NCLT alone has Jurisdiction Over Personal Guarantor Insolvency when CIRP Is Pending: Bombay HC orders Transfer of Proceedings
Relying on the Supreme Court’s ruling in Lalit Kumar Jain v. Union of India, the Court found that the Debt Recovery Tribunal (DRT) lacked jurisdiction to entertain a Section 95 application filed by the guarantor. The Court also noted that the DRT’s interim moratorium order under Section 96 was issued without jurisdiction.
The Bombay High Court held that insolvency proceedings against personal guarantors must be filed before, or transferred to, the National Company Law Tribunal (NCLT) when the corporate debtor is already undergoing CIRP, in line with Section 60 of the Insolvency andBankruptcy Code (IBC).
The Court quashed the Debt Recovery Tribunal’s (DRT) interim moratorium order issued under Section 96 of the IBC and directed that all pending proceedings be transferred to the NCLT within four weeks.
The petitions were filed by Kotak Mahindra Bank Ltd. and other secured creditors, challenging the maintainability of insolvency applications filed before the DRT by personal guarantors of defaulting borrowers.
The petitioners argued that the guarantors had initiated proceedings under Section 95 of the IBC before the DRT solely to stall enforcement actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI).
In one case, the secured creditor had already obtained orders under Section 14 of SARFAESI for taking physical possession of mortgaged properties when the guarantor abruptly filed a Section 95 application before the DRT, prompting the Tribunal to declare an interim moratorium.
The petitioners contended that the DRT lacked jurisdiction to entertain such applications once CIRP against the principal borrower had been admitted by the NCLT.
They relied heavily on the Supreme Court’s landmark judgment in Lalit Kumar Jain v. Union of India (2021), which clarified that insolvency proceedings against personal guarantors are intrinsically linked to the insolvency of the corporate debtor and must be adjudicated by the same forum, the NCLT.
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The High Court agreed. It noted that Section 60(1) of the IBC expressly designates the NCLT as the adjudicating authority for insolvency proceedings relating to corporate persons and their personal guarantors.
Section 60(2) further mandates that when CIRP or liquidation proceedings of a corporate debtor are pending before the NCLT, any insolvency application relating to its personal guarantor must also be filed before that NCLT.
Section 60(3) goes a step further, requiring that any such proceedings pending before another court or tribunal, including the DRT, must be transferred to the NCLT.
The Division Bench of Justice Adwait M Sethna and Justice MS Sonak observed that in the present case, CIRP against the principal borrower had already been admitted on 16 February 2024.
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This triggered the statutory mandate under Section 60(2), rendering the DRT incompetent to entertain the guarantor’s Section 95 application. The DRT’s order dated 2 May 2022 declaring an interim moratorium was therefore issued without jurisdiction.
The Court also referred to the National Company Law Appellate Tribunal’s (NCLAT) ruling in State Bank of India v. Mahendra Kumar Jajodia (2022), which held that even in the absence of a pending CIRP, Section 60(1) makes the NCLT the adjudicating authority for personal guarantor insolvency.
The Supreme Court had dismissed the appeal against this decision, reinforcing the principle that the NCLT is the exclusive forum for such matters.
The High Court noted that the petitioners had alleged collusion between the guarantor and the creditor who filed the Section 95 application, aimed at obstructing SARFAESI enforcement. However, the Court clarified that it was unnecessary to examine allegations of collusion, as the jurisdictional issue alone was dispositive.
Applying the principles laid down in Lalit Kumar Jain, the Court held that the DRT should have either dismissed the Section 95 application for want of jurisdiction or transferred it to the NCLT once the petitioners pointed out the pendency of CIRP. The DRT’s failure to do so rendered its proceedings void.
Consequently, the Court set aside the DRT’s order dated 2 May 2022 and directed the Tribunal to transfer all pending proceedings in these matters to the NCLT within four weeks. The rule was made absolute, and all interim applications were disposed of.
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