Punjab National Bank vs Carnation Auto India Pvt. Ltd. & Anr

IN THE MATTER OF: Punjab National Bank ....Appellant Vs. Carnation Auto India Pvt. Ltd. & Anr. ....Respondents Present:

For Appellant: Mr. Sartaj Singh, Advocate for PNB

For Respondents: Mr. Alok Dhir, Ms. Varsha Banerjee, Mr. Milan Singh Negi and Mr. Kunal Godhwani, Advocates.

ORDER

07.05.2019: 'Corporate Insolvency Resolution Process' under Section 7 of

the Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short) was initiated

against 'Carnation Auto India Pvt. Ltd.' ('Corporate Debtor'). During the

pendency of the said proceedings, the Appellant- 'Punjab National Bank' moved

application under Section 60(2) of the 'I&B Code' for initiation of 'Insolvency

and Bankruptcy Proceedings' against 'Mr. Jagdish Khattar', the 'Personal

Guarantor of the Corporate Debtor'. The Adjudicating Authority (National

Company Law Tribunal), New Delhi by impugned order dated 2nd January,

2019 rejected the application being not maintainable against an individual.

2. Learned counsel appearing on behalf of Appellant submits that for

initiation of 'Insolvency and Bankruptcy Proceedings' against 'Personal

Guarantor of the Corporate Debtor', Part III of the 'I&B Code' which relates to 2

individual or a firm is not applicable. No proceeding against 'Personal

Guarantor of the Corporate Debtor' can be filed before the 'Debt Recovery

Tribunal'. For initiation of 'Insolvency and Bankruptcy Proceedings' against

'Personal Guarantor of the Corporate Debtor', the application to be filed before

'National Company Law Tribunal' under Section 60(2) and not before the 'Debt

Recovery Tribunal'.

3. The question arises for consideration in this appeal is whether the

application for initiation of 'Insolvency Resolution Process' against the 'Personal

Guarantor of the Corporate Debtor' can be entertained by the National

Company Law Tribunal?

4. There may two types of 'Personal Guarantor' namely:-

i. 'Personal Guarantor' of a 'Corporate Debtor' and

ii. 'Personal Guarantor' of a partnership firms or 'Personal Guarantor' of

an individual

5. Section 5(22) defines "personal guarantor", means:-

"5. Definition.─ (22) "personal guarantor" means an

individual who is the surety in a contract of guarantee to a

corporate debtor."

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6. Section 5 is part of Part II of the 'I&B Code' which relates to 'Insolvency

Resolution and Liquidation for Corporate Persons' which has been notified and

is dealt with by the National Company Law Tribunal (Adjudicating Authority).

7. Section 60 deals with 'Adjudicating Authority for corporate persons'.

Sub-section (2) thereof relate to filing of an application to the insolvency

resolution or bankruptcy of a 'Personal Guarantor' of the 'Corporate Debtor',

which is to be filed before the National Company Law Tribunal where

'Insolvency Resolution Process' and 'Liquidation Proceeding' of a 'Corporate

Debtor' is pending. Sub-section (3) of Section 60 also relates to an 'Insolvency

Resolution Process' or 'Bankruptcy Proceeding' of a 'Personal Guarantor' of the

'Corporate Debtor', as quoted below:

"60. Adjudicating Authority for corporate

persons.- (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 person in

located.

(2) Without prejudice to sub-section (1) and

notwithstanding anything to the contrary contained in

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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

bankruptcy of a personal guarantor of such corporate

debtor shall be filed before such National Company

Law Tribunal.

(3) An insolvency resolution process or bankruptcy

proceeding of a personal guarantor 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.

(4) The National Company Law Tribunal shall be

vested with all the powers of the Debt Recovery

Tribunal as contemplated under Part III in of this Code

for the purpose of sub-section (2).

(5) Notwithstanding anything to the contrary contained

in any other law for the time being in force, the

National Company Law Tribunal shall have jurisdiction

to entertain or dispose of -

(a) any application or proceeding by or against

the corporate debtor or corporate person;

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(b) any claim made by or against the corporate

debtor or corporate person, including claims

by or against any of its subsidiaries

situated in India; and

(c) any question of priorities or any question of

law or facts, arising out of or in relation to

the insolvency resolution or liquidation

proceedings of the corporate debtor or

corporate person under this Code.

