The NCLAT upheld the Personal Guarantor's liability and the Creditor’s right to initiate insolvency proceedings under Section 95 of the IBC despite the assignment of debt.
On 21.02.2025, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey, reviewed an appeal and upheld the initiation of personal insolvency proceedings against the Appellant—holding that a Financial Creditor is entitled to initiate proceedings under Section 95 of the IBC irrespective of the Security Trustee’s involvement, that the assignment of rights under a Facility Agreement does not require the borrower’s consent, and that a beneficiary under a contract can enforce its terms despite the absence of direct contractual privity—further affirming the liability of Personal Guarantors and the enforceability of creditor rights under the IBC.
The present appeal was filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, by the Appellant, challenging the order dated 11.06.2024, passed by the National Company Law Tribunal (NCLT), New Delhi, Court-III, in an interlocutory application. The appeal was directed against Piramal Enterprises Ltd. (formerly PHL Fininvest Pvt. Ltd.), the Financial Creditor (Respondent No.1), and the Resolution Professional of the Corporate Debtor, Mr. Jayant Prakash (Respondent No.2). The case arose from a Facility Agreement dated 20.07.2017, under which a term loan of ₹400 crores was extended to Hema Engineering Industries Limited (HEIL), secured by a Personal Guarantee executed by the Appellant.
The dispute primarily revolved around the initiation of personal insolvency proceedings against the Appellant under Section 95(1) of the IBC. The Appellant challenged the validity of the proceedings on various grounds, including the absence of privity of contract between himself and Respondent No.1, improper issuance of the statutory demand notice, and alleged procedural lapses in the appointment of the Resolution Professional. The Appellant further argued that the Board Resolution authorizing the initiation of insolvency proceedings was defective and could not be rectified retrospectively. Additionally, he contended that Respondent No.1 already held sufficient security against the loan and had filed a claim in the Corporate Insolvency Resolution Process of HEIL, making the personal insolvency proceedings redundant.
In response, Respondent No.1 contended that the Appellant, as a Personal Guarantor, was jointly and severally liable for the debt, relying on the Supreme Court judgments in Laxmi Pat Surana v. Union of India, REEDLAW 2021 SC 03571 and Lalit Kumar Jain v. Union of India and Others, REEDLAW 2021 SC 05510. It was argued that the rights under the Facility Agreement had been validly assigned, and the personal guarantee remained enforceable. Respondent No.1 further asserted that the Appellant had failed to dispute the debt or the guarantee, and his objections were legally unsustainable. The Tribunal also noted that the Resolution Professional had followed due process and adhered to principles of natural justice while issuing notices and evaluating documents before recommending the admission of the insolvency application.
The NCLAT, in its judgment, upheld the findings of the Adjudicating Authority and dismissed the Appellant's appeal. The Tribunal held that a creditor had the right to initiate proceedings under Section 95 of the IBC, irrespective of whether the Security Trustee was a party to the Guarantee Deed. It further ruled that an assignment of rights under a Facility Agreement did not require consent from the borrower, and such assignment was legally binding. Referring to Supreme Court precedents, the Tribunal concluded that a beneficiary under a contract could enforce its terms even in the absence of direct contractual privity. The Tribunal also rejected the Appellant's procedural objections, affirming that the appointment of the Resolution Professional and the filing of the demand notice were in compliance with the Code and relevant regulations.
In conclusion, the NCLAT reaffirmed the liability of Personal Guarantors in insolvency proceedings and upheld the principle that lenders could enforce their rights under assigned agreements. The Tribunal's decision reinforces the jurisprudence surrounding personal guarantees and strengthens the enforceability of creditor rights under the IBC.
Mr. Vikas Dutta, Mr. Siddharth Silwal and Ms. Shivani Sharma, Advocates represented the Appellant.
Mr. Prashant Kumar, Mr. Angad, Mr. Kevin Chadha and Ms. Nikita Menon, Advocates appeared for Respondent No. 1.
Mr. Adhish Srivastava, Advocate appeared for Respondent No. 2.
Mr. Jayant Prakash, Resolution Professional.
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REEDLAW 2025 NCLAT Del 02563
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