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TMI Blog2025 (1) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... e Appellant(s)/ Personal Guarantors. CP(IB) No.214/(PB)/2024 has been filed by Vistra against Anita Goel and CP (IB) No.213/(PB)/2024 has been filed by Vistra against Ayush Goel. On 29.04.2024, the Adjudicating Authority appointed Resolution Professional ("RP") Shri Vikram Bajaj in Application under Section 95. Company Appeal (AT) (Ins.) No.1284 and 1306 of 2024 was filed (by Ayush Goel and Anita Goyal) challenging the order of appointment of RP, which Appeal(s) were dismissed by this Tribunal on 19.07.2024 relying on the judgment of the Hon'ble Supreme Court in Dilip B Jiwarajka Vs. Union of India & Ors. - WP (Civil) No.1281 of 2021 and holding that all issues had to be agitated at the time when the application come for admission/ rejection under Section 100. The Appeal(s) were dismissed with above observations. Subsequent, to the order dated 19.07.2024, the RP submitted a Report recommending admission of Application under Section 95. Objections were filed by the Personal Guarantors. The Adjudicating Authority after considering the Report of the RP and the objections raised by the Personal Guarantor, by an order dated 04.12.2024 admitted CP(IB) No.214/(PB)/2024 and CP (IB) No.213/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate Person by virtue of Section 60, sub-section (1). The Appellant ought not be allowed to raise objection regarding jurisdiction of NCLT in the appellate proceedings. It is submitted that no objection having been taken by the Appellant to the jurisdiction of the NCLT and Appellant having willingly participated in the proceedings, without raising any objection, the Appellant is stopped from raising objections now. 5. Learned Counsel for both the parties have placed reliance on various judgments of Hon'ble Supreme Court, this Tribunal as well as Madras High Court, which we shall refer to while considering the submissions in detail. 6. The first submission, which has been raised by learned Counsel for the Appellant is that the appointment of RP was not in accordance with Section 97, sub-section (3). Section 97, sub-section (3) on which reliance has been placed by learned Counsel for the Appellant is as follows: "97(3) Where an application under section 94 or 95 is filed by the debtor or the creditor himself, as the case may be, and not through the resolution professional, the Adjudicating Authority shall direct the Board, within seven days of the filing of such application, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 95 Application filed by the Financial Creditor and the Application ought to have been filed before the DRT. Although learned Counsel for the Respondent has contended that the objection regarding jurisdiction having not been raised before the NCLT, we proceed to examine the contention on merit. The issue raised by the Appellant needs consideration and answer in these Appeal(s) to clarify the law on the subject. 11. The submission which has been pressed by the Counsel for the Appellant is that NCLT shall be the Adjudicating Authority for Personal Guarantor only when proceeding of insolvency resolution process is ongoing against the Corporate Debtor have been initiated and are pending before the NCLT. Reliance has been placed by learned Counsel for the Appellant on Section 60, sub-section (2). It is contended that in the present case, no CIRP or liquidation is going on against the Corporate Debtor, hence, the jurisdiction to entertain Application under Section 95 lies with DRT. Learned Counsel for the Appellant has also relied on Section 79 and 179 of the IBC to support his submission. Learned Counsel for the Appellant also relied on judgment of the Madras High Court in Rohit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rival submissions of the parties, it is necessary to notice certain statutory provisions of the IBC and the rules framed thereunder to find out the legislative Scheme. Section 2, which deals with applicability of provisions of the Code, by an amendment made by Act 8 of 2018 w.e.f. 23.11.2017, sub-clause (e) in Section 2 was inserted, which is as follows: "2. Application. - The provisions of this Code shall apply to- (e) personal guarantors to corporate debtors;" 15. Section 5, sub-section (1), defines the 'Adjudicating Authority', which is as follows: "5.(1) "Adjudicating Authority", for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013);" 16. Section 5, sub-section (22) defines 'Personal Guarantor', is as follows: "5(22) "personal guarantor" means an individual who is the surety in a contract of guarantee to a corporate debtor;" 17. Part-II of the Code, contain Section 60. Section 60, as amended by Act 26 of 2018 on 06.06.2018, provides as follows: "60. Adjudicating Authority for corporate persons. - (1) The Adjudicating Authority, in relation to insolvency resolution and liquidati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 78 provides as follows: "78. Application. - This Part shall apply to matters relating to fresh start, insolvency and bankruptcy of individuals and partnership firms where the amount of the default is not less than one thousand rupees: Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one lakh rupees." 