Once a Case is Filed Against Borrower, Guarantor’s Case Must Go to the Same NCLT: NCLAT Says Filing Counts as Pendency, Not Just Admission [Read Order]
NCLAT rules that once a Section 7 petition is filed against a borrower, proceedings against the guarantor must go before the same NCLT, as filing itself counts as pendency.
NCLAT - Taxscan
NCLAT - Taxscan
The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) upheld the admission of a Section 7 application filed against Tuscan Consultants and Developers Private Limited, holding that once a petition is filed against a borrower, proceedings against the guarantor must also go before the same NCLT.
The tribunal explained that for the purpose of Section 60(2) of the Insolvency and Bankruptcy Code, 2016, pendency begins from the date of filing of the petition and not from the date of admission.
IDBI Trusteeship Services Limited had executed a Debenture Trust Deed with Ozone Projects Private Limited, the principal borrower, under which a loan of Rs. 126.30 crore was extended. Tuscan Consultants stood as corporate guarantor under the same deed.
When Ozone Projects defaulted, IDBI filed a Section 7 application before NCLT Chennai against the borrower on 05.08.2022, which was admitted on 01.05.2023. A separate Section 7 application was filed against Tuscan Consultants on 19.09.2022, which was admitted by NCLT Chennai on 09.10.2023.
The suspended director of Tuscan argued that since Tuscan’s registered office was in Bangalore, jurisdiction lay with NCLT Bangalore and not NCLT Chennai. They further argued that when the petition against Tuscan was filed in September 2022, there was no “pendency” against Ozone Projects as its petition had not yet been admitted.
The IDBI’s counsel argued that pendency under Section 60(2) begins from filing, and once the petition against Ozone Projects was filed in August 2022, the case against Tuscan had to be filed before the same NCLT to avoid conflicting decisions. They also pointed out that Tuscan had not challenged jurisdiction at the first opportunity before NCLT and had effectively submitted to it.
The two-member bench comprising Justice M. Venugopal (Judicial Member) and Shreesha Merla (Technical Member) observed that the object of Section 60(2) is to ensure consolidation of proceedings against the borrower and guarantor before one tribunal. It explained that pendency commences with filing, and waiting for admission to determine pendency would defeat the purpose of the provision.
The tribunal also observed that Tuscan had participated in proceedings and could not re-agitate jurisdictional objections in the appeal.
On this basis, the tribunal dismissed the appeal and upheld the order of NCLT Chennai admitting Tuscan Consultants into the Corporate Insolvency Resolution Process. All pending interlocutory applications were also disposed of.
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