THE SUPREME COURT HAS REFUSED TO INTERFERE WITH THE NCLAT’S RULING THAT THE NCLT CAN HEAR MATTERS AGAINST A PERSONAL GUARANTOR WHERE THE COMPANY IS NOT UNDERGOING CIRP: MAHENDRA KUMAR JAJODIA V. STATE BANK OF INDIA STRESSED ASSET MANAGEMENT BRANCH [CA NO 1871-1872/2022]
20 June 2022
Background Facts
State Bank of India filed an application under §95 of the Insolvency and Bankruptcy Code 2016 to initiate the corporate insolvency resolution process against a personal guarantor. The NCLT Bench, Calcutta, rejected the application as being premature since the company, on whose behalf the guarantee was provided, was not undergoing CIRP.
NCLAT Judgment
The NCLT Order was appealed to the NCLAT. The NCLAT allowed the appeal, holding that:
1. §60(1) of the IBC states that the “adjudicating authority” for the CIRP or the liquidation of “corporate persons including corporate debtors and personal guarantors” is the NCLT.
2. §60(2) of the IBC states that “without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this code”, where the CIRP or liquidation proceeding against a company is pending before the NCLT, then an application for insolvency resolution, liquidation, bankruptcy “of a corporate guarantor or personal guarantor… of such corporate debtor” is to be filed before such NCLT.
3. There is a distinction between §60(1) and §60(2). §60(2) contemplates a situation where proceeding against the corporate debtor is pending and stipulates that an application against the guarantor is to be filed with the same NCLT. If proceeding is not pending, then §60(1) applies. The forum is still the NCLT, but the one “having territorial jurisdiction over the place where the registered office of the corporate persons located”.
4. Therefore, the NCLT has jurisdiction to entertain an application under §95 of the IBC against guarantors even where no proceeding is pending against the company on whose behalf the guarantee was issued.
Supreme Court of India
The decision of the NCLAT was appealed to the Supreme Court, which dismissed the appeal while observing that: “We do not see any cogent reason to entertain the Appeals. The judgment does not warrant any interference”.
Conclusion
With the dismissal, the conclusion of the NCLAT has been affirmed.
For further information on this topic please contact Tuli & Co
Tel T +91 11 4593 4000, fax F +91 11 4593 4001
email [email protected]
www.tuli.co.in
