NCLAT Rules Appeals Against NCLT Orders Initiating Insolvency Process Against Personal Guarantors Are Maintainable Under Section 61 IBC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench comprising Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member), and Mr. Barun Mitra (Technical Member) has ruled that an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (Code) is maintainable against an order passed by the Adjudicating Authority under Section 100 of the Code, which directs the initiation of the Personal Insolvency Resolution Process (PIRP). The Tribunal held that since the National Company Law Tribunal (NCLT) is the designated forum for initiating insolvency proceedings against personal guarantors, an appeal against such an order lies before the NCLAT under Section 61.
Brief Facts
These appeals were filed under Section 61 of the Code, challenging an order passed by the Adjudicating Authority (NCLT), which admitted an application under Section 95 and subsequently passed an order under Section 100 directing the initiation of the personal insolvency resolution process against the personal guarantors.
The Respondent contended that an order passed under Section 100 admitting a personal insolvency resolution process falls under Part III of the Code, which is applicable to individuals and partnership firms. It was argued that appeals against orders passed under Part III are not maintainable under Section 61, as the latter deals with corporate insolvency resolution proceedings.
On the other hand, the Appellant argued that as per Section 60 of the Code, NCLT is the designated forum for proceedings against personal guarantors. Consequently, an appeal against an NCLT order under Section 100 should be maintainable under Section 61, which allows appeals against orders of the NCLT.
Observations and Findings
Jurisdiction of NCLT in Personal Guarantor Cases: The Tribunal emphasized that Section 60(1) of the Code explicitly provides that the adjudicating authority for insolvency resolution and liquidation for corporate persons, including corporate debtors and their personal guarantors, shall be the NCLT having territorial jurisdiction over the location of the registered office of the corporate person.
Applicability of Part III of the Code: While Part III of the Code generally applies to individuals and partnership firms under the jurisdiction of the Debt Recovery Tribunal (DRT), the insolvency resolution process for personal guarantors to corporate persons falls exclusively within the jurisdiction of the NCLT. The Tribunal referred to previous judicial precedents to affirm that NCLT is competent to handle such matters.
Reliance on Supreme Court Precedents:
The Tribunal relied on the Supreme Court ruling in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. (2020) 13 SCC 308, which held that any order passed by the NCLT in matters concerning the insolvency resolution of corporate debtors and personal guarantors is appealable before the NCLAT under Section 61 of the IBC, 2016, and subsequently, before the Supreme Court under Section 62.
It also referred to the judgment in Lalit Kumar Jain v. Union of India & Ors. (2021) 9 SCC 321, which clarified that the 2018 amendment to the IBC brought personal guarantors within the purview of Section 60, thereby allowing the NCLT to adjudicate matters related to their insolvency alongside corporate debtors.
Powers of NCLT Under Section 64: The Tribunal noted that Section 64 of the Code vests the NCLT with all powers of the DRT concerning personal guarantors. It was further observed that the Parliament intended to merge Part III of the Code with Part II for proceedings against personal guarantors to corporate debtors, reinforcing the jurisdiction of the NCLT in such matters.
Appealability Under Section 61: Given that NCLT is the designated forum for filing applications under Section 95 of the Code against personal guarantors, the Tribunal held that appellate jurisdiction under Section 61 extends to orders passed under Section 100. The Tribunal concluded that appeals by personal guarantors against such orders are, therefore, maintainable before the NCLAT.
Verdict
In view of the above, the Tribunal held that since the NCLT is the appropriate adjudicating authority for initiating insolvency resolution processes against personal guarantors, the corresponding appellate forum under Section 61 is the NCLAT. Consequently, the appeals were dismissed on merits, affirming the maintainability of appeals under Section 61 in such cases.
Appearance
For Appellant: Mr. Sandeep Bajaj, Mr. Soayib Qureshi, Mr. Mayank Biyani and Ms. Anchal Singh, Advocates.
For Respondents: Mr. Sanjeev Sen, Sr. Advocate with Ms. Srideepa Bhattacharya, Ms. Neha Shivhare, Ms. Anjali Singh, Ms. Prahalad Balaji and Mr. Pragyan Mishra, Advocates for SBI.
Cause Title: Aarti Singal Versus State Bank of India and Ors.
Case No: Company Appeal (AT) (Insolvency) No. 2121 of 2024, Company Appeal (AT) (Insolvency) No. 2124 of 2024, Company Appeal (AT) (Insolvency) No. 2114 of 2024 and Company Appeal (AT) (Insolvency) No. 2115 of 2024
Coram: Justice Ashok Bhushan [Chairperson] , Mr. Arun Baroka [Member (Technical)], Mr. Barun Mitra [Member (Technical)]
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