Case Law Details
Mudraksh Investfin Pvt. Ltd. Vs Gursev Singh (NCLT Delhi)
NCLT Delhi held that the threshold limit for invoking the provisions of Section 95 of Insolvency and Bankruptcy Code, 2016 qua the Personal Guarantor to Corporate Debtor would be Rs. One Crore only. Thus, since amount defaulted is less than Rs. 1 Crore, the application dismissed.
Facts- The moot question arises to be determined here is whether in cases where the amount of default is less than 1 Crore, the Personal Guarantor can be treated as Insolvent and the application under Section 95 can be maintained against him.
Conclusion- Held that a conjoint reading of Rule 3(1)(a) of Insolvency and Bankruptcy (Application to Adjudication Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) 2019, Section 4 and Section 60(1) of the Code reveals that the threshold limit for invoking the provisions of Section 95 of IBC, 2016 qua the Personal Guarantor to Corporate Debtor would be Rs. One Crore only.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
As can be seen from Part III of the application, apparently the amount of default is Rupees Ten Lakhs. The relevant excerpt of Part III of the application reads thus:
2. The moot question arises to be determined by us is, “whether in such cases where the amount of default is less than 1 Crore, the Personal Guarantor can be treated as Insolvent and the application under Section 95 can be maintained against him”. Mr. Mohapatra, the Ld. Coun-sel for the Applicant could draw our attention to Section 78 of IBC, 2016 and submitted that the threshold limit of default in respect of an individual under Part III of the Code is only Rs. One Thou-sand and thus, when in the present case the amount of default is more than Rs. Ten Lakhs, the ap-plication is maintainable and deserves to be admitted.
3. As can be seen from Section 78 (Part III of Insolvency and Bankruptcy Code, 2016), the default limit of Rs. One Thousand is fixed for fresh start, insolvency and bankruptcy of individuals and part-nership firms. The Section 78 of the Code as also the proviso thereunder reads thus: –
“78. Ap-plication.— This Part shall apply to matters relating to fresh start, insolvency and bankruptcy of in-dividuals and partnership firms where the amount of the default is not less than one thousand ru-pees:
Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one lakh ru-pees.”
4. While making reference to Section 78 of the Code, we cannot be oblivious of the provisions of Section 79(1) of the Code. The Section 79(1) clearly provides that the Adjudicating Authority in re-spect of the persons refereed to Section 78 is Debt Recovery Tribunal (DRT) constituted under sub-section 1 of Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Section 79(1) of the Code reads thus: –
“79. Definitions.—In this Part, unless the context otherwise requires,—
(1) “Adjudicating Authority” means the Debt Recovery Tribu-nal constituted under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Fi-nancial Institutions Act, 1993 (51 of 1993);”
5. Here, it would not be out of context to make a reference to Rule 3(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantor to Corporate Debtor), Rules 2019. The Rule reads thus: –
“3. Definitions. ― (1) In these rules, unless the context otherwise requires-(a) “Adjudicating Authority” means-
(i) for the purpose of section 60, the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013 (18 of 2013); or
(ii) in cases other than sub-clause (i), the Debt Recovery Tri-bunal established under sub-section (1A) of section 3 of the Recovery of Debts and Bankruptcy Act, 1993 (51 of 1993);”
6. As can be seen from Rule 3 (1)(a)(ibid) for the purpose of Section 60, the National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013 would be the Adjudicating Au-thority for a Personal Guarantor and in cases other than sub-clause (i) of clause (a) of sub-rule (1) of Rule 3, the Debt Recovery Tribunal established under sub-section (1A) of Section 3 of the Re-covery of Debt and Bankruptcy Act, 1993 would be the Adjudicating Authority. Thus, both the Ad-judication Authorities have jurisdiction regarding the Personal Guarantors.
7. If we accept the plea of Mr. Mohapatra that even in such cases where the default is Rs. 10 Lakhs, this Tribunal would be Adjudicating Authority qua the Personal Guarantor, for the simple reason that he or she is the Personal Guarantor qua Corporate Debtor, then an anomalous situation would be created. When a reference is made to Section 78 of IBC, 2016, regarding the threshold limit for invoking jurisdiction of this Tribunal under Section 95 of IBC, 2016, apparently the reference would be to the Debt Recovery Tribunal and not to this Tribunal. When this Tribunal is referred to as Ad-judicating Authority, as is referred in Rule 3(1)(a)(i) (ibid), a reference may be made to Section 60(1) of IBC, 2016. The Section 60(1) of the Code reads thus: –
“60. Adju-dicating authority for corporate persons.— (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guaran-tors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located.”
