NCLAT Affirmed the NCLT's jurisdiction over insolvency proceedings against personal guarantors under Section 95 of IBC.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench headed by Ashok Bhushan (Chairperson) and Mr. Arun Baroka reviewed two appeals on Thursday (23.01.2025) and observed that the NCLT has jurisdiction to entertain applications under Section 95 of the IBC against Personal Guarantors, even if no CIRP or liquidation proceedings are pending against the Corporate Debtor, as Section 60(1) provides the necessary territorial jurisdiction without being restricted by Section 60(2).
In the matter of Company Appeal (AT) (Ins.) Nos. 2282 & 2283 of 2024, the Personal Guarantors of the Corporate Debtor, challenged the order of the Adjudicating Authority admitting insolvency applications filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 ("IBC"). The appeals were filed by the Appellants against the appointment of the Resolution Professional ("RP") and the jurisdiction of the National Company Law Tribunal ("NCLT").
The appeals stemmed from applications filed by Vistra ITCL (India) Ltd. against the appellants under Section 95 of the IBC. The Adjudicating Authority had appointed Shri Vikram Bajaj as the RP on 29.04.2024, a decision which was subsequently challenged by the appellants in Company Appeal (AT) (Ins.) Nos. 1284 and 1306 of 2024. These appeals were dismissed by the Tribunal on 19.07.2024, relying on the Supreme Court's judgment in Dilip B. Jiwrajka v. Union of India and Others, REEDLAW 2023 SC 11575, holding that objections to the RP's appointment should have been raised at the admission stage under Section 100 of the IBC.
Following the dismissal of these appeals, the RP submitted a report recommending the admission of the applications under Section 95. Despite the objections raised by the Personal Guarantors, the Adjudicating Authority admitted the applications on 04.12.2024. The present appeals were filed challenging the admission order, primarily on two grounds: first, that the RP's appointment was not in accordance with Section 97(3) of the IBC, and second, that the NCLT lacked jurisdiction to entertain the applications, arguing that the appropriate forum was the Debts Recovery Tribunal ("DRT").
The appellants contended that the Adjudicating Authority erroneously relied on a circular dated 21.12.2023 issued by the Insolvency and Bankruptcy Board of India ("IBBI"), which allegedly could not override the statutory provision of Section 97(3). In response, counsel for Vistra argued that the jurisdictional issue was not raised earlier and that the NCLT had jurisdiction under Section 60(1) of the IBC.
The Tribunal examined various precedents, including State Bank of India, Stressed Asset Management Branch v. Mahendra Kumar Jajodia Personal Guarantor to Corporate Debtor, REEDLAW 2022 NCLAT Del 01619 and Mahendra Kumar Agarwal v. PTC India Financial Services Limited and Another, REEDLAW 2023 NCLAT Chn 08515, and concluded that the appointment of the RP was valid under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. On the jurisdictional issue, the Tribunal held that Section 60(1) of the IBC conferred jurisdiction upon the NCLT to adjudicate applications under Section 95, irrespective of whether Corporate Insolvency Resolution Process ("CIRP") or liquidation proceedings were pending against the Corporate Debtor.
The Tribunal also considered the Madras High Court's decision in Rohit Nath @ Rohit Rabindra Nath v. KEB Hana Bank Limited, REEDLAW 2021 Mad 07578, which held that insolvency proceedings against Personal Guarantors should be initiated before the DRT. However, the Tribunal found that the Madras High Court's reliance on the Supreme Court's judgment in State Bank of India v. V. Ramakrishnan and Another, REEDLAW 2018 SC 08560, was misplaced and reaffirmed the NCLAT's earlier rulings, which held that the NCLT has jurisdiction to entertain such applications.
Consequently, the appeals were dismissed, and the Tribunal upheld the Adjudicating Authority's decision to admit the applications under Section 95 of the IBC and direct the RP to proceed further. The Tribunal emphasized that the absence of pending CIRP or liquidation proceedings against the Corporate Debtor does not preclude the maintainability of an application against a Personal Guarantor before the NCLT.
In conclusion, the Tribunal reiterated that the statutory scheme of the IBC aims to consolidate insolvency proceedings within a single forum, ensuring efficiency and consistency in the resolution process. The appeals were found to be devoid of merit and were dismissed accordingly, with no order as to costs.
Mr. Virender Ganda, Sr. Advocate with Mr. Raghav Kakkar, Mr. Ayandeb Mitra and Mr. Ashraf Belal, Advocates represented the Appellants.
Dr. U. K. Chaudhary, Sr. Advocate with Mr. Ankur Singh, Ms. Pallavi Sengupta and Mr. Mansumyer Singh, Advocates appeared for Respondent No. 1.
Mr. Abhishek Anand, Mr. Karna Kohli and Ms. Palak Kalra, Advocates appeared for the Resolution Professional.
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