Issue

Whether initiation of the Corporate Insolvency Resolution Process of the Corporate Debtor is a
prerequisite for maintainability of an application under Section 95 of the IBC, 2016 filed for
initiating IR Process of the Personal Guarantor of that Corporate Debtor before the National
Company Law Tribunal?

Provisions and their Interpretation

Rule 3(f) of Personal Guarantor Rules 2019

“guarantor” means a debtor who is a personal guarantor to a corporate debtor and in respect
of whom guarantee has been invoked by the creditor and remains unpaid in full or part;”

Section 5(22) of Insolvency & Bankruptcy Code, 2016

“Personal guarantor” means an individual who is the surety in a contract of guarantee to a

corporate debtor.

Section 3(8) of the Insolvency & Bankruptcy Code, 2016

“Corporate debtor” means a corporate person who owes a debt to any person.
Section 3(7) of Insolvency & Bankruptcy Code, 2016

“Corporate person” means a company as defined in clause (20) of section 2 of the Companies
Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1)
of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2019), or any other person
incorporated with limited liability under any law for the time being in force but shall not include
any financial service provider.”

Section 3(17) of IBC

“financial service provider" means a person engaged in the business of providing financial
services in terms of authorisation issued or registration granted by a financial sector regulator.”
Section 60- Adjudicating Authority for corporate persons.

Section 60(1) - “The Adjudicating Authority, in relation to insolvency resolution and liquidation
for corporate persons including corporate debtors and personal guarantors thereof shall be the
National Company Law Tribunal having territorial jurisdiction over the place where the
registered office of the corporate persons located.”

Section 60(2) - “Without prejudice to sub-section (1) and notwithstanding anything to the
contrary contained in this Code, where a corporate insolvency resolution process or liquidation
proceeding of a corporate debtor is pending before a National Company Law Tribunal, an
application relating to the insolvency resolution or 1[liquidation or bankruptcy of a corporate
guarantor or personal guarantor, as the case may be, of such corporate debtor] shall be filed
before such National Company Law Tribunal.”

Section 60(3) - “An insolvency resolution process or 2[liquidation or bankruptcy proceeding of

a corporate guarantor or personal guarantor, as the case may be, of the corporate debtor]
pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing
with insolvency resolution process or liquidation proceeding of such corporate debtor.”

Difference between 60(1), 60(2) and 60(3)

That Section 60(1) depicts a situation, where the Corporate Insolvency Resolution Process or
Liquidation process has not been initiated. The same can be inferred from the words "in relation
to" insolvency resolution and liquidation for corporate persons, which includes the Pre-CIRP
Period. Section 60(1) of the Code requires that the adjudicating authority for the corporate debtor
and personal guarantors should be the NCLT which has territorial jurisdiction over the place
where the registered office of the corporate debtor is located

That Section 60(2) depicts a situation, where subsequent application relating to the Corporate
Insolvency Resolution Process or Liquidation process against the Corporate Insolvency
Resolution Process or Liquidation process against corporate debtor and personal guarantors is
already initiated and pending. The same can be inferred from the words "is pending,” in such a
case the adjudicating authority will be NCLT.

That Section 60(3) deals with the provision of transfer of proceedings from Debt Recovery
Tribunal to NCLT in case the Corporate Insolvency Resolution Process and Liquidation is
pending against the Corporate Debtor.

Interpretation

Analyzing NCLT Jurisdiction in the case of personal guarantor

Section 60(1) interpretation in different judgments

Mahendra Kumar Jajodia v. State Bank of India

Issue - Whether application is maintainable under Section 60(1) of the Code despite there being
no pendency of any Corporate Insolvency Resolution Process in National Company Law
Tribunal.

