2025 (5) TMI 579 - AT - IBC

Determination of the appropriate threshold limit for filing an application under Section 95(1) of the Insolvency and Bankruptcy Code 2016 (IBC) by a Financial Creditor against a Personal Guarantor of a Corporate Debtor (CD) - threshold is Rs.1 crore as provided in Section 4 or it is Rs.1000/- as provided in Section 78 of the IBC - HELD THAT - Sub-section (1) begun with the expression subject to the provision of Section 60 the Adjudicating Authority in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal. The Notification dated 15.11.2019 came for consideration before the Hon ble Supreme Court in Lalit Kumar Jain vs. Union of India and Ors. 2021 (5) TMI 743 - SUPREME COURT where different aspects of insolvency resolution of Personal Guarantor have been examined and gone into. In Anita Goyal vs. Vistra ITCL (India) Ltd. Anr. 2025 (1) TMI 1452 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH NEW DELHI one of the question raised by the Personal Guarantor was that with regard to insolvency resolution process of Personal Guarantor the Adjudicating Authority is the Debt Recovery Tribunal and not the NCLT. This Tribunal in the said Appeal vide its judgment dated 23.02.2025 examined the aspect of the matter while relying on the judgment of the Hon ble Supreme Court in Lalit Kumar Jain has come to the conclusion that Adjudicating Authority for Personal Guarantors of the CD is the NCLT. There is one more aspect which cannot be ignored. Initiation of insolvency resolution process against the Personal Guarantor has serious consequences. Accepting the submission that on default of a debt of Rs.1000/- personal insolvency against the Personal Guarantor should be permitted to be initiated shall lead to innumerable cases of insolvency against Personal Guarantors which shall frustrate the purpose for which exception was carved for Personal Guarantors of Corporate Debtors. Conclusion - The submission of the Appellant that for insolvency resolution against the Personal Guarantor threshold of only Rs.1000/- needs to be fulfilled is rejected. Appeal dismissed.

Summary

The core legal question considered in this judgment is the determination of the appropriate threshold limit for filing an application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) by a Financial Creditor against a Personal Guarantor of a Corporate Debtor (CD). Specifically, the Tribunal examined whether the threshold is Rs.1 crore as prescribed under Section 4 of the IBC for corporate insolvency petitions, or Rs.1000/- as provided under Section 78 for insolvency of individuals and partnership firms.

Another related issue considered was the jurisdictional forum for insolvency proceedings against Personal Guarantors, i.e., whether the National Company Law Tribunal (NCLT) or the Debt Recovery Tribunal (DRT) is the appropriate adjudicating authority.

Additionally, the Tribunal addressed whether an application under Section 95 against a Personal Guarantor is maintainable independently of the maintainability of an application under Section 7 against the Corporate Debtor.

Regarding the threshold for filing an insolvency application against a Personal Guarantor, the Tribunal analyzed the relevant statutory provisions and notifications. Section 4 of the IBC prescribes a threshold of Rs.1 crore for initiating insolvency proceedings against Corporate Debtors. Section 78, part of Part-III of the IBC dealing with individuals and partnership firms, prescribes a threshold of Rs.1000/- for insolvency applications. Section 95, also in Part-III, specifically relates to insolvency proceedings against Personal Guarantors of Corporate Debtors.

The Tribunal carefully examined Section 60 of the IBC, which designates the NCLT as the adjudicating authority for insolvency and liquidation proceedings concerning Corporate Debtors and their Personal Guarantors. Subsections (1) to (4) of Section 60 create a statutory link between insolvency proceedings of the Corporate Debtor and the Personal Guarantor, mandating that both be heard by the same NCLT bench having territorial jurisdiction over the registered office of the Corporate Debtor.

The Tribunal noted the Central Government Notification dated 15th November 2019, which brought into force provisions of the IBC relating to Personal Guarantors, including Sections 78 and 79, and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. These rules expressly define the Adjudicating Authority for Personal Guarantors under Section 60 as the NCLT, distinguishing it from other individuals for whom the DRT is the adjudicating authority under Part-III.

