Pranav B Prem

The National Company Law Tribunal, Hyderabad Bench-II, comprising Rajeev Bhardwaj (Judicial Member) and Sanjay Puri (Technical Member), has held that bankruptcy proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) can be validly initiated against a foreign citizen who has acted as a personal guarantor to an Indian corporate debtor. The Tribunal made this clear while admitting bankruptcy proceedings against Shri Yarlagadda Madhu Mohan, a personal guarantor to M/s YKM Entertainment & Hotels Pvt. Ltd., despite his contention that he is a United States citizen and therefore outside the purview of the Code.

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The case arose after YKM Entertainment & Hotels Pvt. Ltd. availed financial assistance exceeding ₹263 crore from the State Bank of India (SBI) and associated banks. Shri Madhu Mohan executed multiple guarantee agreements securing this financial assistance. Following continued default by the corporate debtor, SBI invoked the guarantees and initiated insolvency proceedings against the corporate debtor, which were admitted earlier. SBI thereafter filed an application under Section 95 of the Code seeking insolvency proceedings against the personal guarantor. Although the Tribunal admitted the application and granted multiple opportunities, the guarantor failed to submit a repayment plan as required under Section 105 of the IBC.

In response, SBI filed the present application under Sections 121 and 123 of the IBC seeking commencement of bankruptcy proceedings. The guarantor opposed the application, arguing that the IBC does not extend to foreign citizens, relying on Sections 2(e), 3(23), 234, and 235 of the Code. He submitted that, as a U.S. citizen since 2011, proceedings against him were ultra vires, especially since India and the U.S. have no reciprocal arrangement under Section 234.

The Tribunal rejected these arguments as “wholly misconceived,” holding that Section 2(e) expressly applies the Code to “personal guarantors to corporate debtors,” without any qualification regarding citizenship or nationality. Section 3(23), which includes within its definition “persons resident outside India,” does not carve out any exception for foreign citizens. The Tribunal further clarified that Sections 234 and 235 relate only to cooperation with foreign courts when assets lie outside India and do not restrict insolvency proceedings against foreign nationals situated within India.

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Another argument raised by the guarantor was that he had filed an appeal before the NCLAT challenging the earlier order initiating proceedings under Section 95. However, the appeal was dismissed for non-prosecution. While he sought restoration of the appeal, the Tribunal noted that the NCLAT had not granted any stay. Accordingly, the pending restoration plea could not justify keeping the bankruptcy application in abeyance.

The Tribunal also took note of the fact that the guarantor had repeatedly failed to submit a repayment plan despite extensions granted by the Committee of Creditors and reminders from the Resolution Professional. In the absence of any repayment plan, Sections 105 and 115 of the Code deemed the situation equivalent to rejection of a repayment plan, thus entitling the financial creditor to invoke Section 121 for commencing bankruptcy proceedings.

After analysing the statutory scheme and the factual matrix, the Tribunal held that the requirements of Section 121 were satisfied, and that the foreign citizenship of the guarantor offered no bar to the applicability of the Code. Consequently, the Tribunal declared Shri Yarlagadda Madhu Mohan as a “bankrupt” and appointed Shri Sivarama Prasad Bhamidi as the Bankruptcy Trustee under Section 125 of the Code.

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The Tribunal directed the Registry to issue notices to creditors, publish public notices inviting claims, and ensure compliance with Sections 126 to 141 of the Code. It further vested the estate of the bankrupt with the Trustee and directed him to submit required reports in accordance with the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019. The bankruptcy order will remain in force until the debtor is discharged under Section 138 of the Code. The decision establishes an important principle that foreign citizenship does not shield a personal guarantor from bankruptcy proceedings under Indian insolvency law, particularly where the debt and guarantee obligations relate to an Indian corporate debtor.

Appearance

For the Petitioner: Mr. GP Yash Vardhan, Ld. Counsel

For the Respondent: Ms. Siva Praneetha, Ld. Counsel

Cause Title: State Bank of India v. Shri Yarlagadda Madhu Mohan

Case No: IA (IBC/402/2025 in Company Petition IB/222/95/HDB/2022

Coram: Rajeev Bhardwaj (Judicial Member), Sanjay Puri (Technical Member)