERE

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