2021 (8) TMI 797 - Tri - Insolvency and Bankruptcy

Maintainability of application - Initiation of CIRP - Personal Guarantors to Corporate Debtors failed to make repayment of guarantee undertaken - existence of debt and dispute or not - whether a Financial Creditor can initiate CIRP against the personal guarantor in the absence of any resolution process/liquidation process against the corporate debtor? - HELD THAT - Though it is settled law that the liability of principal borrower and guarantor is coextensive as enunciated u/s 128 of the Contract Act, 1872, and the Creditor may proceed against the principal borrower or the guarantor simultaneously, however, the judgement of Hon ble NCLAT in the case of Dr. Vishnu Kumar Agarwal Vs. Piramal Enterprises Limited, 2019 (2) TMI 316 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI it was laid down that there cannot be two CIRP proceedings, one against the borrower and one against the guarantor. Upon conjoined reading of section 60 r/w section 128 of the Contract Act, 1872, it is clear that the CIRP can be initiated against the Corporate Debtor as well as corporate guarantor. But however, in the instant case, section 60(2) contains a non-obstante clause which specifies that only where a CIRP process or liquidation process of a Corporate Debtor is pending before NCLT, an application initiating Insolvency Resolution Process against the Personal Guarantor, of such Corporate Debtor shall be filed before such NCLT - While Section 7 petition can be filed by the Financial Creditor against the Corporate Debtor and Corporate Guarantor, but under Section 95 of the Code can be filed by Financial Creditor only against personal guarantor of Corporate Debtor, which is already been undergoing CIRP or is in Liquidation. In view of the judgement of Hon ble NCLAT in State Bank of India Vs. Atheena Energy Ventures Limited 2020 (11) TMI 800 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , NEW DELHI and the law as entailed in section 60(2), this bench is of the considered view that an application for insolvency for resolution against the personal guarantor is not maintainable unless that CIRP/liquidation is ongoing against the Corporate Debtor. The petition is dismissed.

Summary

Issues Involved:
1. Jurisdiction of NCLT in relation to insolvency proceedings against personal guarantors.
2. Simultaneous initiation of Corporate Insolvency Resolution Process (CIRP) against both the principal borrower and guarantor.
3. Maintainability of the insolvency petition against the personal guarantor in the absence of ongoing CIRP/liquidation against the corporate debtor.

Detailed Analysis:

Jurisdiction of NCLT:
The Personal Guarantor raised preliminary objections regarding the maintainability of the petition under Section 95 of the Insolvency and Bankruptcy Code, 2016. The objections were based on Section 60(1) and Section 60(2) of the Code, which stipulate that NCLT has jurisdiction over insolvency resolution and liquidation of corporate persons, including personal guarantors, only if insolvency resolution or liquidation proceedings against the corporate debtor are pending before NCLT. The tribunal noted that Section 60(2) contains a non-obstante clause, emphasizing that insolvency proceedings against personal guarantors can only be initiated if the corporate debtor is already undergoing CIRP or liquidation.

Simultaneous Initiation of CIRP:
The Financial Creditor argued that the liability of the principal debtor and the guarantor is coextensive as per Section 128 of the Contract Act, 1872, and that CIRP can be initiated against both simultaneously. The tribunal referred to the judgment of the Hon’ble NCLAT in the case of State Bank of India Vs. Athena Energy Ventures Private Limited, which held that CIRP can proceed against both the principal borrower and the guarantor. The tribunal also discussed the judgment in Dr. Vishnu Kumar Agarwal Vs. Piramal Enterprises Limited, which initially stated that only one CIRP proceeding could be initiated for the same set of claims. However, subsequent judgments clarified that simultaneous proceedings are permissible.

Maintainability of Petition:
The core issue was whether a Financial Creditor can initiate CIRP against a personal guarantor without any ongoing resolution or liquidation process against the corporate debtor. The tribunal analyzed Section 60 of the Code, which mandates that insolvency proceedings against personal guarantors should be filed before the NCLT only if CIRP or liquidation proceedings are pending against the corporate debtor. The tribunal concluded that an application for insolvency resolution against a personal guarantor is not maintainable unless CIRP/liquidation is ongoing against the corporate debtor. This interpretation prevents jurisdictional conflicts between NCLT and the Debts Recovery Tribunal.

Conclusion:
The tribunal dismissed the petition, stating that initiating insolvency resolution against a personal guarantor without the corporate debtor undergoing CIRP or liquidation would result in jurisdictional inconsistencies. The petition was dismissed with no costs, reinforcing the requirement for concurrent insolvency proceedings against the corporate debtor and the personal guarantor for NCLT to have jurisdiction.