This article examines the jurisdictional challenges that have arisen in recent cases concerning the Insolvency applications filed against personal guarantors under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“Code”). While Part III of the Code which deals with Insolvency proceedings against Partnership firms and individuals remains partially unnotified, insolvency applications against personal guarantors have been permitted.
A key issue surrounding such insolvency applications is whether it would be the National Company Law Tribunal (“NCLT”) or the Debt Recovery Tribunal (“DRT”) that would serve as the adjudicating authority. We will further delve into which adjudicating authority shall have jurisdiction to entertain Section 95 application even when no Corporate Insolvency Resolution Proceedings (“CIRP”) is pending against the Corporate Debtor in the NCLT. Through a perusal of official government notifications as well as judicial pronouncements, this article seeks to provide clarity on issues raised.
Introduction
Issues regarding the jurisdiction of Adjudicating authority have cropped up in a number of cases recently with respect to Insolvency applications filed under Section 95 of the Code. Adjudicating Authority for Corporate Persons have been designated by Section 60(1) to be NCLT, while Adjudicating Authority for Individuals and Partnership Firms designated under Section 179(1) is DRT.
Part III of the Code deals with Insolvency proceedings for Individuals and Partnership Firms. However, it is important to note that Part III of the Code has not yet been notified fully. Consequently, insolvency proceedings under Part III can only be initiated against the Personal Guarantors. Provisions that relate to insolvency proceedings of partnership firms and other individuals have not yet come into force.
For ease, Central Government released a notification dated 15.11.2019 which designated Adjudicating Authority for Personal Guarantors to be NCLT as well in order to eliminate any differences or ambiguity in relation to the outcome of insolvency proceedings against the Corporate Debtor and the Personal Guarantor of such Corporate Debtor. This is a temporary measure as DRT was envisioned as the adjudicating authority as aforementioned under Section 179(1).
Clarification was required whether the adjudicating authority for personal guarantors were to be NCLT ONLY IF there were pending insolvency process against the Corporate Debtor or even in absence of such proceedings, the adjudicating authority for Personal Guarantors shall be the NCLT. This issue was further exacerbated when the NCLT Kolkata delivered 2 judgments where it was held that Section 95 applications against personal guarantors can only be entertained during pendency of CIRP against the Corporate Debtor and such application is not maintainable before NCLT if there is no pendency of proceedings against the Corporate Debtor.
Section 5(22) of the Code defines Personal Guarantor as an individual who is the surety in a contract of guarantee to a corporate debtor.
While Insolvency Resolution Process for Corporate persons has been provided under Part 2 of the Code wherein Creditors can file for insolvency applications under Section 7 & 9 of the Code, insolvency resolution process for individuals has been provided for under part III of the Code and creditors can move against Personal Guarantors of such Corporate Debtors under Section 95 of the Code.
Is Section 95 application maintainable ‘in absence of’ CIRP or liquidation proceedings against Corporate Debtor?
There is no dispute with regard to interpretation of Section 60, subsection (2), which provides that where a CIRP or liquidation proceedings of a Corporate Debtor is pending before a NCLT, an application relating to the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, shall be filed before such NCLT.
The question to be answered is whether an Application for personal insolvency against a Personal Guarantor can be filed before the NCLT when no CIRP or liquidation proceedings of a Corporate Debtor is pending before the NCLT.
Law in Mahendra Singh Jagjodia Case
The National Company Law Appellate Tribunal (“NCLAT”) in State Bank of India vs. Mahendra Kumar Jajodia, dealt with a case wherein an application under Section 95 was filed by the State Bank of India before NCLT, Kolkata Bench, seeking initiation of CIRP against Personal Guarantor. The insolvency application was rejected by the Adjudicating Authority on the ground that for an insolvency resolution process to be initiated against the guarantor there must be CIRP or liquidation process pending against the Corporate Debtor/ Principal borrower.
The NCLAT set aside the order of NCLT Kolkata and held that the Application filed by the Appellant under Section 95(1) was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor is pending before the NCLT considering the Adjudicating Authority for an application under Section 95(1) as referred in Section 60(1) is the NCLT.
Thereafter, NCLAT’s decision in Mahendra Kumar Jajodia case was challenged before the Hon’ble Supreme Court in Civil Appeal No.1871-1872 of 2022. The Hon’ble Supreme Court vide its judgment dated 06.05.2022 dismissed the Appeal.
It appeared that the law on this matter was settled but recently, there have been a slew of judgments that have taken a contradictory view by trying to distinguish the facts of the case before them to the facts and issues in Mahendra Kumar Jajodia case. This has created ambiguity since in these cases, DRT was designated as the adjudicating authority.
