Case Note on Personal Guarantor

 

 Case Note

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, in the matter of Amit Jain vs Siemens Financial Services Pvt. Ltd (Company Appeal (AT) (Insolvency) No. 292 of 2022) held that section 10A is not applicable against the Personal Guarantors and that proceedings can be initiated against them under section 95 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) even if default by the Corporate Debtor occurred between 25.03.2020 to 25.03.2021.

Background Facts:

The Financial Creditor i.e., Siemens Financial Services Pvt. Ltd. advanced a loan of Rs. 2.30 crores to CMI Ltd (Corporate Debtor), and the Appellant was stood as a personal Guarantor. On non-repayment of the said loan, the Corporate Debtor was declared as Non-Performing Assets (NPA) on 11.09.2020. Consequently, the Financial Creditor had filed a petition under section 95 of the said Code for the initiation of the Corporate Insolvency Resolution Process against the personal guarantor  i.e., Amit Jain. Therefore, the National Company Law Tribunal, New Delhi had initiated CIRP against the Personal Guarantor vide its order dated 03.02.2022 and appointed the Resolution Professional. Afterward, the Personal Guarantor filed an appeal against the said order in National Company Law Appellate Tribunal, New Delhi Bench.

Issue:

Does the application against personal guarantor under section 95 come under the ambit of Section 10A of the code ?

Analysis/Decision:

In the instant case an Application under Section 95 of the Code was filed against the Personal Guarantor and accordingly interim moratorium under Section 96 was initiated and Resolution Professional was appointed. Aggrieved by the same an appeal was preferred before the Hon’ble NCLAT. The Appellant/ Personal Guarantor contended that since Section 10A bars initiation of proceedings against Corporate Debtor for the default occurred between 25.03.2020 to 25.03.2021 and that the same is applicable to Personal Guarantor as well. That protection under Section 10A has to be given interpretation to protect the Personal Guarantor, failing which the provision will become discriminatory. That the condition precedent for invoking insolvency against Personal Guarantor is default on part of Principal Borrower.

The issue that arose consideration was whether the benefit of Section 10A can also be claimed by a Personal Guarantor and an application under Section 95 shall be barred for a default which has arisen on or after 25.03.2020 till 24.03.2021? The Hon’ble NCLAT held that Section 10A will not be applicable to Section 95 of the Code i.e., to the Personal Guarantors and observed that if the legislature had intended to prohibit filing of an application under Section 95(1) they would have inserted a provision similar to Section 10A in Chapter III of Part III.

12. When Section 10A was inserted in Chapter II of Part I no corresponding amendment was made in Chapter III of Part III of the Code. Had the legislature intended to prohibit filing of application under Section 95(1) by a creditor against the Personal Guarantor for any default committed on or after 25.03.2020, a provision akin to Section 10A could have very well be inserted in Chapter III Part III of the Code.

Further, the Bench stated that if the language of the statute is clear and unambiguous there is no need to look outside the statute and relied on “Nemai Chandra Kumar & Others vs. Mani Square Ltd. & Others, (2015)14 SCC 203” & “Commissioner of Agricultural Income Tax, West Bengal vs. Keshab Chandra Mandal, AIR 1950 SC 265”

This Article has been Compiled by Aditya Raj (Legal Associate) and Arun Gupta (Partner). 

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