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2022 (5) TMI 1584 - AT - Insolvency and BankruptcyMaintainability of application u/s 95(1) of IBC - rejection of Application by Adjudicating Authority holding that the principal borrower being not under the CIRP or under liquidation. Whether pendency of corporate insolvency resolution process or liquidation proceedings against the Principal Borrower/ Corporate Debtor is condition precedent for initiating CIRP against the Personal Guarantor? HELD THAT - In view of the law laid down by the Hon ble Supreme Court in Shiv Kirpal Singh vs. V.V. Giri 1970 (9) TMI 127 - SUPREME COURT , it is clear that the provision of Section 60(2) in no manner can cut down the generality of Section 60(1). Section 60(2) has been engrafted to cover the specific situation and the provision is an addition to and is supplemental to provision of Section 60(1). This Tribunal had occasion to consider this very question in State Bank of India Stressed Asset Management Branch 2022 (1) TMI 1294 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI . In the above case also the Application under Section 95(1) filed by the Bank was rejected on the same very ground that no insolvency resolution process or the liquidation is pending against the Corporate Debtor before the NCLT and it was held that The Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor are pending the application under Section 95(1) filed by the Appellant is not maintainable. The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT. One of the submissions raised here is that the Application under Section 7 has been filed against the Principal Borrower, hence, the condition under Section 60(2) is also fulfilled. It is submitted that the mere fact that Application is not admitted does not lead to conclusion that Application is not pending - It is already held that there is no pre-condition of pendency of insolvency resolution process or liquidation against the Corporate Debtor for filing an Application under Section 60(1), there is no necessity to dwell on the submission any further. The Adjudicating Authority committed error in rejecting the Application under Section 95(1) filed by the Appellant against the Personal Guarantor. The impugned orders passed by the Adjudicating Authority in all these Appeals are set aside and the Application under Section 95(1) filed by the Appellant before the Adjudicating Authority is revived to be proceeded with further in accordance with law. Appeal allowed.
Issues Involved:
1. Maintainability of the application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Personal Guarantor when the Principal Borrower is not under Corporate Insolvency Resolution Process (CIRP) or liquidation. 2. Interpretation of Section 60(1) and Section 60(2) of the IBC. 3. Reliance on precedents and judgments from higher courts. Detailed Analysis: 1. Maintainability of the Application under Section 95(1) of IBC: The primary issue was whether the application filed by UCO Bank to initiate CIRP against the Personal Guarantor is maintainable when the Principal Borrower is neither under CIRP nor liquidation. The Adjudicating Authority (NCLT, Kolkata Bench) had rejected the application on the grounds that the Principal Borrower was not under CIRP or liquidation, deeming the application premature. 2. Interpretation of Section 60(1) and Section 60(2) of the IBC: The appellant argued that under Section 60(1), even if the Principal Borrower is not under CIRP or liquidation, an application against the Personal Guarantor is maintainable. Section 60(2) was interpreted to mean that it is intended to ensure that proceedings against the Personal Guarantor are initiated before the same NCLT where proceedings against the Principal Borrower are pending, not as a precondition for initiating proceedings against the Personal Guarantor. The Tribunal elucidated that Section 60(1) is a substantive provision establishing the NCLT as the Adjudicating Authority for insolvency resolution and liquidation for corporate persons, including Personal Guarantors. Section 60(2) is supplementary and does not limit the generality of Section 60(1). The Tribunal referenced precedents, including the Supreme Court's interpretation in "Shiv Kirpal Singh vs. V.V. Giri," to affirm that "without prejudice" clauses do not restrict the scope of the primary provision. 3. Reliance on Precedents and Judgments: The appellant cited the Tribunal's judgment in "State Bank of India Stressed Asset Management Branch vs. Mahendra Kumar Jagodia," which was affirmed by the Supreme Court. The Tribunal in that case had held that an application under Section 95(1) is maintainable even if no insolvency resolution process or liquidation proceeding is pending against the Corporate Debtor. The respondent relied on the Supreme Court's judgment in "Lalit Kumar Jain vs. Union of India," arguing that the pendency of CIRP or liquidation against the Principal Borrower is a precondition for action against the Personal Guarantor. However, the Tribunal clarified that the Supreme Court in "Lalit Kumar Jain" did not establish such a precondition and that Section 60(2) aims to facilitate the consolidation of proceedings before the same NCLT rather than impose a precondition. Conclusion: The Tribunal concluded that the Adjudicating Authority erred in rejecting the application under Section 95(1) based on the absence of pending CIRP or liquidation against the Principal Borrower. It held that the application against the Personal Guarantor is maintainable under Section 60(1) regardless of the status of the Principal Borrower. Consequently, the Tribunal set aside the impugned orders and revived the applications under Section 95(1) for further proceedings in accordance with the law. Judgment: All appeals were allowed to the extent of reviving the applications under Section 95(1) filed by the appellant, with no order as to costs.
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