S.94 IBC | Parallel SARFAESI, DRT Proceedings No Bar To Personal Guarantor Insolvency: NCLT Indore

The National Company Law Tribunal (NCLT) at Indore has held that insolvency proceedings against a personal guarantor under the Insolvency and Bankruptcy Code cannot be rejected merely because recovery proceedings are pending before the Debts Recovery Tribunal or under the SARFAESI Act.

The tribunal also observed that the exact quantum of debt can be verified during the process and does not affect admission at this stage.

A coram of Brajendra Mani Tripathi and Man Mohan Gupta was hearing a personal insolvency filed by a personal guarantor of Shree Geeta Textile Mills Pvt. Ltd. 

The bench observed:

“The pendency or initiation of recovery proceedings under the SARFAESI Act or before the Debts Recovery Tribunal does not, ipso facto, bar an application under Section 94 of the Code, which provides an independent statutory remedy to a Personal Guarantor, subject to satisfaction of the statutory requirements."

The tribunal noted that the applicant had executed a personal guarantee for credit facilities granted to the corporate debtor. The loan account was classified as NPA in 2019, after which lenders initiated proceedings under SARFAESI and before the DRT. The guarantee was invoked, but the dues remained unpaid.

The Bank of India opposed the plea, stating that the insolvency application was filed to stall recovery proceedings, including the auction of secured assets. Omkara Assets Reconstruction Pvt. Ltd. also objected, alleging suppression of material facts, assignment of debt, and incorrect disclosure of outstanding liability.

Rejecting the objections, the Tribunal said insolvency proceedings under the IBC operate in a distinct legal field and cannot be blocked merely because recovery actions are pending before other forums.

It noted that the Code provides an independent statutory remedy to a personal guarantor.

On the question of limitation, the Tribunal found that the application filed in October 2022 fell within three years from the joint demand notice issued in September 2020. 

After examining the record, the tribunal held that the existence of debt and default stood established and that the requirements of the Code were satisfied. The application was accordingly admitted, insolvency proceedings were initiated against the personal guarantor, and a moratorium was declared.