Conflicting Judgments of Madras High Court & NCLT Kolkata
The Madras High Court in Rohit Nath v. KEB Hana Bank Ltd which was decided on 30.03.2023, addressed a civil revision petition filed by a personal guarantor contesting the pending insolvency application before the DRT.
The court reaffirmed its earlier ruling from July 28, 2021, emphasizing that if no CIRP has been initiated against a corporate debtor, personal insolvency proceedings must be filed exclusively before the jurisdictional DRT and not the NCLT. This interpretation is in line with Section 179(1) of the Insolvency and Bankruptcy Code, which designates the DRT as the adjudicating authority for insolvency and bankruptcy matters concerning individuals and partnership firms.
Moreover, the recent NCLT Judgments in case of Tata Capital Financial Services Limited vs. Arjun Agarwal (2024) & Aditya Birla Finance Ltd. vs. Sarita Mishra (2024), the Kolkata Bench of the NCLT has held that an application under Section 95(1) of the Code for initiating insolvency proceedings against a personal guarantor is not maintainable before the NCLT if no CIRP or liquidation proceeding has been initiated or is pending against the Corporate Debtor. Relying on the Madras High Court’s judgement in Rohit Nath case (Supra), NCLT Kolkata has also held that NCLT is not a recovery forum and distinguished a repayment plan from a resolution plan to hold that jurisdiction to entertain submissions for a repayment plan rests with the DRT having territorial jurisdiction and not the NCLT.
This has left some uncertainty with regards to whether the adjudicating authority for a Section 95 application is to be NCLT or DRT in absence of pending or concluded insolvency applications against the Corporate Debtor.
Anita Goyal Case (Clearing the air)
Finally, in the recent NCLAT judgment in the matter of Anita Goyal v Vistra ITCL (India) Ltd. & Anr (2025), the appellate tribunal has put to rest any scope of doubt with respect to the adjudicating authority in case of a Section 95 Application against a personal guarantor.
NCLAT perused the Delhi High Court judgment in Axis Trustee Services Ltd. vs. Brij Bhushan Singal –., wherein it had occasion to consider Section 60 of the Code. After analyzing Section 60 and Section 179 of the Code, the Delhi High Court held that NCLT will be the Adjudicating Authority in respect of insolvency proceedings against Personal Guarantors.
The appellate tribunal (NCLAT) in the case of Mahendra Kumar Agarwal vs. PTC India Financial Services had also held that CIRP against the Corporate Debtor is not a condition precedent for initiation of insolvency resolution process against the Personal Guarantor.
The appellate tribunal while relying on its previous judgments in Mahesh Kumar Jajodia and Mahesh Kumar Agarwal (supra) made it amply clear that the Adjudicating Authority in case of Section 95 Applications shall be NCLT, even in cases where CIRP has not been initiated against the Corporate Debtor.
The NCLAT discussed the previous judgments of NCLT Kolkata Bench which had created some confusion with regards to the adjudicating authority for Section 95 applications. It finally cleared the air and held the adjudicating authority’s decisions as being bad in law and against the precedent set by the appellate tribunal.
It held that NCLT has made an attempt to distinguish the case before them from the existing precedents without there being any real distinction. The NCLAT in its judgment declared the decision of the NCLT as “illusionary and without any basis” and disagreed with its judgments insofar as they rejected section 95 application on the ground that CIRP was not initiated first against the Corporate Debtor.
The Appellate tribunal held in Anita Goyal case (Supra):
“In view of the law laid down by this Tribunal in State Bank of India vs. Mahendra Kumar Jajodia where the Application filed by Financial Creditor without there being any pending proceeding against Corporate Debtor, was held to be fully maintainable, both the judgments of NCLT do not lay down correct law and are per incuriam.”
This in effect provided much needed clarity that Section 95 applications against personal guarantors are maintainable even in absence of pending CIRP or liquidation proceedings against the Corporate Debtor and the adjudicating authority shall be NCLT.
Conclusion
On perusing the various judgments on record, it is made amply clear that Section 179(1), which provides the jurisdiction for the DRT with respect to insolvency matters of individuals and firms, is subject to Section 60 of the Code.
Sub-section (1) of Section 60 of the Code provides that in relation to insolvency resolution for corporate persons, including corporate debtors and personal guarantors, the Adjudicating Authority shall be the NCLT.
Furthermore, Appellate Authority in Anita Goyal judgment has set the record straight that Section 95 applications are fully maintainable even in absence of any pending CIRP or liquidation proceedings against the Corporate Debtor.
- (2022) SCC OnLine NCLAT 58
- (AIR 2021 MADRAS 241)
- (2022) SCC OnLine Del
- (2023) SCC OnLine NCLAT 421)
