PROCEEDINGS AGAINST PERSONAL GUARANTORS IN NCLT CURRENT SITUATION

Presently, the simultaneous commencement of insolvency proceedings by the lender against the corporate debtor and the corporate guarantor(s) faces a roadblock on account of the NCLAT order in the matter of Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Limited (“Piramal matter”)

- Ajay Shaw

The corporate insolvency resolution process commenced against corporate debtors has either yielded a resolution or resulted in liquidation of such corporate debtors. In most cases there has always been a gap between the amounts recovered by the lenders and the amounts owed to them by the corporate debtor. To cover that gap, lenders are always faced with the dilemma of enforcing guarantees (personal and corporate) provided by third parties for the benefit of the corporate debtor against whom insolvency proceeding has commenced and the timing of such enforcement.

Presently, the simultaneous commencement of insolvency proceedings by the lender against the corporate debtor and the corporate guarantor(s) faces a roadblock on account of the NCLAT order in the matter of Dr. Vishnu Kumar Agarwal v. Piramal Enterprises Limited (“Piramal matter”). The NCLAT held that the creditor can commence an insolvency proceeding against the corporate guarantor de hors any action against the corporate debtor. However, in case the lender has the option to proceed against the corporate debtor and/or corporate guarantors, then in such case the lender will have to choose only one corporate entity amongst them against whom the lender would like to commence insolvency proceeding. The decision of the NCLAT is in appeal before the Supreme Court.

The right to commence insolvency resolution process against the personal guarantor who has provided a guarantee with respect to debt availed by the corporate debtor under the Insolvency and Bankruptcy Code, 2016 (IBC) came into effect on December 1, 2019. Since then, lenders have been pursuing or deliberating to pursue an action against the personal guarantors under the IBC along with the insolvency proceeding against the corporate debtor.