The Article has been drafted by Suman Kumar Jha (Founder & Managing Partner), Afnaan Siddiqui (Co-Founder & Partner), Visakha Raghuram (Associate) and Vaibhav Khurana (Associate).
The case involves two appeals filed by personal guarantors of the corporate debtor, Nivaya ASL Pvt. Ltd. These appeals arose from impugned orders passed by the Hon’ble National Company Law Tribunal, Principal Bench (“NCLT’) whereby Resolution Professional (‘RP’) was appointed and upon submission of report by the RP, the NCLT admitted the insolvency petition. Vistra ITCL (India) Ltd., the financial creditor, filed applications under Section 95 of the Insolvency and Bankruptcy Code (IBC), which states that a Creditor or multiple Creditors can file an application in order to initiating insolvency proceedings either by themselves or through a RP, in this case the financial creditor filed an application for initiating insolvency proceedings against the personal guarantors. A resolution professional (RP) was appointed by the National Company Law Tribunal (NCLT), which the guarantors contested before the Hon’ble NCLAT, arguing the appointment process violated Section 97(3) of the IBC and that the NCLT lacked jurisdiction to handle proceedings against personal guarantors. The appellants contended that the proper forum for such proceedings was the Debt Recovery Tribunal (DRT), not the NCLT, given the absence of ongoing insolvency proceedings against the corporate debtor.
The Hon’ble NCLAT in its judgment upheld the NCLT’s decision, rejecting the appellants’ arguments. It clarified that the NCLT has jurisdiction to hear insolvency proceedings against personal guarantors of corporate debtors under Section 60(1) of the IBC, even in cases where no ongoing insolvency resolution or liquidation proceedings exist against the corporate debtor, which states that the Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons, including corporate debtors and personal guarantors thereof, shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. The contention that DRT is the appropriate forum for insolvency resolution process of individuals as envisaged in Section 179 was rejected. The reasoning is based upon a harmonious reading of Section 179 and Section 60 of the IBC whereby Section 179 states in its sub-provision(1) that it is subject to the provisions of Section 60. The Hon’ble NCLAT also ruled that the appointment of the resolution professional complied with IBC provisions, and the objections raised by the appellants were dismissed. The decision aligned with prior judgments of the NCLAT and the Supreme Court, emphasizing that personal guarantors are separate species of individuals and subject to the same adjudicatory process as corporate debtors.