NCLAT upholds NCLT’s Jurisdiction Over Personal Guarantors irrespective of CIRP or Liquidation proceeding pending against Corporate Debtor

Anita Goyal v. Vistra ITCL (India) Ltd. & Anr.[1]

In a significant decision on jurisdiction of National Company Law Tribunal (NCLT), the Hon’ble National Company Law Appellate Tribunal, New Delhi (NCLAT) reiterated the law laid by it in State Bank of India vs. Mahendra Kumar Jajodia[2]  and Mahendra Kumar Agarwal v. PTC India Financial Services Ltd. and Anr.[3] that NCLT has jurisdiction to adjudicate personal insolvency applications against personal guarantors to corporate debtors under section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) irrespective of Corporate Insolvency Resolution Process (CIRP) or liquidation proceeding pending against the corporate debtor.

• Appointment of RP:
  • The Appellants argued that the appointment of the Resolution Professional (“RP”) violated Section 97(3) of the IBC, which requires the NCLT to direct the IBBI to nominate an RP. It was their case that the process was procedurally flawed and sought to set aside the RP’s appointment.

• Jurisdiction of the NCLT:
  • The Appellants contended that the NCLT lacked jurisdiction to entertain insolvency applications under section 95 of IBC, as there were no CIRP or liquidation proceedings pending against the corporate debtor.
  • It was their case that the jurisdiction to entertain Application under section 95 of IBC lies with DRT only in accordance with sections 79 and 179 of IBC
  • The Appellants relied on the judgements of Madras High Court in Rohit Nath vs. KEB Hana Bank Ltd.[4] and of NCLT Kolkata in Aditya Birla Finance Ltd. vs. Sarita Mishra[5], and Tata Capital Financial Services Ltd. vs. Arjun Agarwal.[6]

• NCLAT upheld the validity of the RP’s appointment, noting that the procedure followed was in compliance with the IBC and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors), Rules, 2019 (“Rules”).
• On the issue of jurisdiction, the Hon’ble NCLAT ruled that Section 60(1) of the IBC clearly grants NCLT jurisdiction to entertain applications against personal guarantors, irrespective of whether a CIRP or liquidation process is pending. The Tribunal referred to Mahendra Kumar Agarwal vs. PTC India Financial Services (supra) and State Bank of India v. Mahendra Kumar Jajodia (supra) which was affirmed by the Hon’ble Supreme Court as well.
• It further held that the judgements of NCLT Kolkata in Tata Capital Financial Services Ltd. vs. Arjun Agarwal (supra) and Aditya Birla Finance Ltd Vs. Sarita Mishra (supra) are per incuriam as it is in teeth of binding judgments of State Bank of India vs. Mahendra Kumar Jajodia (supra) and Mahendra Kumar Agarwal vs. PTC India Financial Services (supra) and artificial distinction, which is sought to be drawn by NCLT Kolkata Bench is illusory and without any basis.

In view of the above, the Hon’ble NCLAT dismissed the appeals filed by the Personal Guarantors.

This judgment is a step towards acheving the Parliamentary intent of consolidating insolvency resolution for corporate debtors, corporate guarantors, and personal guarantors within a single forum, recognizing their interconnected nature. By ensuring that proceedings are adjudicated before the NCLT, it enables a comprehensive assessment of available assets, both during and after the corporate debtor’s insolvency process. This, in turn, allows the Committee of Creditors (CoC) to formulate realistic resolution plans while factoring in potential recoveries from personal guarantors, thereby enhancing the efficiency and coherence of the insolvency framework.

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Shailesh Poria, Partner, Email – ShaileshPoria@elp-in.com

Suyesha Kakarla, Associate, Email – SuyeshaKakarla@elp-in.com

[1] Company Appeal (AT)(Insolvency) No. 2282 of 2024

[2] [(2022) SCC OnLine NCLAT 58]

[3] [(2023) SCC OnLine NCLAT 421]

[4] [C.R.P. No.2513 of 2022],

[5] [IA (IB) No.356/KB/2024 in Company Petition (IB) No.67 of 2023]

[6] [I.A. (IB) 1670/KB/2024 in C.P.(IB)51/KB/2024]