IBC proceedings against personal guarantors
Probably, in a first, applications under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“Code”) filed by the creditor before the National Company Law Tribunal, Delhi (“NCLT”) was allowed and insolvency resolution process against personal guarantors (vide two separate orders) have been directed to be initiated for the default in re-payment of loan made by the corporate debtor.
The Union Bank of India (UK) Ltd. (“Creditor”) had sanctioned and disbursed external commercial borrowing in form of Foreign Currency Term Loan for USD 5 Million in favour of M/s. DCP India Pvt. Ltd. (“Corporate Debtor”) for purchase of certain machinery. Mr. Gaurav Jain & Mr. Ajit Jain, directors of the Corporate Debtor (“Personal Guarantors”) had given their personal guarantee for repayment of the principal amount along with all interest, additional, liquidated damages, premium of repayments, reimbursement of all costs, charges, expenses and all other obligations payable by the Corporate Debtor in respect of availed loan facility.
The Corporate Debtor subsequently defaulted in re-payment of the loan amount. The Creditor in compliance of the provisions of the Code and rules, firstly, separately issued the statutory demand notice in FORM B, as prescribed under IBBI (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantor to Corporate Debtor) Rules, 2019 and demanded payment of the loan amount with interest within fourteen (14) days against the Personal Guarantors. The Personal Guarantors failed to make the payment.
Consequently, the Creditor filed two (2) separate applications under Section 95(1) of the Code against both the Personal Guarantors and applied before the NCLT to initiate the insolvency resolution process against both the Personal Guarantors. The NCLT was pleased to admit the said applications vide its Orders dated October 12, 2020 (against Gaurav Jain) and October 14, 2020 (against Ajit Jain) and appointed Mr. Rakesh Prasad Khandelwal as the Resolution Professional for both the personal guarantors and directed him to file its Report under Section 99 of the Code. The arguments were heard on January 6, 2021.
The NCLT, rejecting the technical objection raised by the Personal Guarantors against the applications of the Creditor, vide two (2) separate Orders dated January 27, 2021, admitted the applications under Section 95 in exercise its power provided under Section 100 of the Code and directed the initiation of insolvency resolution process against both the Personal Guarantors and consequently, declaring moratorium against the Personal Guarantor in accordance with Section 101 of the Code.