Personal Guarantor Can Face Insolvency Even If Corporate Debtor Is In Liquidation: NCLT Indore

The National Company Law Tribunal (NCLT) at Indore has recently held that insolvency proceedings can be initiated against a personal guarantor even when liquidation proceedings against the corporate debtor are pending.

The tribunal observed that the issue before it was, “whether an Insolvency Resolution Process can be initiated against the Personal Guarantor of a Corporate Debtor when the Liquidation Proceedings against the Corporate Debtor are already pending?” and held that “the above issue is answered in the affirmative.”

The order was passed by Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta on an application filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 by State Bank of India.

The bank sought initiation of insolvency resolution against Sumit Rajpal, personal guarantor of Rajpal Autolink Pvt. Ltd., for default of Rs 10,19,27,157.

SBI had sanctioned credit facilities of Rs 12 crore to the corporate debtor in 2018. The facilities were later enhanced to Rs 14 crore in 2019. These loans were secured by personal guarantees executed by the respondent.

The corporate debtor's account was classified as a non-performing asset on February 25, 2020. A statutory demand notice was issued to the guarantor on August 6, 2020, but no repayment was made. Liquidation of the corporate debtor was ordered on April 23, 2021. The bank thereafter filed the present application against the personal guarantor on July 19, 2021.

The guarantor did not file substantive objections to the Section 95 application. He only sought replacement of the Resolution Professional, alleging bias due to her prior association with the bank. The tribunal noted that the respondent had not disputed execution of the guarantee deeds. He also failed to show any repayment of the outstanding dues. The bench observed that the guarantor's liability is co-extensive with that of the corporate debtor under Section 128 of the Indian Contract Act, 1872.

Referring to the Supreme Court judgment in Lalit Kumar Jain v. Union of India, the bench further observed, “Thus, when a Corporate Insolvency Resolution Process or Liquidation Process in relation to a Corporate Debtor is pending before this Adjudicating Authority, then as per Section 60(2) of IBC, 2016, the NCLT would be the competent forum to file an Application for Personal Guarantor in relation to such Corporate Debtor.”

Accordingly, the tribunal admitted the application under Section 100 of the IBC and initiated insolvency resolution process against Rajpal