The Tribunal relied heavily on the Supreme Court's judgment in Lalit Kumar Jain v. Union of India, which upheld the constitutional validity of the 2019 notification and clarified the legislative intent to treat Personal Guarantors as a distinct category of individuals. The Supreme Court emphasized the "intimate connection" between Personal Guarantors and Corporate Debtors, justifying a common adjudicating authority (NCLT) and a distinct insolvency process for Personal Guarantors separate from ordinary individuals under Part-III of the IBC.

In particular, the Supreme Court's reasoning, as quoted by the Tribunal, highlighted that the insolvency processes for Personal Guarantors and Corporate Debtors are "disparate" but linked, and that a single forum (NCLT) is necessary to consider the "whole picture" of assets and liabilities. The Court also rejected the argument that the notification was discriminatory or ultra vires, affirming its validity.

The Tribunal further referred to its own prior decisions, including Anita Goyal v. Vistra ITCL (India) Ltd. and Mahendra Kumar Agarwal v. PTC India Financial Services Ltd., which confirmed that insolvency proceedings against Personal Guarantors are to be initiated before the NCLT, not the DRT, and that the threshold for such proceedings aligns with the threshold applicable for Corporate Debtors.

Applying the principle of statutory interpretation, the Tribunal invoked the maxim reddendo singula singulis to interpret Section 60(2) and related provisions, concluding that although Part-III generally applies to individuals with a Rs.1000/- threshold, Personal Guarantors of Corporate Debtors are an exception. Since insolvency proceedings against Personal Guarantors are linked to those of the Corporate Debtor and heard by the NCLT, the higher threshold of Rs.1 crore under Section 4 applies.

The Tribunal rejected the appellant's argument that the threshold under Section 78 (Rs.1000/-) applies to Personal Guarantors. It reasoned that allowing insolvency proceedings against Personal Guarantors for defaults as low as Rs.1000/- would lead to an unmanageable number of insolvency cases, defeating the legislative intent to carve out a distinct and limited category for Personal Guarantors.

Regarding the maintainability of an application under Section 95 against a Personal Guarantor independently of an application under Section 7 against the Corporate Debtor, the Tribunal agreed with the respondent's submission that the maintainability of the former is contingent upon the maintainability of the latter. This is consistent with the statutory scheme linking the insolvency of Personal Guarantors to that of the Corporate Debtor.

The Tribunal also clarified that appeals against orders passed under Part-III of the IBC relating to Personal Guarantors are maintainable before the National Company Law Appellate Tribunal (NCLAT) under Section 61, as the proceedings are initiated before the NCLT under Section 60.

In conclusion, the Tribunal held that the threshold for filing an application under Section 95(1) against a Personal Guarantor before the NCLT is Rs.1 crore, the same as for Corporate Debtors under Section 4, and not Rs.1000/- as provided under Section 78 for individuals generally. The application filed by the appellant for Rs.10 lakhs was therefore below the threshold and rightly rejected by the Adjudicating Authority.

Key holdings include the following verbatim excerpts of crucial legal reasoning:

"The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating authority was common with the corporate debtor to whom they had stood guarantee."

"When NCLT is the Forum for initiating the CIRP against the Personal Guarantor and the process against the Personal Guarantor are to be taken by the same Forum before whom the insolvency resolution process of the CD is to be held, we are persuaded to accept the submission of the learned Counsel for the Respondent that threshold for the Application to be filed by against the Personal Guarantor before the NCLT shall be Rs.1 crore."

"The threshold of Rs.1000/- as provided for filing an Application by individuals and partnership firms are not applicable, when Application is filed under Section 95(1) before the NCLT."

"Accepting the submission that on default of a debt of Rs.1000/-, personal insolvency against the Personal Guarantor should be permitted to be initiated, shall lead to innumerable cases of insolvency against Personal Guarantors, which shall frustrate the purpose, for which exception was carved for Personal Guarantors of Corporate Debtors."

The Tribunal's final determination was to dismiss the appeal and uphold the Adjudicating Authority's order rejecting the Section 95 application for failure to meet the Rs.1 crore threshold. The judgment affirms the legislative scheme that insolvency proceedings against Personal Guarantors are to be conducted before the NCLT with the same threshold as Corporate Debtors, thereby ensuring procedural coherence and avoiding multiplicity of proceedings.