NCLAT (18.04.2018) State Bank of India vs. D.S. Rajendra Kumar [Company Appeal (AT) (Insolvency) No. 87 of 2018] held that the order of ‘Moratorium’ will not be applicable for filing application for triggering ‘Corporate Insolvency Resolution Process’ under Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) against the ‘Guarantor’ or the ‘Personal Guarantor’ under Section 60(2).
Excerpts of the order;
18.04.2018- These appeals have been preferred by the State Bank of India against common order dated 23rd January, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai, which reads as follows:
“All the petitions have been filed by the applicant/financial creditor/State Bank of India for recovery of the financial credit extended to the Corporate Debtor M/s. Brilliant Alloys Private Limited vide order No. CP/582/(IB)/CB/2017 dt.28.09.2017 the moratorium under Sec. 14 of the IBC 2016 was declared and Shri.Martin S.K.Golla was appointed as an Interim Resolution Professionals and in the meantime the financial creditor has sought to move this Tribunal under Section 60(2) of the IBC to initiate the insolvency proceedings against the personal guarantors to the corporate debtor with respect the guarantee for the loan which was extended for the financial creditor vide loan agreement dated 05.03.2012 for the following financial credit together with applicable interest thereon. …..
In similar circumstances, the Hon'ble High Court of Allahabad in Sanjeev Shriya and Ors.Vs. State Bank of India and Ors [writ - C Nos. 30285 and 30033 of 2017 Decided On: 06.09.2017] has held that;
“This Court is of the considered opinion that in the aforementioned facts and circumstances once the sufficient safeguards are provided in the IBC, 2016 & the regulations framed thereunder to the bank, and even the liability has not been crystallized either against the principal debtor or guarantors/mortgagors at present, then the proceeding, which is pending before the Debt Recovery Tribunal, Allahabad cannot go on and the same is stayed till the finalization of corporate insolvency resolution process or till the NCLT approves the resolution plan under sub-section (l) of Section 31 or passes an order for liquidation of corporate debtor under Section 33, as the case may be. With the aforesaid directions/observations, both the writ petitions are disposed"
In view of this, the financial creditor/SBI should not proceed against the personal guarantors till the moratorium period comes to an end or till the adjudicating authority approves a resolution plan under Sub Section 1 of Section 31 or passes an order for liquidation of corporate debtor under Section 33.
#5……….. However, it is made clear that order of ‘Moratorium’ will be applicable only to the proceedings against the ‘Corporate Debtor’ and the ‘Personal Guarantor’, if pending before any court of law/Tribunal or authority but the order of ‘Moratorium’ will not be applicable for filing application for triggering ‘Corporate Insolvency Resolution Process’ under Sections 7 or 9 or 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code”) against the ‘Guarantor’ or the ‘Personal Guarantor’ under Section 60(2).
6. We have noticed that Part-III of ‘I&B Code’ has not been given effect but Part-II Section 60(2) having come into force, if ‘Corporate Insolvency Resolution Process’ has been initiated against the ‘Corporate Debtor’, the Insolvency and Bankruptcy Resolution Process against the ‘Personal Guarantor’ can be filed under section 60(2) before the same Adjudicating Authority (National Company Law Tribunal) and not before the Debt Recovery Tribunal (DRT).
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
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Author’s comments; Section 14(3) of the Code was substituted. by Act No. 26 of 2018, sec. 10 (w.e.f. 6-6-2018) reading as under;
Section 14 (3) The provisions of sub-section (1) shall not apply to —
- (a) such transactions, agreements or other arrangement as may be notified by the Central Government in consultation with any financial sector regulator or any other authority;
- (b) a surety in a contract of guarantee to a corporate debtor.
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