IBC Can Apply To Personal Guarantors Residing Abroad, Nationality No Bar: NCLT Chennai

The National Company Law Tribunal (NCLT), Chennai, on 7 September held that the Insolvency and Bankruptcy Code (IBC) can be invoked against a personal guarantor residing abroad, as the Code does not restrict its applicability based on the guarantor's nationality or citizenship.

A Bench of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam admitted a Section 95 IBC petition filed by M. Gagan Bothra against Senthil Kumar, personal guarantor of PRC International Hotels Private Limited, in relation to alleged outstanding dues of Rs. 14.92 crore, including interest. The Tribunal held:

“He therefore despite being the permanent resident of USA is bound by the statutory obligation as any other party with respect to liability under IBC. The provisions of this Code do not restrict the applicability of the Code to the Personal Guarantor on the basis of nationality or citizenship.”

Bothra had filed the petition seeking initiation of insolvency resolution proceedings against Kumar. PRC International Hotels had borrowed Rs. 15 crore from Bothra's father, late S. Mukanchand Bothra, for which Kumar had executed a personal guarantee.

The corporate debtor entered the Corporate Insolvency Resolution Process on 24 July 2018, and Bothra's claim of Rs. 15 crore was admitted. Under the resolution plan approved on 27 August 2019, Rs. 4.12 crore was paid, leaving an alleged outstanding amount of Rs. 14.92 crore, including interest.

Bothra invoked the personal guarantee and issued a demand notice to Kumar on 6 September 2020. Although Kumar replied to the notice, he did not repay the dues.

The Interim Resolution Professional appointed to examine the application under Section 99 of the IBC recommended initiation of insolvency proceedings. Despite service of notice, Kumar did not file any reply or objection to the report.

The Tribunal relied on the Supreme Court's judgment in Lalit Kumar Jain v. Union of India and held that approval of a resolution plan does not automatically discharge a personal guarantor from liability under the guarantee.

It also referred to Section 128 of the Indian Contract Act, 1872, which provides that a surety's liability is co-extensive with that of the principal debtor unless the contract provides otherwise. Since the lender's debt had not been completely settled, the Tribunal held that Kumar's liability under the guarantee continued to subsist.

On maintainability, the Bench noted that although Kumar was a permanent resident of New Jersey, United States, he had provided his Chennai address when executing the personal guarantee and had served as a director of the corporate debtor.

It also noted that Section 235 of the IBC provides a mechanism to seek assistance from foreign courts or authorities where the assets of a corporate debtor or personal guarantor are located abroad.

Accordingly, the NCLT admitted the petition and appointed S.R. Shriram Shekhar as the Resolution Professional.

For Petitioner: Gagan Bothra