NCLAT decision1

Observation - The NCLAT in this judgement observed that the use of words ‘a’ and ‘such’
before NCLT in section 60(2) clearly indicate that the purpose and object of the sub-section are
that both proceedings (Corporate Insolvency Resolution Process against Corporate Debtor and
Interim Resolution Professional against personal guarantor) should be before the same NCLT.
The tribunal noted that section 60(2) is only applicable when Corporate Insolvency Resolution
1
2022 SCC OnLine NCLAT 58, para. 10
 Process /liquidation proceedings are pending before the NCLT. However, section 60(2) does not
prohibit the initiation of Interim Resolution Professional u/s 95 of the code even if there are no
proceedings pending before the NCLT.

The tribunal further observed that section 60(2) begins with the phrase ‘Without prejudice to
sub-section (1)’ thereby rendering the provisions u/s 60(2) as supplemental to sub-section (1) of
section 60. Section 60(1) is the substantive provision for the AA and in a situation wherein the
provisions of section 60(2) are not attracted, the application for initiating Interim Resolution
Professional can be filed u/s 60(1) of the Code.

Judgment- The tribunal held that the pendency of Corporate Insolvency Resolution Process
/liquidation proceedings before the NCLT is not a pre-requisite for initiating Insolvency
Resolution Process against the personal guarantor before NCLT.

Supreme Court decision2-

The Supreme Court, dismissed the appeal filed against NCLAT decision, while observing
that: “We do not see any cogent reason to entertain the Appeals. The judgment does not warrant
any interference”.

PNB Housing Finance Ltd. v. Goldy Gupta

Issue - Whether initiation of the Corporate Insolvency Resolution Process of the Corporate
Debtor is a prerequisite for maintainability of an application under Section 95 of IBC filed for
initiating Insolvency Resolution process of the personal guarantor of that Corporate Debtor
before the NCLT?

NCLT Held3 -

 NCLT find that the facts of the present case and issues raised herein are akin to the facts of the
Company Petition No. (IB)-395(ND)/2021-PNB Housing  Finance Ltd. v. Mr. Mohit Arora,

2
CA 1871 – 1872 of 2022
3
2021 SCC OnLine NCLT 487, para. 20
 The jurisdiction in relation to the insolvency resolution and liquidation for corporate persons
including corporate debtors and personal guarantors shall be the National Company Law
Tribunal in terms of Section 60(1) of IBC 2016.
 In the event of the Application(s) for Insolvency and Bankruptcy (IB) being pending for
initiation of Corporate insolvency resolution Process before this Adjudicating Authority,
commencement of Corporate Insolvency Resolution Process against the Corporate Debtor is not
a condition precedent for maintaining an application under Section 95 of the IBC, 2016 filed for
initiating Insolvency Resolution Process against the Personal Guarantor of the Corporate Debtor
before the NCLT.

Section 60(2) starts with a non-obstante language, it preserves the operation of Section 60(1)
(refer to usage of the words “Without prejudice to Section 60(1)”) thereby confirming that the
application for a new PG Proceeding will lie before the jurisdictional NCLT of the Corporate
Debtor in case where Corporate Insolvency Resolution Process is pending in respect of the
Corporate Debtor.

Sub-section (2) of Section 60 of Code speaks of an application relating to the bankruptcy of a

personal guarantor of a corporate debtor and states that any such bankruptcy proceedings shall be
filed only before the National Company Law Tribunal.

Section 60(3) of the Code prescribes for transfer of existing proceedings against the PG before
any court/tribunal to the jurisdictional NCLT of the Corporate Debtor.

Section 60(1) or 60(2) does not cover the situation where a PG Proceeding is already pending.
The same appears to be covered under Section 60(3) of the Code, which talks about transfer of
existing PG Proceedings to the jurisdictional NCLT of the Corporate Debtor.

