1 Appropriate adjudicating authority for personal guarantor insolvency

Under section 60(2) of the Insolvency and Bankruptcy Code, 2016 (Code), the adjudicating authority for personal insolvency proceedings against a personal guarantor of a corporate debtor, which is undergoing CIRP under the Code, is National Company Law Tribunal (NCLT).  As per the rules, NCLT is the adjudicating authority for section 60 of the Code and for other cases, the adjudicating authority shall be the Debt Recovery Tribunal (DRT). Consequently, there is a burning question on which is the appropriate forum for insolvency proceedings of a personal guarantor in the event the corporate debtor has not been admitted and the CIRP has not commenced under the Code. This is an important question given that there are several cases where applications have been made for the commencement of CIRP before NCLTs, but they have not been admitted, given the current load of cases in the NCLT.

Mumbai bench of NCLT, in the matter of Insta Capital Private Limited v. Ketan Vinod Kumar Shah have opined that the personal insolvency applications against a personal guarantor can be filed before NCLT only if the application against the corporate debtor is admitted and undergoing CIRP before that NCLT. If the corporate debtor is not undergoing CIRP then the NCLT may refuse personal insolvency of a personal guarantor to such Corporate Debtor.

For detailed reading of the judgement, please click on the link.

However, in September 2021, Delhi bench of NCLT in the matter of PNB Housing Finance v. Mr. Mohit Arora took a contrary view which will assist lenders. The NCLT has held that if an application to commence CIRP against a corporate debtor is filed and is pending before a NCLT (i.e. but application is yet to be admitted) then insolvency proceedings against a person guarantor of such corporate debtor can be filed before the NCLT. The NCLT has conceptually relied on section 60 of the Code which gives NCLT authority for corporate debtors and personal guarantors. Filing of personal insolvency against a personal guarantor is to be filed before the same NCLT as the corporate debtor.

For detailed reading of the judgement, please click on the link.

Bottomline:

It is still an unanswered question, as to the appropriate adjudicating authority for filing of application against personal guarantors of the corporate debtors. We will have to wait for more developments in this matter to settle this position.

overview-co-lending

Co-lending Industry and Product Insights

YubiCo.lend Annual Report FY 21-22

Download

Finance that takes
you further