Threshold Limit For Initiating Insolvency Process Against Personal Guarantors Is Also ₹1 Crore: NCLT New Delhi

The NCLT New Delhi bench of Shri Subrata Kumar Dash (Technical Member) and Shri Ashok Kumar Bhardwaj (Judicial Member) had held that the threshold limit for initiating insolvency process against the personal guarantors under section 95 of the Code would be the same as is with respect to the corporate debtor under section 4 of the IBC i.e. 1 crore. Brief Facts The moot question arises to be determined by us is, “whether in such cases where the amount of default is less than 1 Crore, the Personal Guarantor can be treated as Insolvent and the application under Section 95 can be maintained against him”. The applicant while drawing attention to section 78 of the IBC submitted that the threshold limit of default in respect of an individual under Part III of the Code is only Rs. One Thousand and thus, when in the present case the amount of default is more than Rs. Ten Lakhs, the application is maintainable and deserves to be admitted. Observations: As can be seen from Section 78 (Part III of Insolvency and Bankruptcy Code, 2016), the default limit of Rs. One Thousand is fixed for fresh start, insolvency and bankruptcy of individuals and partnership firms. The tribunal further noted that while making reference to Section 78 of the Code, we cannot be oblivious of the provisions of Section 79(1) of the Code. The Section 79(1) clearly provides that the Adjudicating Authority in respect of the persons referred to Section 78 is Debt Recovery Tribunal (DRT) constituted under sub-section 1 of Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The tribunal further noted that it would not be out of context to make a reference to Rule 3(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency. As can be seen from Rule 3 (1)(a) for the purpose of Section 60, the National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013 would be the Adjudicating Authority for a Personal Guarantor and in cases other than sub-clause (i) of clause (a) of sub-rule (1) of Rule 3, the Debt Recovery Tribunal established under sub-section (1A) of Section 3 of the Recovery of Debt and Bankruptcy Act, 1993 would be the Adjudicating Authority. Thus, both the Adjudication Authorities have jurisdiction regarding the Personal Guarantors. When a reference is made to Section 78 of IBC, 2016, regarding the threshold limit for invoking jurisdiction of this Tribunal under Section 95 of IBC, 2016, apparently the reference would be to the Debt Recovery Tribunal and not to this Tribunal. When this Tribunal is referred to as Adjudicating Authority, as is referred in Rule 3(1)(a)(i) , a reference may be made to Section 60(1) of IBC. The tribunal further noted that when a reference to Corporate Debtor for the purpose of CIRP is to be made, the same needs to be made with reference to the provision of Section 4 (as amended) and only in such cases where threshold limit is Rs. 1 Crore or more, this Tribunal would have jurisdiction. When a mention to Personal Guarantor in Section 60 of the Code is made along with the Corporate Debtors, we may not read the threshold limit for Personal Guarantor qua Corporate Debtor different from the one which is mentioned for Corporate Debtor. The limit of Rs. One Thousand, under Section 78 of the Code, is in respect of such entities/persons/individuals which are referred to in the said Section. Even in Section 54A(2) of the Code, the threshold limit is same as is given in Section 4. The Section 4, Section 54A(2) and Section 60 are contained in Part II of the Code, the tribunal noted. When we refer to a Personal Guarantor qua the Corporate Debtor, then in order to arrive at the threshold limit, we will have to make a reference to Section 4 of the Code, as amended by Notification No. S.O. 1205(E) dated 24.03.2020. The tribunal noted that in terms of this notification, in exercise of the powers referred by sub-section (3) of Section 1 of IBC, 2016, the Central Government appointed 01.12.2019 as the date from which certain provisions of the Code only in so far as they relate to Personal Guarantors to Corporate Debtor came into force After pursuing the said notification, the tribunal observed that from the notification it does not appear that the threshold limit for Personal Guarantor qua Corporate Debtor for the purpose of presenting application under Section 95 of IBC, 2016 would be Rs. One Thousand. The tribunal further noted that in view of the aforementioned discussion and analysis we are of the considered view that a conjoint reading of Rule 3(1)(a) of Insolvency and Bankruptcy (Application to Adjudication Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) 2019, Section 4 and Section 60(1) of the Code reveals that the threshold limit for invoking the provisions of Section 95 of IBC, 2016 qua the...

Threshold Limit For Initiating Insolvency Process Against Personal Guarantors Is Also ₹1 Crore: NCLT New Delhi

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Threshold Limit For Initiating Insolvency Process Against Personal Guarantors Is Also ₹1 Crore: NCLT New Delhi

Mohd Malik Chauhan

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