19. Section 79, sub-section (1) defines "Adjudicating Authority", which is as follows: "79. Definitions. - In this Part, unless the context otherwise requires, - (1) "Adjudicating Authority" means the Debt Recovery Tribunal constituted under subsection (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institution Act, 1993 (51 of 1993);" 20. Section 179, which is under Chapter-VI of Part-II, which contains heading "Adjudicating Authority for individuals and partnership firms". Section 179 provides as follows: "179. Adjudicating Authority for individuals and partnership firms. - (1) Subject to the provisions of section 60, the Adjudicating Authority, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal having terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntor and the matters relating to same debt are dealt in the same Tribunal. The Committee recommended for certain amendments. Paragraph 23 of the Report provides as follows: "23. LINKING PROCEEDINGS OF CORPORATE GUARANTOR WITH CORPORATE DEBTOR 23.1 Section 60 of the Code requires that the Adjudicating Authority for the corporate debtor and personal guarantors should be the NCLT which has territorial jurisdiction over the place where the registered office of the corporate debtor is located. This creates a link between the insolvency resolution or bankruptcy processes of the corporate debtor and the personal guarantor such that the matters relating to the same debt are dealt in the same tribunal. However, no such link is present between the insolvency resolution or liquidation processes of the corporate debtor and the corporate guarantor. It was decided that section 60 may be suitably amended to provide for the same NCLT to deal with the insolvency resolution or liquidation processes of the corporate debtor and its corporate guarantor. For this purpose, the term "corporate guarantor" will also be defined." 23. There is no dispute with regard to interpretation of Section 60, sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his was so held by the Privy Council in King-Emperor v. Sibnath Banerji [(1945) FCR 195] ." 24. When expression "without prejudice" is used in sub-section (2), the provisions of sub-section (2) in no manner is cutting down the applicability of provisions of sub-section (1) of Section 60. Section 60, sub-section (1) clearly lays down that Adjudicating Authority in addition to insolvency resolution and liquidation for Personal Guarantors, shall be the NCLT having territorial jurisdiction over the place where the registered office of a Corporate Person is located. The issue which has arisen in the present case, came for consideration before this Tribunal in several cases. Two judgments have been relied by learned Counsel for the Respondent, which need to be noticed. The first judgment, which has been relied by learned Counsel for Respondent is State Bank of India vs. Mahendra Kumar Jajodia - (2022) SCC OnLine NCLAT 58, in which case, an Application under Section 95 was filed by the State Bank of India before NCLT, Kolkata Bench, seeking initiation of CIRP against Personal Guarantor, which Application came to be rejected by the Adjudicating Authority as premature relying on Section 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 60 of the Code is that when proceedings are pending in 'a' National Company Law Tribunal, any proceeding against Corporate Guarantor should also be filed before 'such' National Company Law Tribunal. The idea is that both proceedings be entertained by one and the same NCLT. The sub-section 2 of Section 60 does not in any way prohibit filing of proceedings under Section 95 of the Code even if no proceeding are pending before NCLT. 8. The use of words 'a' and 'such' before National Company Law Tribunal clearly indicates that Section 60(2) was applicable only when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before NCLT. The object is that when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before 'a' NCLT the application relating to Insolvency Process of a Corporate Guarantor or Personal Guarantor should be filed before the same NCLT. This was to avoid two different NCLT to take up CIRP of Corporate Guarantor. Section 60(2) is applicable only when CIRP or Liquidation Proceeding of a Corporate Debtor is pending, when CIRP or Liquidation Proceeding are not pending with regard to the Corporate Debtor there is no applicability of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar Agarwal (supra), which was also a case where Personal Guarantor has challenged the order passed by NCLT Hyderabad, where NCLT, in proceedings under Section 95, has appointed an RP, which order was challenged before the Chennai Bench of this Tribunal. The Personal Guarantor contended before the Appellate Tribunal that Application filed under Section 95 is not maintainable, which ought to have been filed before the DRT. The Appellate Tribunal has noticed elaborately the submissions advanced before it by both the parties and also referred to the various judgments and citations relied by both the parties. The Chennai Bench of this Tribunal has also referred to and relied the judgment of this Tribunal in State Bank of India vs. Mahendra Kumar Jajodia (supra). The Chennai Bench of this Tribunal has laid down that CIRP against the Corporate Debtor is not a condition precedent for initiation of insolvency resolution process against the Personal Guarantor. In paragraph 76, 77 and 79, following was laid down: "76. It is well settled by now, that the 'Insolvency Proceedings', can be initiated against the 'Personal Guarantor', even when 'no proceedings', are pending against the 'Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain the Appeals. The judgment impugned does not warrant any interference. The Appeals are dismissed." 