Section 179(1)

“Subject to the provisions of section 60, the Adjudicating Authority, in relation to insolvency
matters of individuals and firms shall be the Debt Recovery Tribunal having territorial
jurisdiction over the place where the individual debtor actually and voluntarily resides or
carries on business or personally works for gain and can entertain an application under this
Code regarding such person.”
Relevance and Interpretation

In the present case, PNB v. Mohit kumar, it is contended that without the initiation of Corporate
Insolvency Resolution Process against corporate debtor the personal guarantor would come
under the purview of “individuals” and subsequently, the jurisdictional authority would be Debt
Recovery Tribunal as per section 179(1). Interestingly, Section 60(1) & (2), state an exception to
Section 179 in as much as if such individuals are personal guarantors to corporate debtors and a
corporate insolvency resolution process/liquidation process is pending against such corporate
debtors, then the NCLT shall be the Adjudicating Authority for such personal guarantors to
corporate debtors as against the Debt Recovery Tribunal. Further, if Corporate Insolvency
Resolution Process /Liquidation is not pending in terms of pendency of a Corporate Insolvency
Resolution Process pursuant to an admission order, then, by virtue of the provisions of Section
179, such personal guarantors being individuals, the jurisdiction to entertain an application for
insolvency resolution of such personal guarantors shall lie with the Debt Recovery Tribunal. As
discussed in above mentioned sections, it is nowhere mention that in the case where initiation of
Corporate Insolvency Resolution Process hasn’t taken place corporate debtor would be
considered otherwise. Further, from the plain reading of Section 179(1) of IBC, 2016, it is amply
clear that the provision is subject to Section 60 of the IBC, 2016, which implies that whenever
Section 60 is attracted, the provision of Section 179(1) of IBC, 2016 shall not be applicable and
the jurisdiction shall vest with NCLT.

Conflict of views regarding NCLT’s jurisdiction for Personal Guarantor proceeding in

absence of a Corporate Insolvency Resolution Process.

Lalit Kumar Jain v. Union of India & Others4

Issue- Whether the approval of a resolution plan relating to a corporate debtor operates so as to
discharge the liabilities of personal guarantors (to corporate debtors.5

Held- In the aforementioned case the Supreme Court noted that Section 60(2) of the Code
prescribes filing an application for initiating PG Proceedings with the NCLT, only in the event of

4
(2021) 9 SCC 321.
5
(2021) 9 SCC 321, pg. 326.
an ongoing Corporate Insolvency Resolution Process or liquidation process against the Corporate
Debtor. It held as follows:6

“Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation
process against a corporate debtor, an application for resolution process or bankruptcy of the
personal guarantor to the corporate debtor shall be filed with NCLT concerned with the
resolution process or liquidation. Therefore, the Adjudicating Authority for personal guarantors
will be NCLT, if a parallel resolution process or liquidation process is pending in respect of a
corporate debtor for whom the guarantee is given. The same logic prevails, under Section 60(3),
when any insolvency or bankruptcy proceeding pending against the personal guarantor in a
court or tribunal and a resolution process or liquidation is initiated against the corporate
debtor. Thus if A, an individual, is the subject of a resolution process before the DRT and he has
furnished a personal guarantee for a debt owed by a company B, in the event a resolution
process is initiated against B in an NCLT, the provision results in transferring the proceedings
going on against A in the DRT to NCLT.”

Section 60(2) is without prejudice to Section 60(1) and notwithstanding anything to the contrary
contained in the Code, thus giving overriding effect to Section 60(2).

Altico Capital India Ltd. v. Rajesh Patel & Ors.7

I.A No. 1062/2021, is filed by the Financial Creditor under section 95 of IBC against the
personal guarantor. However, on an enquiry from the Bench it came out that the Corporate
Debtor for which the personal guarantee has been given is not under Corporate Insolvency
Resolution Process. In this backdrop, the above I.A. 1062/2021 is disposed of and CP 293/2020
is also dismissed.

KEB Hana Bank v. Mr. Rohit Nath

Issue- whether an individual, in his capacity as a guarantor in connection with credit facilities
granted by a bank or financial institution to a corporate entity, may be proceeded against by way

6
(2021) 9 SCC 321, pg. 331, para. 106.
7
Comp. App. (AT) (Ins) No. 765 of 2021
of insolvency proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016
before an appropriate Debts Recovery Tribunal.