6. Notwithstanding anything contained in the

Limitation Act, 1963 (36 of 1963) or in any other law for

the time being in force, in computing the period of

limitation specified for any suit or application by or

against a corporate debtor for which an order fo

moratorium has been made under this Part, the period

during which such moratorium is in place shall be

excluded."

8. Part III is applicable for 'Insolvency and Bankruptcy' against 'individual'

and 'firm'. Till today, Part III having not notified, no application for initiation of

'Insolvency and Bankruptcy' against a 'Personal Guarantor' of the 'partnership

firm' or a 'Personal Guarantor' of an 'individual'. It is only after bringing in

force and giving effect to Part III of the 'I&B Code', the 'Insolvency and

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Bankruptcy' against a 'Personal Guarantor of the partnership firm' or 'Personal

Guarantor of an individual' can be filed before the 'Debt Recovery Tribunal' and

not before the 'National Company Law Tribunal'.

9. Sub-section (2) of Section 60 is non-obstantive clause which makes it

clear that notwithstanding anything to the contrary contained in the 'I&B

Code', which also includes Part III of the 'I&B Code', the application relating to

'Insolvency Resolution' or 'Bankruptcy' of a 'Personal Guarantor of the Corporate

Debtor' can be filed before the 'National Company Law Tribunal'.

10. Thus, it is clear that even if Part III of the 'I&B Code' is given the force

the application against 'Personal Guarantor of the Corporate Debtor' cannot be

filed before the 'Debt Recovery Tribunal' but before the National Company Law

Tribunal. Hence, it is clear that sub-section (2) of Section 60 is not dependent

on giving effect to Part III of the 'I&B Code', which relates to 'Personal

Guarantor of a partnership firm' or 'Personal Guarantor of an individual'.

11. Although we have expressed our opinion but still no relief can be granted

in the present case in view of the decision of the Hon'ble Supreme Court in

"State Bank of India v. Ramakrishnan & Anr.─(2018) SCC OnLine SC

963" disposed of on 14th August, 2018, wherein the Hon'ble Supreme Court

observed and held:

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"21. We are afraid that such arguments have to be turned

down on a careful reading of the Sections relied upon.

Section 60 of the Code, in sub-section (1) thereof, refers to

insolvency resolution and liquidation for both corporate

debtors and personal guarantors, the Adjudicating

Authority for which shall be the National Company Law

Tribunal, having territorial jurisdiction over the place

where the registered office of the corporate person is

located. This sub-section is only important in that it locates

the Tribunal which has territorial jurisdiction in insolvency

resolution processes against corporate debtors. So far as

personal guarantors are concerned, we have seen

that Part III has not been brought into force, and

neither has Section 243, which repeals the

Presidency-Town Insolvency Act, 1909 and the

Provincial Insolvency Act, 1920. The net result of

this is that so far as individual personal guarantors

are concerned, they will continue to be under the

Code. Indeed, by a Press Release dated 28.08.2017, the

Government of India, through the Ministry of Finance,

cautioned that Section 243 of the Code, which provides for

the repeal of said enactments, has not been notified till

date, and further, that the provisions relating to insolvency

Company Appeal (AT) (Insol.) No. 139 of 2019 8

resolution and bankruptcy for individuals and

partnerships as contained in Part III of the Code are yet to

be notified. Hence, it was advised that stakeholders who

intend to pursue their insolvency cases may approach the

appropriate authority/court under the existing enactments,

instead of approaching the Debt Recovery Tribunals."

(emphasis added)

12. We appreciate the arguments advanced on behalf of the Appellant and

therefore, we have expressed our opinion but the order of the Hon'ble Supreme

Court being binding, no relief can be granted.

The appeal is accordingly dismissed. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[Justice A.I.S Cheema] Member (Judicial)

Sa/ar/gc

Company Appeal (AT) (Insol.) No. 139 of 2019