2018 (12) TMI 652 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - territorial and the derivative/contingent jurisdiction vested with NCLT u/s. 60(4) of the Code to initiate insolvency/bankruptcy proceedings against Persona Guarantors (individuals), arrogates subject matter jurisdiction having regard to proceedings against individuals (in this case personal guarantors) supposed to be conferred upon DRT and then to be vested in NCLT on the footing that CIRP against the corporate debtor/principal borrower pending before this NCLT - Held that - As to insolvency proceeding either under Presidency Towns Insolvency Act or under the Provincial Insolvency Act, the jurisdiction is conferred upon a Civil Court and the same is still in force, in case this Bench initiates insolvency proceedings under any of the insolvency Acts aforementioned, it will become nothing but usurpation into the jurisdiction of some other forum. Whenever any judgment is read and the ratio is culled out from the judgment, every sentence of the judgment has to be read in the context of the remaining portion of the judgment, reader shall not fork out a sentence, and spin another story disregarding the ratio decided and the context of that sentence, which is not the spirit of understanding the ratio of a judgment. Moreover as to jurisdiction is concerned, no court will confer jurisdiction upon somebody to whom legislature has not given such jurisdiction, moreover judges declare law, they do not make law. Therefore if the sentence referred by the Applicant Counsel from the judgement of Honourable Supreme Court is read along with the remaining portion of the judgment, it would be clear to understand that the Honourable Supreme Court has not held that the parties can initiate insolvency proceedings against personal guarantors before NCLT under either Presidency Towns Insolvency Act or Provincial Insolvency Act. As I said earlier, in the judgment supra, the Hon ble Supreme Court has only held that actions against the personal guarantors are not covered by moratorium granted under Section 14 of the Code. In view of the reasons, we have not found any merit in the applications, henceforth these Applications are dismissed as misconceived

Summary

Issues Involved:
1. Maintainability of proceedings against personal guarantors under the Insolvency & Bankruptcy Code (IBC).
2. Jurisdiction of National Company Law Tribunal (NCLT) to initiate Corporate Insolvency Resolution Process (CIRP) against personal guarantors.
3. Applicability of Section 14 moratorium to personal guarantors.

Detailed Analysis:

1. Maintainability of Proceedings Against Personal Guarantors:
The Applicant filed Miscellaneous Applications under Section 60(2)(5) of the Insolvency & Bankruptcy Code (IBC) seeking to initiate CIRP against personal guarantors. The applications were based on the premise that personal guarantors are liable to discharge the debt of the Corporate Debtor under the Guarantee Agreements. The Respondents, who stood as personal guarantors, failed to repay the loan despite being notified, leading to the filing of these applications.

2. Jurisdiction of NCLT to Initiate CIRP Against Personal Guarantors:
The core issue was whether NCLT has jurisdiction to initiate insolvency proceedings against personal guarantors under the current legal framework. The Tribunal noted that while Section 60(2) of the IBC confers jurisdiction to NCLT to deal with personal guarantors, Part-III of the Code, which deals with insolvency/bankruptcy of individuals and partnership firms, has not been notified. The Tribunal emphasized that for NCLT to exercise jurisdiction over personal guarantors, the Debt Recovery Tribunal (DRT) must first be empowered under Part-III of the Code. Since Part-III has not been notified, the NCLT cannot assume jurisdiction over personal guarantors.

3. Applicability of Section 14 Moratorium to Personal Guarantors:
The Applicant argued that proceedings against personal guarantors should be initiated before NCLT, citing the Supreme Court judgment in the case of State Bank of India vs. Ramakrishnan & Another. However, the Tribunal clarified that the Supreme Court's judgment did not confer jurisdiction on NCLT to initiate insolvency proceedings against personal guarantors. The Supreme Court only held that the moratorium under Section 14 of the IBC does not extend to personal guarantors. The Tribunal reiterated that the current legal framework requires personal guarantors to be proceeded against under the existing insolvency laws, such as the Presidency-Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920, as Part-III of the IBC has not been brought into force.

Conclusion:
The Tribunal concluded that it does not have jurisdiction to initiate insolvency proceedings against personal guarantors under the IBC, as Part-III of the Code has not been notified. The applications were dismissed as misconceived, with liberty to the Applicant to proceed in accordance with the existing laws.