Page 51 - Banking Finance May 2022

FEATURE

the NCLT or the Debt Recovery Tribunal. The root of this
controversy lies in the interpretation of section 60 of the
THE ‘WHEN’ & ‘WHERE’ IBC. Section 60(1) provides that the NCLT where a corporate
debtor is registered (as there are several benches of NCLT
OF INVOKING across regions), shall be the Adjudicating Authority for
insolvency resolution and liquidation of corporate debtors
PERSONAL including that of personal guarantors.
Thereafter, Section 60(2) states that where insolvency
resolution or liquidation process of a corporate debtor is
GUARANTEES pending before NCLT, the same NCLT will have jurisdiction
over such corporate debtors’ corporate guarantor or
personal guarantor. Lastly, section 60(3) provides for transfer
T he Supreme Court’s stay of the National Company NCLT which is dealing with insolvency resolution of the
of proceedings against personal guarantor to the relevant
corporate debtor.
Law Appellate Tribunal’s decision in the case of SBI
Stressed Assets Management Branch v. Mahendra On other hand, Section 179 of IBC, provides that subject to
Kumar Jajodia, has received a lot of attention. In Section 60 of IBC, the DRT shall be the Adjudicating
this case, the NCLAT had held that irrespective of Authority for individuals. Clearly, personal guarantors are
pendency of any proceedings against the corporate debtor, individuals. The personal guarantor rules of 2019 also
the National Company Law Tribunal will have jurisdiction to provide that for the purposes of section 60 of IBC the
entertain an application against personal guarantor. jurisdiction shall vest with the NCLT but in other cases i.e. in
The personal guarantor has gone on to assail the NCLAT’s cases where a CIRP or liquidation is not pending against the
order before the SC; the SC stayed the operation of the corporate debtor of the personal guarantor or a CIRP has
NCLAT order basis sections 60(2) and (3) of the Insolvency not been initiated against the corporate debtor, the
and Bankruptcy Code, 2016 (“IBC”) and observations made jurisdiction shall vest with the DRT.
in Lalit Kumar Jain v. Union of India in this regard. However, The NCLAT while looking at these provisions, has taken an
a conclusive decision is yet to be rendered. Two legal issues interpretation that as Section 60(1) which states that NCLT
that arise in this context are worth examining. The first is shall have jurisdiction over personal guarantors, and is an
whether a personal guarantor can be proceeded against overriding provision, the same would mean that NCLT shall
under IBC when a corporate insolvency resolution process have jurisdiction to entertain personal guarantor
(“CIRP”) is not pending. applications, irrespective of whether an insolvency
Despite some conflicting judgements of the NCLT on the first proceedings or liquidation is pending against them or not.
issue, the matter has been largely settled by the Hon’ble Legally, it is a bit of a vexed question–Section 60(1) suggests
Supreme Court in Lalit Kumar Jain. In this case, the court as if NCLT has jurisdiction over personal guarantors
held that a personal guarantor’s liability does not cease even irrespective of pendency of insolvency resolution or
after the approval of a resolution plan, and may be liquidation against the corporate debtor. However, a
proceeded against. purposive interpretation of Sections 60(1) read with Sections
This implies that proceedings against personal guarantors 60(2), (3) read with Section 179 and the personal guarantor
need not be linked to the CIRP of the principal debtor. rule indicates otherwise.
Therefore, this should imply that even if a CIRP is not It expected that the SC’s decision in this appeal will provide
pending for the principal debtor, either because it has more clarity on the position that an application for initiation
concluded or because it has not been filed, a personal of an insolvency process against a personal guarantor can
guarantor can be proceeded against under the Code, which be filed in the absence of any pending CIRP or liquidation
is consistent with the NCLAT’s conclusion in Mahendra Kumar against the corporate debtor. More importantly, it is hoped
Jajodia. The SC, in its interim order, also does not consider that the SC will conclusively decide whether in the absence
this a ground to stay the NCLAT’s order. of any pending CIRP or liquidation process against the
The second and real question that remains to be decoded is corporate debtor, the appropriate forum for such
which would be the appropriate forum for proceedings applications against the personal guarantor will be the NCLT
against personal guarantors when a CIRP is not pending– or the DRT. (Source: Business Line)

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