29. From the above it is clear that with regard to maintainability of Application under Section 95 by a Financial Creditor against a Personal Guarantor, even if no insolvency resolution process or liquidation proceedings of a Corporate Debtor is pending, has been held to be maintainable and the view taken by this Appellate Tribunal in Mahendra Kumar Jajodia has also received the approval of the Hon'ble Supreme Court. 30. Central Government has issued Notification dated 15.11.2019 by which provisions pertaining to various provisions of the IBC were enforced with effect from 01.12.2019. Notification issued by the Government of India, Ministry of Corporate Affairs on 15.11.2019 is as follows: "NOTIFICATION New Delhi. the 15th November, 2019 S.O. 4126(E). In exercise of the powers conferred by sub-section (3) of section I of the Insolvency and Bankruptcy Code. 2016 (31 of 2016). the Central Government hereby appoints the 1st day of December,2019 as the date on which the following provisions of the said Code only in so far as they relate to personal guarantors to corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This meant that proceedings against personal guarantors stood outside the NCLT and the Code. The non-obstante provision under Section 238 gives the Code overriding effect over other prevailing enactments. This is perhaps the rationale for not notifying Section 243 as far as personal guarantors to corporate persons are concerned. Section 243(2) saves pending proceedings under the Acts repealed (PIA and PTI Act) to be undertaken in accordance with those enactments. As of now, Section 243 has not been notified. In the event Section 243 is notified and those two Acts repealed, then, the present notification would not have had the effect of covering pending proceedings against individuals, such as personal guarantors in other forums, and would bring them under the provisions of the Code pertaining to insolvency and bankruptcy of personal guarantors. The impugned notification, as a consequence of the non obstante clause in Section 238, has the result that if any proceeding were to be initiated against personal guarantors it would be under the Code. 33. The observation by the Hon'ble Supreme Court in the last line is relevant which reads "The impugned notification, as a consequence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the same time, be made applicable to all individuals, (including personal guarantors) or not at all. There is sufficient indication in the Code- by Section 2(e), Section 5(22), Section 60 and Section 179 indicating that personal guarantors, though forming part of the larger grouping of individuals, were to be, in view of their intrinsic connection with corporate debtors, dealt with differently, through the same adjudicatory process and by the same forum (though not insolvency provisions) as such corporate debtors. The notifications under Section 1(3), (issued before the impugned notification was issued) disclose that the Code was brought into force in stages, regard being had to the categories of persons to whom its provisions were to be applied. The impugned notification, similarly inter alia makes the provisions of the Code applicable in respect of personal guarantors to corporate debtors, as another such category of persons to whom the Code has been extended. It is held that the impugned notification was issued within the power granted by Parliament, and in valid exercise of it. The exercise of power in issuing the impugned notification under Section 1(3) is therefore, not ult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018. The issue which came for consideration before the Hon'ble Supreme Court of India was as to whether after enforcement of moratorium under Section 14 of the IBC, will the moratorium shall also be applicable to the Personal Guarantors. The Adjudicating Authority in the said case has held that after declaring the moratorium under Section 14, the moratorium shall also apply to Personal Guarantor. Paragraph 22, which has been relied by Madras High Court was in reference to reliance by Respondent to the applicability of moratorium to Personal Guarantors. Observation made in paragraph 22 by the Hon'ble Supreme Court, as extracted by Madras High Court is as follows: "22. We are afraid that such arguments have to be turned down on a careful reading of the sections relied upon. Section 60 of the Code, in sub-section (1) thereof, refers to insolvency resolution and liquidation for both corporate debtors and personal guarantors, the adjudicating authority for which shall be the National Company Law Tribunal, having territorial jurisdiction over the place where the registered office of the corporate person is located. This sub-section is only important in that it locates the Tribunal whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision Bench while deciding the proceeding in C.R.P. No.2513 of 2022 felt bound by the earlier judgment, which has become final between the parties. Thus, the reasons, which was relied by the Madras High Court was the finality of its earlier judgment dated 28.07.2021, which was applicable to the facts of earlier proceedings. The observations were made in paragraph 5 (iv) and (v) are as follows: "5.