Initiation Of CIRP Not A Pre-Requisite To Initiate IRP Against The Personal Guarantor: NCLAT

The NCLAT in a Bench comprising of Justice Ashok Bhushan (Judicial Member) and Dr. Alok Srivastava (Technical Member) in State Bank of India v. Mahendra Kumar Jajodia held that initiation of Corporate Insolvency Resolution Process is not a pre-requisite to initiate Insolvency Resolution Process (IRP) against the Personal Guarantor of the Corporate Debtor. The Appellant, State Bank of India, who is the Financial Creditor of the Corporate Debtor filed an appeal against the order of the Adjudicating Authority- NCLT Kolkata Bench, which refused to entertain an application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 for initiation of IRP against the Respondent/Personal Guarantor, on the ground that the same is pre-mature as CIRP against the Corporate Debtor had not yet been initiated. While interpreting Section 60 of the Code, the Tribunal observed- "Sub-Section 1 of Section 60 provides that Adjudicating Authority for the corporate persons including corporate debtors and personal guarantors shall be the NCLT. The Sub-Section 2 of Section 60 requires that where a CIRP or Liquidation Process of the Corporate Debtor is pending before 'a' National Company Law Tribunal the application relating to CIRP of the Corporate Guarantor or Personal Guarantor as the case may be of such Corporate Debtor shall be filed before 'such' National Company Law Tribunal. The purpose and object of the sub-section 2 of Section 60 of the Code is that when proceedings are pending in 'a' National Company Law Tribunal, any proceeding against Corporate Guarantor should also be filed before 'such' National Company Law Tribunal. The idea is that both proceedings be entertained by one and the same NCLT. The sub-section 2 of Section 60 does not in any way prohibit filing of proceedings under Section 95 of the Code even if no proceeding are pending before NCLT." It further observed- "The object is that when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before 'a' NCLT the application relating to Insolvency Process of a Corporate Guarantor or Personal Guarantor should be filed before the same NCLT. This was to avoid two different NCLT to take up CIRP of Corporate Guarantor. Section 60(2) is applicable only when CIRP or Liquidation Proceeding of a Corporate Debtor is pending, when CIRP or Liquidation Proceeding are not pending with regard to the Corporate Debtor there is no applicability of Section 60(2)." The NCLAT set aside the order of the NCLT, Kolkata Bench which rejected the application on the ground that since no CIRP or Liquidation Proceeding of the Corporate Debtor is pending, the application u/s 95(1) is not maintainable. Case Title:State Bank of India v. Mahendra Kumar Jajodia Counsel for Appellant: Malvika Trivedi, Sr. Advocate with Mr. Akash Tandon, Mr. Ashish Chudhury, Santosh Kumar, Bhargavi Kannar, Akanksha Tripathi, Rituparna Sanyal, Mansi Chaudhary, Advocates Counsel for the Respondent: Advocate Supriyo GoleClick here to read /download Judgment

Initiation Of CIRP Not A Pre-Requisite To Initiate IRP Against The Personal Guarantor: NCLAT

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