Back
IN THE HIGH COURT OF MADRAS
T. RAJA, D. BHARATHA CHAKRAVARTHY, JJ.
Rohit Nath – Appellant
Versus
KEB Hana Bank Ltd. – Respondents
C.R.P. No. 2513 of 2022 and C.M.P. No. 12925 of 2022
Decided On: 30.03.2023
Whether NCLT alone has jurisdiction in matters of insolvency resolution and bankruptcy process for personal guarantors (to corporate debtors) in view of Section 60(1) of The IBC? Whether in view of the filing of the insolvency resolution process against the corporate debtor, the pending proceedings in I.B.C. No. 1 of 2022 before the DRT is to be transferred to the NCLT in view of Section 60(3) of The IBC?
Fact of the Case:
The petitioner, a personal guarantor of a corporate debtor, challenged the jurisdiction of the DRT to entertain an application filed by the respondent bank for commencement of bankruptcy proceedings against him. The petitioner contended that in view of Section 60(1) of the Insolvency and Bankruptcy Code, 2016 (IBC), the NCLT alone had jurisdiction to entertain such applications. The petitioner also contended that in view of the filing of an insolvency resolution process against the corporate debtor, the pending proceedings before the DRT should be transferred to the NCLT in view of Section 60(3) of the IBC.
Finding of the Court:
The Court held that the DRT had jurisdiction to entertain the application filed by the respondent bank for commencement of bankruptcy proceedings against the petitioner. The Court held that Section 60(1) of the IBC did not confer exclusive jurisdiction on the NCLT to entertain such applications. The Court also held that the pending proceedings before the DRT should not be transferred to the NCLT in view of Section 60(3) of the IBC, as the proceedings before the DRT were in a different compartment and no purpose would be served by transferring them to the NCLT.
Issues: Whether the DRT had jurisdiction to entertain the application filed by the respondent bank for commencement of bankruptcy proceedings against the petitioner.
Ratio Decidendi: The Court held that the DRT had jurisdiction to entertain the application filed by the respondent bank for commencement of bankruptcy proceedings against the petitioner. The Court held that Section 60(1) of the IBC did not confer exclusive jurisdiction on the NCLT to entertain such applications. The Court also held that the pending proceedings before the DRT should not be transferred to the NCLT in view of Section 60(3) of the IBC, as the proceedings before the DRT were in a different compartment and no purpose would be served by transferring them to the NCLT.
Final Decision: The Court dismissed the petitioner's revision petition and directed the DRT-II, Chennai and the Bankruptcy Trustee to proceed further and complete the proceedings in I.B.C. No. 1 of 2022 as expeditiously as possible.
ORDER :
D. Bharatha Chakravarthy, J.
A. The Question :
1. We are called upon to decide the question as to whether the bankruptcy proceedings, pending on the file of the Debt Recovery Tribunal (hereinafter referred to as 'DRT') against the petitioner/personal guarantor has to be transferred to the file of the National Company Law Tribunal (hereinafter referred to as 'NCLT') in view of the subsequent institution and pendency of an insolvency resolution process of the corporate debtor?
B. The brief facts leading to filing of the petition :
2. The pre-eminent facts, on which the present proceedings arise, is that during the years 2016-2018, a Company namely, Alectrona Energy Private Ltd., borrowed a sum of Rs. 35,00,00,000/-as working capital demand loan from KEB Hana Bank Ltd., the respondent in the petition and also availed foreign letter of credit to the tune of Rs. 5,40,97,392.45 ps. The Company defaulted in payment and the loan accounts were classified as Non-Performing Assets as on 29.08.2018. As per the application by the respondent bank/creditor to initiate bankruptcy process, dated 23.02.2022, a total sum of Rs. 60,61,13,173.26 ps remains due and payable, of which, a sum of Rs. 39,37,90,400/-is the secured debt and a sum of Rs. 21,23,22,773.26 ps is the unsecured debt.
2.1. While so, on 15.11.2019, the Government of India issued a notification announcing 01.12.2019 as the appointed date, from which, the provisions of The IBC to come into force insofar as they relate to the personal guarantors of the corporate debtors. The Government of India also notified the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 which also came into effect from 01.12.2019. Similarly, the Government of India notified another set of rules for the bankruptcy process namely, the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019.
2.2. On 09.03.2020, the respondent bank filed an application in I.B.C.SR. No. 2643 of 2020 under Section 95 of The IBC before the DRT-II, Chennai initiating insolvency resolution proceedings against the petitioner/personal guarantor in respect of the unsecured portion of the debt due. The DRT-II, Chennai admitted the application filed by the respondent bank and also appointed a Resolution Professional to carry out the insolvency resolution process. In the meanwhile, the petitioner filed Writ Petition. (Civil). No. 1276 of 2020 before the Hon'ble Supreme Court of India challenging the constitutional validity of the notification of the Government of India, dated 15.11.2019, inasmuch as the provisions of The IBC were notified against the personal guarantors (to corporate debtors) alone. There was an interim order granted by the Hon'ble Supreme Court of India, by which, the above insolvency resolution proceedings were kept in abeyance. On 21.05.2021, the Hon'ble Supreme Court of India dismissed the above Writ Petition along with batch of Writ Petitions upholding the validity of the notification issued by the Central Government holding that there is intelligible differentia between the individual guarantors and the personal guarantors (to corporate debtors), by the judgment in Lalit Kumar Jain Vs. Union of India and Ors. (2021) 9 SCC 321.
2.3. Thereafter, the petitioner filed a Civil Revision Petition under Article 227 of the Constitution of India in C.R.P.(PD). No. 1289 of 2021 pleading to strike off the petition, challenging the jurisdiction of the DRT to entertain the application filed by the respondent bank relating to the insolvency resolution process of the petitioner/personal guarantor.
2.4. The contention of the petitioner was that in view of the Section 60(1) of The IBC, even in the absence of any insolvency resolution proceedings against the corporate debtor, the proceedings against the personal guarantor would lie only to the
The DRT has jurisdiction to entertain applications against personal guarantors and Section 60(1) of the IBC cannot be read to confer exclusive jurisdiction only on the NCLT.
The NCLT has jurisdiction to adjudicate insolvency petitions against personal guarantors even in the absence of pending CIRP against the corporate debtor, as per the provisions of the Insolvency and ....
The Insolvency Resolution Process for Personal Guarantors can be initiated under Section 95 IBC, 2016, maintaining these guarantors' obligations even during corporate insolvency proceedings.
The court ruled that bankruptcy proceedings against the Personal Guarantor were warranted due to substantial unpaid debts and the failure to propose a repayment plan.
The insolvency of a corporate debtor and the subsequent approval of a resolution plan do not discharge a personal guarantor from liability, as the guarantor’s obligation is co-extensive and arises fr....
The initiation of insolvency resolution against a personal guarantor is valid when the corporate debtor defaults on repayment, confirming the Financial Creditor's right to recover dues.
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
