Guarantee Need Not Be Invoked For Guarantor To Seek Personal Insolvency: NCLT Indore

The National Company Law Tribunal (NCLT) at Indore has held that a personal guarantor can invoke insolvency proceedings against himself or herself under the Insolvency and Bankruptcy Code once a default occurs, even if the lender has not invoked the personal guarantee.

A coram of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta said that Section 94 allows an individual debtor, including a personal guarantor, to approach the tribunal upon default. It clarified that prior invocation of the guarantee is not a requirement under the provision.

It observed, “Section 94 enables an individual debtor, including a personal guarantor to a corporate debtor, to apply for initiation of an insolvency resolution process upon occurrence of default. The provision does not prescribe prior invocation of the guarantee, demonstration of asset position, or proof of prelitigation settlement as a condition for filing.”

In the present case, Shri Bhagwati Agro Industries Pvt. Ltd. had availed loans from Samunnati Agro Solutions Pvt. Ltd.. These were backed by a personal guarantee furnished by Shikha Tayal, the applicant in question. After the company defaulted, the lender issued a recall notice on October 9, 2024.This was followed by a notice dated December 4, 2024, invoking the personal guarantee. The creditor claimed that outstanding dues of Rs 2.70 crore remained unpaid. Tayal thereafter filed an application under Section 94 seeking initiation of individual insolvency proceedings.

However, the lender opposed the plea. It alleged that the insolvency application was filed only to take advantage of the interim moratorium under Section 96. It also argued that the guarantor had neither disclosed her asset position nor made any effort to settle the dues. It also contended that since no insolvency proceedings were pending against the borrowing company itself, the case ought to lie before the Debts Recovery Tribunal and not the NCLT.

The tribunal was, however, not persuaded by these objections. It clarified that the issue before it was one of maintainability of the insolvency plea and not whether the guarantee had in fact been invoked. The court held that its jurisdiction over personal guarantors flows directly from the Code and does not depend on the pendency of insolvency proceedings against the corporate debtor.

On this point, it observed, “Section 60(2) does not curtail or condition the jurisdiction conferred under Section 60(1), nor does it state that proceedings under Part III concerning a personal guarantor cannot be filed before the NCLT in the absence of a pending CIRP. ”

The tribunal also addressed the objection relating to the interim moratorium. It held that the moratorium follows automatically from the filing of a Section 94 application and cannot be treated as an abuse of process.

It observed, “The interim moratorium is a statutory consequence and cannot, by itself, constitute a ground to dismiss a petition that is otherwise maintainable under law.”

Accordingly, the tribunal dismissed the creditor's interim application, holding that invocation of the guarantee, though it had taken place in this case, was not determinative of a personal guarantor's right to seek insolvency resolution under the IBC.

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