High Court decision- The Hon’ble Madras High Court8 dealt with a civil revision petition filed
by a PG against a pending PG proceeding9 before the DRT. Herein, the Madras High Court,
while dismissing the petition, interpreted Section 60(2) of the Code to mean that Section 60
would apply to PGs only when the Corporate Debtor is undergoing Corporate Insolvency
Resolution Process. Further, it also noted that where no Corporate Insolvency Resolution Process
has been initiated against the Corporate Debtor, PG Proceedings must necessarily be carried only
to the jurisdictional DRT and not to any other forum.

Ferro Alloys Corporation Limited v. Rural Electrification Corporation Limited

Issue- Whether the application u/s 7 of the Insolvency & Bankruptcy Code is maintainable
against the Corporate Guarantor without initiation of Corporate Insolvency Resolution Process
against the principal borrower (principal debtor)

NCLAT Judgment10- NCLAT has categorically held that it is not necessary to initiate Corporate
Insolvency Resolution Process process against the principal borrower before initiating Corporate
Insolvency Resolution Process against the Corporate Guarantor.

Supreme Court Judgment11- the Supreme Court dismissed the Civil Appeal bearing No. 1484
of 2019 and affirmed the landmark judgment passed by the National Company Law Appellate
Tribunal (NCLAT) in the matter of Ferro Alloys Corporation Limited v Rural Electrification
Corporation Limited.

Bank of Bihar Limited vs. Dr. Damodar Prasad & Anr.12

Issue- Whether the creditor can sue the surety without exhausting remedies against the principal
debtor.

8
2021 SCC OnLine Mad 2734
9
2020 SCC OnLine DRT 1
10
2019 SCC OnLine NCLAT 504, para. 39
11
CA 1484 of 2019
12
(1969) 1 SCR 620, para. 5
 Supreme Court Judgment - The Apex Court held that “under Section 128 of the Indian
Contract Act, save as provided in the contract, the liability of the surety is co-extensive with that
of the principal debtor. The surety became liable to pay the entire amount. His liability is
immediate. It cannot be deferred until the creditor exhausted his remedies against the principal
debtor. Further the Hon'ble Supreme Court held that the Financial Creditor has not only right to
recover the outstanding dues by filing a suit, but also has a right to initiate resolution process
against the corporate person, whose liability is co-extensive with that of the principal borrower.

Judgment analysis of PNB Finance Ltd. v. Mohit Arora

Observation

● It is clear that section 179(1) of Insolvency & Bankruptcy Code, which provides “Subject to the
provisions of section 60, the Adjudicating Authority, in relation to insolvency matters of
individuals and firms shall be the Debt Recovery Tribunal having territorial jurisdiction over the
place where the individual debtor actually and voluntarily resides or carries on business or
personally works for gain and can entertain an application under this Code regarding such
person,” shall not be applicable in the cases where section 60 which is “ NCLT as adjudicating
authority for corporate persons and personal guarantors,” is attracted.

● The NCLT observed that Section 60(1) was attracted and hence NCLT will have jurisdiction
even when the Corporate Insolvency Resolution Process is not being initiated against a corporate
debtor.

● While relying upon definition under Rule 3(f) of the Personal Guarantor Rule, 2019, it is opined
that the definition nowhere provides that the Corporate Insolvency Resolution Process against
corporate debtor is pre-requisite to initiate the Insolvency Resolution Process against the
Guarantor.

