Pranav B Prem

The National Company Law Tribunal (NCLT), Chennai Bench-II, comprising Jyoti Kumar Tripathi (Judicial Member) and Ravichandran Ramasamy (Technical Member), has ruled that personal guarantors cannot misuse the insolvency process to delay or obstruct legitimate recovery actions by creditors. The Bench dismissed the application filed under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) by K.C. Mohanan, personal guarantor to We Two Engineering Pvt. Ltd., observing that the petition was a tactic to stall recovery proceedings initiated under the SARFAESI Act by South Indian Bank Ltd.

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Background

The applicant, K.C. Mohanan, stood as personal guarantor for credit facilities availed by We Two Engineering Pvt. Ltd., a Kochi-based equipment manufacturing company. The company defaulted on its loans worth ₹23.39 crore, leading to classification of the account as a Non-Performing Asset (NPA) on May 16, 2022. Following the default, South Indian Bank issued a demand notice under Section 13(2) of the SARFAESI Act, followed by auction sale notices in May 2023 for recovery of the dues. The bank also invoked the personal guarantee executed by Mohanan. Subsequently, the applicant filed an insolvency petition under Section 94(1) of the IBC, claiming inability to repay his debts amounting to ₹18.01 crore, and sought initiation of the Insolvency Resolution Process (IRP) against himself. The Tribunal, by an earlier order dated February 23, 2024, appointed Mr. Madhu Desikan as the Interim Resolution Professional (IRP) to examine the petition under Section 99 of the IBC and submit a report.

IRP’s Report and Bank’s Objections

The IRP, after reviewing the documents, recommended acceptance of the petition, stating that procedural requirements under Section 94 were met, and the debt was not excluded under Section 79(15)(e) of the IBC. The IRP found that the applicant had disclosed his assets — including immovable properties valued at over ₹16 crore — and met the formal prerequisites for insolvency admission. However, South Indian Bank, represented by Advocates E. Om Prakash and R. Imayavaramban, strongly opposed the IRP’s recommendation, contending that the application was not bona fide and filed only to evade recovery.

The bank alleged that the guarantor had concealed assets, misstated liabilities, and misled creditors to take advantage of the moratorium under Section 96 of the IBC. It further argued that the guarantor had already made partial payments, released certain mortgaged properties, and yet continued to default deliberately. The bank emphasized that the application was not a genuine effort at resolution, but a shield against enforcement, and cited ongoing recovery measures under SARFAESI proceedings as proof of the guarantor’s mala fide intent.

Tribunal’s Findings

The NCLT concurred with the bank’s objections and found that the application was filed to delay recovery rather than to resolve insolvency. “The present application under Section 94 is seen as an attempt to merely avail the benefit of moratorium rather than to initiate a genuine resolution process,” the Bench held. The Tribunal observed that the IRP’s report was mechanical and failed to consider the conduct of the applicant, pending SARFAESI proceedings, and the attempt to misuse the Code to stall creditor recovery.

Referring to the NCLAT’s decision in Syed Sirajis Salikin Khadri v. Edelweiss Asset Reconstruction Company Ltd. (2025), the Bench reiterated that insolvency proceedings under Section 94 cannot be invoked as a safe harbour to indefinitely delay legitimate recovery actions. “While the IRP has mechanically recommended acceptance of the petition, his report does not take into account the conduct of the applicant, the pending SARFAESI proceedings, or the applicant’s attempt to use the Code as a shield against recovery, which is contrary to the legislative intent. Section 94 cannot be invoked as a safe harbour for a guarantor to indefinitely delay or defeat legitimate recovery proceedings of the creditor,” the Tribunal stated.

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Holding that the Insolvency and Bankruptcy Code is meant for genuine resolution, not for obstructing creditor rights, the Tribunal dismissed the application.  “This Tribunal is not satisfied that a case has been made out for initiation of insolvency resolution process against the personal guarantor under Section 94 of the Code,” it concluded. Accordingly, the NCLT dismissed the Section 94 petition and rejected the IRP’s recommendation under Section 99.

Appearance

For Personal Guarantor: Mr. A. S. Sathish Kumar, PCS

For Respondent: Mr. E. Om Prakash & Mr. R. Imayavaramban, Advocates

For Resolution Professional: Mr. Madhu Desikan (Party in person)

Cause Title: K C Mohanan

Case No: CP (IB) 109/ (CHE)/ 2023 & IA (IBC) 763/ (CHE)/ 2024 In CP (IB) 109/ (CHE)/ 2023

Coram: Jyoti Kumar Tripathi (Judicial Member), Ravichandran Ramasamy (Technical Member)