NCLT Chennai: Threshold Limit For Initiating Insolvency Process Against Personal Guarantors Shall Also Be ₹1 Crore
Pranav B Prem
In a significant ruling, the National Company Law Tribunal (NCLT) Chennai Bench, comprising Shri. Sanjiv Jain (Judicial Member) and Shri. Venkataraman Subramaniam (Technical Member), has held that the threshold limit for initiating the Personal Insolvency Resolution Process (PIRP) under Sections 94 or 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), shall be the same as that for a Corporate Debtor under Section 4 of the Code, i.e., ₹1 crore.
Brief Facts of the Case
Mr. Keerthan Kumar Upadhya, the Applicant, filed an application under Section 94 of the IBC seeking initiation of the Insolvency Resolution Process against himself as a Personal Guarantor for SKV United Hospitals Limited (Corporate Debtor). The Corporate Debtor had availed credit facilities from Shreem Hreem Shreem Holdings, and the Applicant had furnished a personal guarantee for the said loans. Upon default by the Corporate Debtor in repaying the debts, the Applicant approached the Tribunal, invoking the personal insolvency process.
Observations by the Tribunal
The Tribunal noted that the Corporate Debtor had taken a loan of Rs. 75,00,000, for which the Applicant provided a personal guarantee. When the creditor invoked the guarantee, demanding repayment, the outstanding amount stood at Rs. 75 lakh, which is below the statutory threshold of Rs. 1 crore required for initiating insolvency proceedings.
The Bench emphasized that "the IBC classifies individuals into three categories- personal guarantors to corporate debtors, partnership firms and proprietorship firms, and other individuals to enable implementation of individual insolvency in a phased manner." The provisions for personal guarantors to corporate debtors were brought into effect from December 1, 2019. The Tribunal further clarified that "the threshold limit for initiating insolvency proceedings against personal guarantors under Sections 94 and 95 of the Code shall be the same as that for Corporate Debtors under Section 4 of the Code, i.e., Rs. 1 crore."
Failure to Comply with Procedural Requirements
Apart from the threshold limit issue, the Tribunal also took note of non-compliance with procedural requirements. It observed that the Applicant had failed to send mandatory notices to all financial creditors and the Corporate Debtor, as required under Rule 6(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. This procedural lapse further weakened the Applicant’s case.
Key Takeaways from the Judgment
The ruling reiterates that the threshold limit for initiating insolvency proceedings against a personal guarantor is identical to that of a corporate debtor. The Tribunal’s decision ensures uniformity in the interpretation of the Code while preventing misuse of personal insolvency proceedings for amounts below the prescribed limit.
Additionally, the judgment highlights the importance of adhering to procedural requirements, particularly the obligation to serve notice to all relevant financial creditors and corporate debtors before initiating personal insolvency proceedings. Non-compliance with such procedural mandates can lead to outright dismissal of the application, as seen in this case.
Verdict
Considering the facts of the case and the legal position, the NCLT Chennai Bench dismissed the application filed under Section 94 of the IBC on the grounds that the outstanding debt of Rs. 75 lakh did not meet the statutory threshold of Rs. 1 crore for initiating personal insolvency proceedings. Furthermore, the Applicant’s failure to comply with the procedural requirements under Rule 6(2) of the IBC Rules further justified the dismissal of the petition. Accordingly, the Tribunal disposed of the matter, reinforcing the necessity of adhering to both substantive and procedural legal mandates in insolvency proceedings.
Appearance
For the Petitioner: Sahaya Sukuna, Advocate
Cause Title: Keerthan Upadhya (Guarantor)
Case No: CP(IB)/51(CHE)/2025
Coram: Sanjiv Jain [Member (Judicial)], Venkataraman Subramanian [Member (Technical)]
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