MSME Protections Must Be Invoked By Corporate Debtor, Not Personal Guarantors: NCLT Kochi

The National Company Law Tribunal, Kochi Bench, has held that benefits under the MSMED Act, 2006 and the RBI MSME restructuring framework must be specifically invoked by the corporate debtors. Personal guarantors have no independent right to claim such relief.

A Bench comprising Judicial Member Vinay Goel admitted insolvency petitions filed by Tata Capital Limited against personal guarantors Jinu Varghese and Geeba Kolliyelil Jenny and declared a moratorium in their respect. He held:

“This Adjudicating Authority is of the considered opinion that it is for the borrower to claim such privilege and benefit under the MSMED Act and RBI circular. The Personal Guarantors has no independent right to invoke such rehabilitation and restructuring benefit.”

Tata Capital Limited had filed the petitions seeking initiation of insolvency proceedings against the guarantors, who had executed personal guarantees in respect of a term loan facility availed by Immaculate Agro Spices Private Limited. The company had availed a term loan of Rs. 4 crore, secured inter alia by the personal guarantees.

Upon default in repayment, the loan account was classified as an NPA in May 2025, and recall as well as demand notices were issued. Despite service of notices, the outstanding dues of Rs. 3.57 crore remained unpaid.

The personal guarantors opposed the petitions, contending that the company was an MSME and therefore entitled to protection under the MSME rehabilitation framework. Tata Capital Limited, on the other hand, argued that the MSME frameworks relied upon by the personal guarantors apply only to Scheduled Commercial Banks and not to Non-Banking Financial Companies (NBFCs) like Tata Capital.

Rejecting the plea of the personal guarantors, the Tribunal observed that for claiming benefits under the MSMED Act, 2006, there must be a specific representation by the borrower to the creditor, supported by reasons stated on affidavit. He held:

“There should be a specific, clear, and unambiguous invocation of the provisions of the MSME/RBI Notifications issued by the Government of India/RBI, with specific reference to the identity of the creditor, Corporate Debtor, details of the loan account, and the borrower should specifically mention the benefit sought in such representation. Further letter should be addressed to creditor to claim such benefits.”

The Tribunal further observed that no such communication had been submitted by the company to Tata Capital seeking MSME benefits.

The personal guarantors claimed that Kanjiravelil Traders Private Limited was the parent company of the corporate debtor, relying on a letter addressed to the MSME-Development & Facilitation Office, Thrissur. The Tribunal, however, held that the alleged relationship was unsubstantiated and that the letter did not amount to a formal invocation of the RBI MSME Framework.

It further observed that the RBI Notification relied upon by the personal guarantors is applicable only to Scheduled Commercial Banks and not to NBFCs such as Tata Capital Limited.

Accordingly, the Tribunal admitted the petitions and declared a moratorium in respect of the personal guarantors.

For Petitioner: Advocate Issac Thomas

For Respondents: Senior Advocate Mathews J Nedumpara