Bankruptcy Proceedings Can Be Initiated Against Foreign Citizen Acting As Personal Guarantor: NCLT Hyderabad

The National Company Law Tribunal, Hyderabad Bench-II, has admitted the bankruptcy proceedings against Shri Yarlagadda Madhu Mohan, a personal guarantor and a US citizen, under Sections 121 and 123 of the IBC after his failure to submit a repayment plan. “……… Section 3(23) merely defines the term “person” to include “a person resident outside India.” It does not create any exception for foreign citizens, as erroneously inferred by the Respondent,” the bench observed. Further, the bench observed that “Section 234 of the Code pertains to reciprocal arrangements that the Central Government may enter into with foreign governments and has no bearing on the maintainability of proceedings against a personal guarantor merely because of foreign citizenship.” The NCLT clarified that neither section 234 nor section 235 restricts the applicability of the code to personal guarantors either on the basis of nationality or citizenship. The tribunal also rejected the plea of the respondent that their restoration application and the appeal against section 95 proceedings are pending before the NCLAT; therefore, the present proceedings should be kept in abeyance. The corporate debtor, M/s YKM Entertainment & Hotels Private Limited, availed the financial assistance of over Rs. 263 Crore from the State Bank of India and associated banks. The personal guarantor secured the transaction by executing guarantee agreements. The corporate debtor defaulted in the repayment, leading to the initiation of CIRP against it. Thereafter, the SBI filed an application under section 95 against the personal guarantor who failed to submit the repayment plan. The personal guarantor contended that he had been a citizen of the United States of America; thus, proceedings against him are not maintainable. He argued that section 3(23) cannot be invoked to override section 2(e), unless the code extends to foreign citizens. The tribunal lastly observed that the resolution professional could not prepare or submit the report required under sections 105 and 115 due to the absence of a repayment plan filed by the personal guarantor. Therefore, this rejection should be considered equivalent to the rejection of a repayment plan under section 115(2) of the IBC. Accordingly, due to the absence of the repayment plan, the tribunal ordered the commencement of bankruptcy proceedings against the personal guarantor. Case Name: State Bank of India v. Shri Yarlagadda Madhu Mohan Case No.: IA (IBC/402/2025 in Company Petition IB/222/95/HDB/2022 Coram: Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri For the Petitioner: Mr. GP Yash Vardhan, Ld. Counsel For the Respondent: Ms. Siva Praneetha, Ld. Counsel Order Date: 03.11.2025 Click Here To Read/Download The Order

Bankruptcy Proceedings Can Be Initiated Against Foreign Citizen Acting As Personal Guarantor: NCLT Hyderabad

Mohd.Rehan Ali

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