NCLT Admits Siemens Financial Services' Plea Against Personal Guarantor, Says Prior CIRP Not Required

The Allahabad Bench of the National Company Law Tribunal (NCLT), on 9 October admitted an application filed by Siemens Financial Services Pvt. Ltd. to initiate the personal insolvency resolution process against Rasik Khandelwal, holding that a financial creditor need not exhaust its remedies against the principal borrower before initiating insolvency proceedings against a personal guarantor.

A Bench comprising Judicial Member Praveen Gupta and Technical Member Ashish Verma, also clarified that the absence of records from the National E-Governance Services Limited (NeSL) does not, by itself, prevent proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC), if other evidence establishes the debt and default. It held:

“...for initiation of insolvency resolution process against the personal guarantor, initiation of CIRP against the Principal Borrower/ Corporate Debtor is not a condition precedent…”

Siemens Financial Services had extended loan facilities aggregating to Rs. 6.50 crore to the corporate debtor under four finance agreements. Rasik Khandelwal executed personal guarantees to secure these facilities.

On 16 February 2024, Siemens Financial Services issued a notice under Section 13(2) of the SARFAESI Act, demanding that the corporate debtor and Khandelwal jointly and severally repay outstanding dues of Rs. 3,81,04,993, including interest, and invoked the personal guarantee.

On 12 March 2024, Siemens Financial Services issued a statutory demand notice in Form B under Section 95(4)(b) of the IBC, demanding payment from Khandelwal. He failed to discharge the liability.

Khandelwal opposed the application, disputing the amount claimed and the date of default. He also argued that Siemens Financial Services had to pursue remedies against the principal borrower before initiating insolvency proceedings and objected to the absence of NeSL records.

The Tribunal rejected the argument that the creditor had to first pursue remedies against the principal borrower. It relied on the Supreme Court's ruling in Mahendra Kumar Jajodia v. State Bank of India (2022), which held that initiating the corporate insolvency resolution process against the principal borrower is not a prerequisite for initiating insolvency proceedings against a personal guarantor.

It also held that NeSL records are not a prerequisite for filing a petition under Section 95 of the IBC, as the creditor can establish the debt and default through other documentary evidence.

After considering the resolution professional's report under Section 99 and the documents submitted by Siemens Financial Services, the Bench found that the creditor had established the debt and default.

Accordingly, the NCLT admitted Siemens Financial Services' application and initiated the personal insolvency resolution process against Khandelwal.