CIRP Against the Principal Borrower is a Prerequisite for Initiating Insolvency Proceedings Against Personal Guarantors

Case Details: UCO Bank v. Subrata Das - [2025] 170 taxmann.com 229 (NCLT-Kolkata)

Judiciary and Counsel Details

• D. Arvind, Technical Member & Bidisha Banerjee, Judicial Member
• Ms A. Rao, Ms Prerna Shaha, Advs. & Vaibhav Khandelwal for the Applicant.

Facts of the Case

In the instant case, the financial creditor filed an instant application to initiate insolvency proceedings against the Personal Guarantor to the principal borrower under Section 95(1) of the IBC. In terms of Section 99 of the IBC, the report was called for by the RP appointed in the matter. A bare perusal of the report indicated that no CIRP had been initiated against the principal borrower.

At the hearing, it was argued that in the absence of any CIR proceeding initiated against the principal borrower, the instant petition under Section 95(1) seeking to initiate insolvency proceedings against the personal guarantor of the principal borrower was not maintainable before Adjudicating Authority, i.e., NCLT. It would eventually lie before the jurisdictional Debt Recovery Tribunal (DRT).

It was noted that in terms of Section 60 (1) and (2) read with Section 179 of the IBC, the NCLT is only Adjudicating Authority in respect of Personal Guarantors to a Corporate Debtor where a corporate insolvency resolution process or liquidation proceeding initiated against a corporate debtor is either pending before a National Company Law Tribunal or is already concluded.

NCLT Held

The NCLT held that in the absence of an ‘initiated’ or ‘pending’ or ‘concluded’ CIRP against a Principal Borrower, an application under Section 95(1) to initiate the Insolvency Resolution Process against a Personal Guarantor to a Corporate Debtor will not be maintainable before the NCLT.

Therefore, recovery proceedings will lie only before the Debt Recovery Tribunal (DRT) having territorial jurisdiction.

List of Cases Reviewed

• Shapoorji Pallonji Finance Pvt. Ltd. v. Rekha Singh in Company Appeal (AT) (Insolvency) No. 397 of 2022, 398 of 2022 and 399 of 2022 (Para 30)
• Embassy Property Developments Pvt. Ltd. v. State of Karnataka (Para 31)
• Rohit Nath v. KEB Hana Bank Ltd. in C.R.P. (P.D.) No. 1289 of 2021 (Para 31) followed.

List of Cases Referred to

• Lalit Kumar Jain v. Union of India (2021) 9 SCC 321 (para 9).