The National Company Law Appellate Tribunal, New Delhi (“NCLAT”), has clarified and resolved the ambiguity surrounding the question of jurisdiction of the National Company Law Tribunal (“NCLT”) to entertain insolvency applications against personal guarantors where no corporate insolvency resolution process (“CIRP”) is pending against the corporate debtor. The issue was addressed through a recent judgment dated January 23, 2025, in Anita Goyal vs. Vistra ITCL (India) Ltd. & Anr.[1] (“Judgement”).
Overview:
In our earlier blog[2], we discussed the NCLAT’ s decision in Mahendra Kumar Jajodia v. SBI Stressed Assets Management Branch[3] (“Mahendra Kumar Judgment”), where the NCLAT held that the NCLT has jurisdiction to decide personal insolvency applications, regardless of any CIRP or liquidation proceedings pending against the corporate debtor before it. After this NCLAT ruling, which the Supreme Court upheld by its non-speaking order dated May 6, 2022, it appeared that the law on this subject stood settled. However, in recent times, various judicial forums have taken a view contradictory to the Mahendra Kumar Judgment, by distinguishing the facts in Mahendra Kumar’s case on various parameters, which made it ambiguous whether the NCLT has jurisdiction to entertain personal insolvency applications. The Judgment has put to rest this ambiguity.
Conflicting judgments of the Madras HC and NCLT Kolkata:
The Madras High Court in Rohit Nath v. KEB Hana Bank Ltd.[4] (“Rohit Nath Judgment”), while dealing with a civil revision petition filed by a personal guarantor challenging the bankruptcy application pending against it before the Debt Recovery Tribunal (“DRT”), upheld its earlier judgment dated July 28, 2021[5]. It held that where there is no CIRP initiated in respect of a corporate debtor, personal insolvency proceedings must be filed only with the jurisdictional DRT and not the NCLT, in view of Section 79(1) of the Code, which provides that the ‘Adjudicating Authority’ in respect of insolvency resolution and bankruptcy for individuals and partnership firms will be the ‘Debt Recovery Tribunal’.
The NCLT, Kolkata, in Tata Capital Financial Services Ltd. v. Arjun Agarwal[6] (“Tata Capital Judgment”) and Aditya Birla Finance Ltd. v. Sarita Mishra[7] (“Aditya Birla Judgment”), re-iterated the law laid down in the Rohit Nath Judgment, and further held that NCLT is not a ‘recovery forum’ and any proceeding involving the submission of a ‘repayment plan’ (as opposed to a ‘resolution plan’ in a CIRP) by a personal guarantor cannot be maintained before the NCLT (not being a recovery forum) and should lie before the DRT. It further relied on Section 60(5) of the Code to hold that NCLT has jurisdiction on matters only ‘arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor’ and since no insolvency application or liquidation proceeding was pending against the corporate debtor in the specific facts of that case, the NCLT did not have jurisdiction to decide the personal insolvency applications.
Pertinent to note that NCLT Kolkata, in a recent judgment dated January 07, 2025, in State Bank of India v. Nijunj Bothra[8] (“Nikunj Bothra Judgment”), has categorically distinguished the law laid down in Mahendra Kumar Judgment by holding that in the Mahendra Kumar case, CIRP against the corporate debtor had been preferred at a prior point in time, which had culminated into a resolution plan. Therefore, the rationale in the Mahendra Kumar Judgment was specific to its facts and cannot be said to be an authority on the proposition that even without a CIRP initiated against the corporate debtor, a personal insolvency application can be maintained before the NCLT. It further held that in the absence of an ‘initiated’ or ‘pending’ or ‘concluded’ CIRP against a principal borrower, the personal insolvency application against a personal guarantor to a corporate debtor will not be maintainable before the NCLT, and the appropriate forum will be the jurisdictional DRT.
