IBC Individual Insolvency Process Applies To Personal Guarantors, Not Co-Borrowers: NCLT Jaipur

The National Company Law Tribunal (NCLT) at Jaipur has dismissed an insolvency plea after holding that the individual insolvency framework under the Insolvency and Bankruptcy Code applies only to personal guarantors of corporate debtors and not co-borrowers.

“In view of the scheme of the Code, we are of the opinion that the legislature in its wisdom extended the application of individual insolvency process only to the Personal Guarantors to the Corporate Debtor,” the tribunal said.

A bench of Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar was dealing with a petition filed by Ankit Baldwa under Section 94 of the Insolvency and Bankruptcy Code, which allows a debtor to initiate insolvency resolution proceedings against himself, in relation to liabilities arising out of loans availed by Khushboo Marbles Private Limited.

Baldwa approached the tribunal claiming to be a personal guarantor to the company and sought initiation of personal insolvency proceedings. He contended that guarantees furnished by him in respect of loans availed by the company from Axis Finance Limited, Ugro Capital Limited and other creditors had been invoked and remained unpaid, with the total default amounting to about ₹11.63 crore.

He stated that creditors including Ugro Capital, Axis Finance, and SMFG India Credit Co. Limited had issued recall notices, SARFAESI notices and initiated recovery proceedings following defaults by the company.

Baldwa argued that he fell within the definition of a guarantor under the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.

The tribunal had earlier admitted the petition, appointed Smita Gupta as the Resolution Professional, and directed her to submit a report under Section 99 of the Code.

The Resolution Professional recommended that the petition be rejected, saying Baldwa had not placed any documentary material on record to show that he had executed personal guarantees.

According to the report, the loan papers described him as a “co-borrower” or “co-applicant”, and there was no separate guarantee deed.

The Resolution Professional also referred to responses from creditors that treated Baldwa as a co-borrower rather than a personal guarantor. Ugro Capital said no guarantee deed had been executed by him, while SMFG India stated that he was a co-borrower in the loan transactions.

Baldwa, however, disputed the findings, arguing that multiple creditors had invoked guarantees against him, which showed that his obligations were subsisting and enforceable

He also contended that the Resolution Professional's report was only recommendatory and could not conclusively determine his status under the Code.

Rejecting this contention, the tribunal distinguished between the liability of a co-borrower and that of a guarantor.

“Unlike a guarantor, a co-borrower is primarily liable for meeting the debt obligation. Further, it's on the default by the borrower/co-borrower that the guarantor becomes liable to meet the debt obligations. Thus, the cause of action for initiation of any proceedings differ in the cases of borrower/ coborrower and guarantor.,” the bench observed.

Rejecting Baldwa's argument that the liabilities of a co-borrower and guarantor are analogous, the tribunal held:

“The Legislature in its wisdom has consciously brought the provisions of individual insolvency only qua personal guarantors of the Corporate Debtor and not qua other debtors. Hence, for invoking the jurisdiction of this Adjudicating Authority under Section 94 or 95, the debtor must unequivocally be a personal guarantor to a corporate debtor.”

Holding that Baldwa had failed to produce relevant guarantee deeds, the tribunal held that no case was made out for initiation of insolvency proceedings against him.

The petition was accordingly dismissed, and the interim moratorium was vacated.

For Resolution Professional: Advocate Nitesh Shrivastava

For Personal Guarantor: Advocate Anurag Kalavatiya, Parul Singhal and Aayushi Jain

For Creditors: Advocates Param Agarwal, Vineet Sharma, Abhishek Bansal, Alok Garg, Ankit Sareen and Aman Yadav