Insolvency Resolution Process Against Legal Heirs Of Personal Guarantor By Financial Creditor not permissible ;NCLT Kolkata

Kilburn Chemicals Limited/Corporate Debtor had approached the Petitioner/Financial Creditor to provide credit facilities for setting up of Rutile Grade Titanium Dioxide manufacturing plant. A loan consortium Agreement was executed to that effect. The Petitioner had sanctioned a total credit facilities to a sum of Rs.103,90,00,000/- (Rupees One Hundred Three Crore Ninety Lakh only).

Since the Corporate debtor and personal guarantor failed to pay the loan amount, a Petition under Section 7 of the IBC was filed before Adjudicating Authority and vide order dated 10.08.2020 the Corporate Debtor was admitted into CIRP.

In the meantime, due to the demise of the personal guarantor, the Petitioner issued a demand notice to the legal heirs of Mr. Sandeep Kumar Jalan.

A petition was filed under section 95(1) of the Insolvency and Bankruptcy Code, 2016 for initiating the Insolvency Resolution Process against Ms. Divya Jalan, legal heir of personal guarantor by the financial creditor.

The question before the Adjudicating Authority was that 'Whether Petitioner is entitled to recover dues of the Corporate Debtor from the legal heirs of the Personal Guarantors?'

It was held by the NCLT that as defined in section 5 (22) – personal guarantor refers to an individual who gives surety in a contract of guarantee on behalf of the Corporate Debtor. As per regulation 3 (1)(a)(e) of Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor Regulation, 2019, clearly defines that a personal guarantor to a Corporate Debtor is a person against whom guarantee has been invoked and there is outstanding dues left, partly or fully. The definition does not include the 'legal heirs'.

NCLT added that when a section 95 application is filed, the assets of the Personal Guarantor is hit by moratorium and if the legal heirs of the deceased Personal Guarantor is put into the shoes of the Personal Guarantor then their personal assets would also get automatically hit by moratorium, which would cause grave prejudice to the rights of the third party. And also held that there is no provision in the code which envisages that the concept of legal heirs stepping into the shoes of the deceased Personal Guarantor.

The NCLT dismissed the petition filed by the Financial Creditor.

Case Title: Bank of Baroda Vs Ms. Divya Jalan

Counsel For the Financial Creditor : Ms. Santosh Kumar Ray, Advocate

Counsel For the Personal Guarantor : Mr. Shaunak Mitra & Mr. Saurav Jain, Advocates

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