Title Disputes Over Mortgaged Property Do Not Bar Personal Guarantor Insolvency: NCLT Guwahati

The National Company Law Tribunal (NCLT) at Guwahat has recently held that pending title disputes over mortgaged property do not bar insolvency proceedings against a personal guarantor, since such proceedings turn on the existence of debt and default rather than adjudication of property rights.

A bench of Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh passed the ruling while admitting Canara Bank's insolvency petition against Keishing James Lalrongbawl, personal guarantor to North East Region Finservices Limited.

“Insolvency proceedings against a Personal Guarantor under Part III of the Code are not confined to enforcement against a specific secured asset. The pendency of a title dispute or status quo order in respect of a mortgaged property does not bar initiation of insolvency proceedings against a Personal Guarantor.”, tthe tribunal ruled.

Canara Bank told the tribunal that the corporate debtor had availed multiple credit facilities beginning in 2013, backed by personal guarantees executed by the respondent in 2013, 2014 and 2015. The loan accounts were classified as non-performing assets on September 29, 2016, following repeated repayment defaults.

The bank said it issued recall notices, initiated proceedings under the SARFAESI Act, and pursued recovery before the Debt Recovery Tribunal, Guwahati. A recovery certificate was issued on October 17, 2023, against both the corporate debtor and the personal guarantor.

The tribunal held that insolvency proceedings against a personal guarantor are not tied to enforcement of a particular secured asset. It said disputes over title or proprietary rights must be decided by competent civil courts or High Courts and cannot defeat insolvency proceedings once debt and default are established.

“The Code is concerned with the insolvency of the individual guarantor and the existence of debt and default. Issues relating to title and adjudication of proprietary rights fall within the jurisdiction of the competent civil court/ High Court and do not preclude admission under Section 100 of the Code.”, the tribunal observed.

The tribunal also relied on the resolution professional's report, which found the loan documents, guarantee deeds, and account statements sufficient to establish debt and default. It further held that the SARFAESI demand notice issued by the bank amounted to valid invocation of the personal guarantee.

Accordingly, the tribunal admitted the insolvency application, initiated the insolvency resolution process against the personal guarantor, and imposed a moratorium.

For Petitioner: Advocate S. Dutta 

For Respondent: Advocate A. Chetia, S. Katakey