8. When we refer to a Personal Guarantor qua the Corporate Debtor, then in
order to arrive at the threshold limit, we will have to make a reference to Section 4 of the Code, as amended by Notification No. S.O. 1205(E) dated 24.03.2020. The Section 4(1) along with proviso thereunder and the Notification No. S.O. 1205(E) dated 24.03.2020, as referred in the footnote be-low the Sections, read thus: –
The Notification No. S.O. 1205(E) dated 24.03.2020 reads thus:
9. When a reference to Corporate Debtor for the purpose of CIRP is to be made, the same needs to be made with reference to the provision of Section 4 (as amended) (ibid) and only in such cases where threshold limit is Rs. 1 Crore or more, this Tribunal would have jurisdiction. When a mention to Personal Guarantor in Section 60 of the Code is made along with the Corporate Debtors, we may not read the threshold limit for Personal Guarantor qua Corporate Debtor different from the one which is mentioned for Corporate Debtor. The limit of Rs. One Thousand, under Section 78 of the Code, is in respect of such entities/persons/individuals which are referred to in the said Section. Even in Section 54A(2) of the Code, the threshold limit is same as is given in Section 4. The Section 4, Section 54A(2) and Section 60 are contained in Part II of the Code. Section 54A(2) of the Code reads thus: –
“54A. Corporate debtors eligible for pre-packaged insolvency resolution process.—
[…]
(2) Without prejudice to sub-section (1), an application for initiating prepackaged insolvency resolution process may be made in respect of a corporate debt-or, who commits a default referred to in section 4, subject to the following conditions-
(a) it has not undergone pre-packaged insolvency resolution process or completed corporate insolvency resolution process, as the case may be, during the pe-riod of three years preceding the initiation date;
(b) it is not undergoing a corporate insolvency resolution pro-cess;
(c) no order requiring it to be liquidated is passed under sec-tion 33;
(d) it is eligible to submit a resolution plan under section 29A;
(e) the financial creditors of the corporate debtor, not being its related parties, representing such number and in such manner as may be specified, have pro-posed the name of the insolvency professional to be appointed as resolution professional for con-ducting the pre-packaged insolvency resolution process of the corporate debtor, and the financial creditors of the corporate debtor, not being its related parties, representing not less than sixty-six per cent. in value of the financial debt due to such creditors, have approved such proposal in such form as may be specified: Provided that where a corporate debtor does not have any financial creditors, not being its related parties, the proposal and approval under this clause shall be provid-ed by such persons as may be specified;
(f) the majority of the directors or partners of the corporate debtor, as the case may be, have made a declaration, in such form as may be specified, stating, inter alia, that—
(i) the corporate debtor shall file an application for initiating pre-packaged insolvency resolution process within a definite time period not exceeding ninety days;
(ii) the pre-packaged insolvency resolution process is not being initiated to defraud any person; and
(iii) the name of the insolvency professional proposed and approved to be appointed as resolution professional under clause (e)
(g) the members of the corporate debtor have passed a spe-cial resolution, or at least three-fourth of the total number of partners, as the case may be, of the corporate debtor have passed a resolution, approving the filing of an application for initiating pre-packaged insolvency resolution process.”
10. Our attention could be drawn to Notification No. S.O. 4126(E) dated 15.11.2019, in terms of which, in exercise of the powers referred by sub-section (3) of Section 1 of IBC, 2016, the Central Government appointed 01.12.2019 as the date from which certain provisions of the Code only in so far as they relate to Personal Guarantors to Corporate Debtor came into force. The notification reads thus: –
11. From the notification it does not appear that the threshold limit for Personal Guarantor qua Corporate Debtor for the purpose of present application under Section 95 of IBC, 2016 would be Rs. One Thousand.
12. In view of the aforementioned discussion and analysis we are of the considered view that a conjoint reading of Rule 3(1)(a) of Insolvency and Bankruptcy (Application to Adjudication Authori-ty for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) 2019, Section 4 and Section 60(1) of the Code reveals that the threshold limit for invoking the provisions of Section 95 of IBC, 2016 qua the Personal Guarantor to Corporate Debtor would be Rs. One Crore only.
13. Here, a question may arise regarding the remedy available to such Personal Guarantor qua Cor-porate Debtor, who stood as security for an amount of less than Rs. 1 Crore. To address this issue, it is noted that the object of Sections 94 & 95 of the IBC, 2016 is to initiate the Insolvency Resolution Process of the Personal Guarantors and the same cannot be perceived as a process for recovery of debt. One may wonder that when Section 105 of the Code provides for repayment plan, the proceedings under Section 95 may, in a way, be treated as proceedings for recovering debt. We observe that when the repayment plan is submitted, the same is for the concession to be made by all the Guarantors qua the Personal Guarantor regarding the amount of debt so that the Insolvency of Personal Guarantor is resolved and not to introduce a mechanism for return of debt. It goes without saying that where the amount defaulted to be paid by the Corporate Debtor and Personal Guarantor is less than Rs. 1 Crore, proceedings before this Adjudicating Authority for the purpose of Section 7, 9, 10, 94 & 95 of Code cannot be maintained. In view of the afore-mentioned, the application is dismissed with the liberty to Applicant to resort to appropriate remedy in accordance with law.
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