Kerala High Court Dismisses Writ Against NCLT New Delhi Insolvency Proceedings, Cites No Jurisdiction

On 25 May, the Kerala High Court held that it cannot entertain a writ petition challenging insolvency proceedings initiated before the National Company Law Tribunal (NCLT), New Delhi, against a personal guarantor merely because the underlying credit facilities were availed in Kerala, since territorial jurisdiction under the Insolvency and Bankruptcy Code depends on the location of the corporate debtor's registered office.

Justice Harisankar V Menon dismissed a writ petition filed by a personal guarantor challenging an NCLT order that permitted initiation of insolvency proceedings against him. He held:

“There cannot be any dispute that the proceedings have to lie only before the NCLT having territorial jurisdiction over the place where the registered office of the corporate person is situated.”

The petitioner, a personal guarantor for credit facilities extended to a corporate debtor, challenged the insolvency proceedings on the ground that the original application before the NCLT named another individual as guarantor and that the bank later substituted his name after obtaining permission from the tribunal to rectify the application. He approached the Kerala High Court after the NCLT allowed the insolvency proceedings to continue against him.

Opposing the petition, the bank raised a preliminary objection and argued that the writ petition did not lie before the High Court since the petitioner had an alternative remedy before the NCLT. The petitioner, however, contended that the Kerala High Court had territorial jurisdiction because the loan transaction originated in Kerala, giving rise to part of the cause of action within the State.

The Court examined Section 60 of the Insolvency and Bankruptcy Code and held that insolvency proceedings must lie before the NCLT having jurisdiction over the place where the corporate debtor's registered office is situated. It noted that the corporate debtor's registered office stood in New Delhi and that the proceedings had therefore been correctly initiated before the NCLT, New Delhi.

Justice Menon further held that the mere fact that the credit facilities were availed in Kerala does not confer territorial jurisdiction on the Kerala High Court in proceedings governed by the Insolvency and Bankruptcy Code. He observed:

“Therefore, merely for the reason that a credit facility has been availed from the State of Kerala, in my opinion, the part of the cause of action, with reference to the provisions of IBC, does not arise in the State of Kerala.”

Accordingly, the High Court declined to entertain the writ petition for lack of territorial jurisdiction and dismissed it, without going into the alternative remedy objection raised by the bank.

For Petitioner: Advocates Mariya Rajan, Shinu J Pillai, S Suja and Ann Mariya John

For Respondents: Advocates C.K Karunakaran, A.C Venugopal, Akhil Suresh, K.V Krishnakumar, Lekshmi P Nair, Shifna Muhammed Shukkur, Krishna Suresh, Mekha Manoj, Vidhya A.C, Kalliyani Krishna B, Amrith M.J, Asabell Manoj and Rahul T