Judgment

● It is concluded that where initiation of Corporate Insolvency Resolution Process is pending

before NCLT, then in such a case commencement of Corporate Insolvency Resolution Process is
not pre-requisite condition for maintenance of an application provided under Section 95 of IBC.
Conclusion

It is evident from the above analysis that the Mohit Arora case, the NCLT, Delhi Bench based
its judgments on its interpretation of Section 60(1) of the Code which provides that the
Adjudicating Authority “in relation to” the insolvency resolution and liquidation for corporate
persons including corporate debtors and personal guarantors thereof shall be the NCLT. In the
NCLT, Delhi Bench’s considered view, the words “in relation to” depicts a situation where the
insolvency or liquidation process has not been initiated against the corporate debtor and therefore
even in such a case an application against the personal guarantor would also lie before the
NCLT. One can argue that this reasoning is in line with the objective of the Code i.e., to
consolidate cases related to the insolvency of an entity before a single forum. Therefore, the
moment a creditor decides to approach NCLT for insolvency / liquidation of corporate debtor,
then any subsequent or parallel insolvency action against the guarantor of such corporate debtor
should be before the same NCLT too. Supreme Court, in Lalit Kumar case, has recognized the
dynamics and the interwoven connection between the corporate debtor and the guarantor to hold
that ‘personal guarantors’ are different from ‘individual’ and reasoned that the Code provides for
NCLT as the common forum for insolvency / liquidation of both corporate debtor and the
personal guarantor. Undoubtedly, the judgment in the Mohit Arora case bears good news for all
creditors who would prefer to approach the NCLT, which will also have jurisdiction to deal with
cases related to the corporate debtor.

Party may have probable arguments for the following issue

Issue
Whether initiation of the Corporate Insolvency Resolution Process of the Corporate Debtor is a
prerequisite for maintainability of an application under Section 95 of the IBC, 2016 filed for
initiating Insolvency Resolution Process of the Personal Guarantor of that Corporate Debtor
before the National Company Law Tribunal?
 Applicant Argument

 The Personal Guarantor means an individual who is a surety in a contract of guarantee to a

Corporate Debtor. Therefore, in order for an individual to be a Personal Guarantor, all the
following pre-requisites are required to be fulfilled:13

a. The individual has to be a surety.

b. There has to be a contract of guarantee.
c. The individual has to be a guarantor to a Corporate Debtor.

 In the present case an irrevocable Deed of Guarantee dated 10.03.2017 was executed in favour of
the Financial Creditor, to secure the loan taken by the corporate debtor. The guarantor agreed to
pay all the amounts payable by the Corporate Debtor under the Loan Agreement. It proves that
the guarantor fulfilled all the pre requisites of the personal guarantor and therefore any
insolvency resolution against personal guarantor would proceed under section 60 of IBC.

 The use of words ‘a’ and ‘such’ before NCLT in section 60(2) clearly indicate that the purpose
and object of the sub-section are that both proceedings (Corporate Insolvency Resolution Process
against Corporate Debtor and Insolvency Resolution Process against personal guarantor) should
be before the same NCLT.

 Section 60(2) is only applicable when Corporate Insolvency Resolution Process/liquidation

proceedings are pending before the NCLT. 14 However, section 60(2) does not explicitly prohibit
the initiation of Insolvency Resolution Process u/s 95 of the code even if there are no
proceedings pending before the NCLT. Section 60(2) begins with the phrase ‘Without prejudice
to sub-section (1)’ thereby rendering the provisions u/s 60(2) as supplemental to sub-section (1)
of section 60. Thus, if a case doesn’t fall within the purview of 60(2), it doesn’t prohibit a case to
proceed under 60(1).

13
IA No. 229/JPR/2021
14
Insolvency and Bankruptcy Code, 2016,§ 60(2), No. 31, Acts of Parliament, 1949 (India)
 Respondent Argument

 The moment there is a proceeding against the corporate debtor pending under the 2016 Code,
any bankruptcy proceeding against the individual personal guarantor will, if already initiated
before the proceeding against the corporate debtor, be transferred to the National Company Law
Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor,
be filed only in the National Company Law Tribunal. 15 It is clear that the initiation of the
Corporate Insolvency Resolution Process is pre requisite to initiate insolvency proceeding
against personal guarantor.

15
IV(2021)BC86