Anita Goyal Case:
In the peculiar facts of Anita Goyal case, there was no CIRP ‘pending’, ‘initiated’ or ‘concluded’ against the principal borrower, i.e. Nivaya ASL Pvt. Ltd. (“Corporate Debtor”). Anita Goyal (“Personal Guarantor”) had filed an appeal against the impugned order dated December 04, 2024 (“Impugned Order”), passed by the NCLT, Principal Bench, by which the petition against the Personal Guarantor was admitted and order was passed under Section 100 of the Code. The core issue before the NCLAT was whether in the absence of any ‘pendency’ or ‘initiation’ of CIRP against the Corporate Debtor, the NCLT has jurisdiction to pass the Impugned Order against the Personal Guarantor.
The Personal Guarantor’s primary ground for challenge was that in light of Section 79(1), read with Section 179 of the Code, which provides that “Subject to the provision of section 60, the Adjudicating Authority, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal”, it is clear that the ‘Adjudicating Authority’ for individuals and partnership firms is the ‘Debt Recovery Tribunal’. Further, the words ‘subject to provisions of Section 60’ appearing in Section 179, applies only in cases where CIRP or liquidation proceedings are pending against a corporate debtor before the NCLT, as per Section 60(2). If no such proceedings are pending, the correct forum to decide such applications will be the DRT. In support of its contention, the Personal Guarantor relied on the judgments that were passed contrary to the Mahendra Kumar Judgment.
Analysis:
After analysing the relevant provisions of the Code, the NCLAT held as follows:
- From a reading of Section 60(1), the conclusion is inescapable that the appropriate jurisdiction for insolvency resolution of personal guarantors is the NCLT. It rejected the submission that the expression ‘without prejudice to sub-section (1)’ appearing in Section 60(2) of the Code in any manner cuts down the applicability of Section 60(1) and clarified that Section 60(2) will only apply when a CIRP or liquidation proceeding of a corporate debtor is pending before the NCLT. It relied on the judgments in Mahendra Kumar Agarwal v. PTC India[9] and Axis Trustee Services Ltd. v. Brij Bhushan Singal[10] in support of this;
- The Supreme Court judgment in Lalit Kumar Jain v. Union of India & Ors.[11] has emphasised that personal guarantor(s) of the corporate debtor are to be treated as separate species of individuals. In view thereof, the NCLAT held that personal guarantors are to be treated differently than ‘individuals’ under Part III of the Code;
- As regards the conflicting judgments, the NCLAT held that the Rohit Nath Judgment could not be said to be a precedent on this issue as it was passed in the specific facts of its case. It further held that the Tata Capital and the Aditya Birla Judgments are in teeth of the binding judgments delivered by the NCLAT and the Supreme Court in the Mahendra Kumar case, and do not lay the correct law and are per incuriam.
In view of the aforesaid, the NCLAT rejected the appeal filed by the Personal Guarantor.
Concluding Thoughts:
The Judgment clarifies that the appropriate jurisdiction for dealing with personal insolvency applications will be the NCLT and has therefore laid to rest any challenge to the same before the NCLTs as of now. The Judgment further clarifies that the applicability of Section 60(2) is limited to ensuring that the same NCLT bench hears the guarantor and corporate debtor proceedings. The Judgment brings much needed clarity on this important jurisdictional aspect enabling creditors to approach the NCLT in relation to personal insolvency proceedings, even in the absence of ‘pendency’ or ‘initiation’ of a CIRP against a corporate debtor.
[1] 2025 SCC OnLine NCLAT 37
[2] Appropriate forum for Insolvency of Personal Guarantors – Is the last word out? | India Corporate Law (cyrilamarchandblogs.com)
[3] (2022) SCC OnLine NCLAT
[4] C.R.P. No. 2513 of 2022 and C.M.P. No. 12925 of 2022 – decided on 30 March 2023
[5] C.R.P. (PD) No. 1289 of 2021
6. I.A.(IB) 1670/KB/2024 in C.P.(IB) 51/KB/2024
[7] IA(IB)No.356/KB/2024 in Company Petition (IB) No. 67 of 2023
[8] C.P. (IB)/262(KB)2022 – decided on 7 January 2025
[9] 2023 SCC OnLine NCLAT 421
[10] (2022) SCC OnLine Del
[11] (2021) 9 SCC 321