No Grounds to Interfere with Order Admitting S. 95 Application: NCLAT upholds Insolvency Proceedings against Personal Guarantors [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has upheld the admission of insolvency proceedings initiated against personal guarantors under Section 95 of the Insolvency and Bankruptcy Code, 2016, thereby dismissing a batch of appeals.

The appeals were filed by Neeta Saha, Aniel Kuumar Saha and Aunirban Saha challenging a common order passed by the National Company Law Tribunal, New Delhi. The order admitted applications filed by a financial creditor for initiation of personal insolvency resolution process. The proceedings arose out of defaults committed by the principal borrower, a corporate debtor which had availed term loan facilities of Rs. 90 crore.

Before the Appellate Tribunal, the personal guarantors contended that once the corporate insolvency resolution process had commenced against the principal borrower, the issuance of a loan recall notice was hit by the moratorium under Section 14 of the Code. It was further argued that the default fell within the period covered under Section 10A and therefore, insolvency proceedings against the guarantors were not maintainable.

The appellants also disputed the quantum of debt claimed, and asserted that the amount demanded from the guarantors exceeded the claim admitted in the CIRP.

Opposing the appeals, the financial creditor submitted that proceedings against personal guarantors are independent of the CIRP of the corporate debtor and hence, not hit by the Section 14. It was further argued that Sections 9 and 10 of the Code do not bar initiation of proceedings personal guarantors. The creditor also clarified that the issue of exact quantum was not a ground to reject admission of the Section 95 applications.

The NCLAT Bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra (Technical Member) held that the initiation of CIRP does not restrict the financial creditor from invoking personal guarantees or initiating insolvency proceedings against personal guarantors. The Tribunal reiterated that Section 10A does not apply to proceedings under Section 95 of the Code.

An earlier decision in Amit Jain v. Siemens Financial Services Pvt. Ltd. was relied upon to hold that insolvency proceedings against personal guarantors are not suspended due to defaults occurring during the Section 10A period.

On the issue of disputed quantum of debt, the Appellate Tribunal held that the actual calculation of liability could be examined during consideration of the repayment plan and could not be a ground to refuse admission of the insolvency applications.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates