Foreign Citizenship, No Assets In India No Bar To IBC Proceedings Against Personal Guarantor: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai recently held that insolvency proceedings under the Insolvency and Bankruptcy Code, 2016, can be initiated against a personal guarantor even if he is a foreign citizen and does not own any assets in India.

The tribunal said nationality and absence of property in India do not prevent the Code from applying.

A coram of Judicial Member Sanjiv Jain and Technical Member Venkataraman Subramaniam rejected the objection to the maintainability of the proceedings against the personal guarantor of Oceanic Edibles International Ltd, which is already under liquidation.

The tribunal held, “The mere fact that the Respondent does not possess any property within the territory of India does not in any manner exclude the applicability of the provisions of the Code to him. Moreso, neither of these provisions restricts the applicability of the Code to the personal guarantor on the basis of nationality or citizenship. Hence, the provisions of IBC are applicable to the Respondent.”

Central Bank of India, along with other consortium banks, had extended working capital facilities to Oceanic Edibles. A Dominic Savio stood as a personal guarantor and executed guarantee deeds in 2011 and 2014. The company later defaulted, and its account was classified as a non-performing asset in September 2013. Recovery proceedings before the Debt Recovery Tribunal, Chennai, resulted in a recovery certificate issued in June 2019 for over Rs 103 crore with interest, holding the company and its guarantors jointly and severally liable.

Separately, insolvency proceedings against the company ended in a liquidation order in December 2018. After the provisions relating to insolvency of personal guarantors came into force in December 2019, the bank issued a demand notice to Savio and then approached the NCLT when the dues remained unpaid.

Savio opposed the petition, saying he is a US citizen residing outside India.He argued that the IBC applies only within Indian territory and that the tribunal had no jurisdiction since he has no assets or business in India.He also relied on provisions dealing with cross-border insolvency to contend that proceedings could not be initiated without reciprocal arrangements with foreign governments.

Rejecting these submissions, the tribunal said the Code does not draw any distinction based on citizenship and applies equally to all personal guarantors.

The tribunal therefore admitted the insolvency plea and initiated insolvency proceedings against the personal guarantor.  It appointed Chandrasekhar Sagutoor as the Interim Resolution Professional.

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