NCLT Chennai Initiates Insolvency Against Senthil Kumar, US-Based Personal Guarantor of PRC Hotels

The National Company Law Tribunal (NCLT), Chennai, has admitted an insolvency petition against Senthil Kumar, a US-based personal guarantor of PRC International Hotels Private Limited, in a ruling that underscores the extraterritorial reach of the Insolvency and Bankruptcy Code (IBC). The bench, comprising Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam, held that the Code applies to personal guarantors regardless of their nationality or place of residence.

The Case

The petition was filed by M. Gagan Bothra, successor and legal heir of the original lender, the late S. Mukanchand Bothra. PRC International Hotels had borrowed Rs. 15 crore from the deceased, for which Senthil Kumar executed a personal guarantee on August 2, 2016. The corporate debtor was admitted to Corporate Insolvency Resolution Process (CIRP) on July 24, 2018, and a resolution plan was approved on August 27, 2019, paying Rs. 4.12 crore against the admitted claim of Rs. 15 crore. This left an outstanding debt of Rs. 14.92 crore, including interest.

After invoking the guarantee through a demand notice on September 6, 2020, and receiving only a reply from Kumar disputing liability, Bothra filed the present petition under Section 95 of the IBC.

Guarantor's Defense

Kumar, a permanent resident of New Jersey, USA, argued that the approval of the resolution plan under Section 31 of the IBC extinguished his liability as a personal guarantor. He contended that the plan was binding on all stakeholders, including guarantors. The tribunal, however, rejected this submission.

Court's Reasoning

The NCLT relied on the Supreme Court's landmark judgment in Lalit Kumar Jain v. Union of India , which held that the approval of a resolution plan does not ipso facto discharge a personal guarantor. The court observed that the liability of a surety is co-extensive with that of the principal debtor under Section 128 of the Indian Contract Act, 1872, and remains until the debt is fully satisfied.

Addressing Kumar's foreign residence, the bench stated unequivocally:

"He therefore despite being the permanent resident of USA is bound by the statutory obligation as any other party with respect to liability under IBC. The provisions of this Code do not restrict the applicability of the Code to the Personal Guarantor on the basis of nationality or citizenship."

The tribunal also noted that Section 235 of the IBC provides a mechanism to seek assistance from foreign courts or authorities where assets of a personal guarantor are located abroad, further reinforcing the Code's jurisdictional reach.

Key Observations

• The debt exceeded the threshold of Rs. 1 crore, satisfying the pecuniary requirement under the IBC.
• Despite being served notice through mail and international speed post, Kumar failed to file any reply or objection to the report of the Interim Resolution Professional (IRP).
• The IRP, Dr. S.R. Shriraam Shekher, had submitted a report under Section 99 recommending the initiation of insolvency proceedings.
• The tribunal rejected Kumar's argument that the resolution plan extinguished his liability, citing the settled principle that a creditor's right against a guarantor survives the corporate debtor's discharge.

Decision and Directions

Admitting the petition, the NCLT declared a moratorium on all debts owed by Kumar for a period of 180 days. It appointed Dr. S.R. Shriraam Shekher as the Resolution Professional (RP) and directed him to publish a public notice inviting claims from creditors within seven days. The RP must prepare a list of creditors and submit a repayment plan within 21 days from the last date of claim submission.

The tribunal also ordered Bothra to deposit Rs. 3,00,000 towards the RP's fees and expenses within one week. The case now moves to the creditor meeting and repayment plan stage, marking a significant step in enforcing personal guarantees across borders.