(iv) The specific contention has been raised by the petitioner that even in the absence of the proceedings against the corporate debtor, the proceedings against the personal guarantor can only be before the NCLT in C.R.P.(PD).No.1289 of 2021 and by a judgment, dated 28.07.2021, the said contention has been rejected and it is essential to extract paragraph No.22 of the said judgment which reads as follows:- "22. The text of Section 60(2) discloses that Section 60 of the Code would apply to an individual only if there is a corporate insolvency resolution process pertaining to the corporate entity which is the principal debtor, that has been filed or commenced. In other words, in case of company 'A' being the principal debtor and an individual 'P' the guarantor promising repayment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce may be made to the relevant provisions of the IBC. Part II of the IBC deals with "INSOLVENCY RESOLUTION AND LIQUIDATION FOR COPORATE PERSONS" and Section 60 of the IBC occurs in Chapter VI of Part II of the IBC titled "ADJUDICATING AUTHORITY FOR CORPORATE PERSONS." The relevant portion of Section 60 of the IBC is set out below: 60. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or bankruptcy of a personal guarantor of such corporate debtor shall be filed before such National Company Law Tribunal. (3) An insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 60 is to ensure that the insolvency resolutions of the corporate debtor and its guarantors are dealt with together, then the question that arises is as to why there should be a reference to the powers of the DRT in sub-section (4). The answer to this question is to be found in Section 179 of the IBC, 2016. Under Section 179(1), it is the DRT which is the adjudicating authority in relation to insolvency matters of individuals and firms. This is in contrast to Section 60(1) which names the NCLT as the adjudicating authority in relation to insolvency resolution and liquidation of corporate persons including corporate debtors and personal guarantors. The expression "personal guarantor" is defined in Section 5(22) to mean an individual who is the surety in a contract of guarantee to a corporate debtor. Therefore the object of subsection (2) of Section 60 is to avoid any confusion that may arise on account of Section 179(1) and to ensure that whenever a CIRP is initiated against a corporate debtor, NCLT will be the adjudicating authority not only in respect of such corporate debtor but also in respect of the individual who stood as surety to such corporate debtor, notwithstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that sub-section (2) of Section 60, IBC starts with words without prejudice to sub-section (1)'. Clearly, sub-section (2) of Section 60 is supplemental to subsection (1) of Section 60 and has to be read along with sub-section (1) of Section 60. A harmonious reading of the aforesaid provisions would lead to the conclusion that sub-section (1) of Section 60 applies in respect of insolvency proceedings in respect of personal guarantors of corporate debtors irrespective of the fact whether CIRP is pending against the corporate debtor. The objective of sub-sections (2) and (3) is that where proceedings in respect of a corporate debtor have been initiated in one NCLT and those against a guarantor before another NCLT or another court or tribunal while the CIRP is pending in respect of the corporate debtor before a particular NCLT, the proceedings against the personal guarantor should also be before the same NCLT. 27. It may also be relevant to mention here that in term of Rule 3(1)(a) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors), Rules, 2019, it has specifically been provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... un Agarwal. Coming to the judgment of NCLT in Aditya Birla Finance Ltd. vs. Sarita Mishra, the said proceeding was initiated by Financial Creditor against Personal Guarantor under Section 95, sub-section (1). The Application came to be rejected by NCLT Kolkata Bench, holding that NCLT shall have jurisdiction only when the proceedings for insolvency resolution or liquidation is pending against the Corporate Debtor and the Application under Section 95 filed by the Financial Creditor was dismissed. It is relevant to notice that NCLT Kolkata Bench had noticed the judgments of this Tribunal in State Bank of India vs. Mahendra Kumar Jajodia as well as Mahendra Kumar Agarwal vs. PTC India Financial Services case, but NCLT proceeded to distinguish the said judgments without there being any real distinction in the issue, which has arisen for consideration. To the similar effect is another judgment of NCLT Kolkata Bench in Tata Capital Financial Services Ltd. vs. Arjun Agarwal decided on 20.12.2024, i.e., on the same date, on which judgment of Aditya Birla Finance Ltd. was delivered. In the said judgment also the same view was taken by the NCLT Kolkata Bench while dismissing Section 95 Appli ..... 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