Case Title: Mahendra Kumar Jajodia v. State Bank of India
The Supreme Court dismissed a civil appeal filed against the Judgement of National Company Law Appellate Tribunal (NCLAT) in the aforementioned case.
The matter before the NCLAT was that the State Bank of India had filed an application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 seeking initiation of Corporate Insolvency Resolution Process against the Guarantor. The Application was rejected by the Adjudicating Authority as premature by order dated October 5, 2021.
NCLAT held that even in the absence of any pending Corporate Insolvency Resolution Process or Liquidation proceedings, the application under Section 95(1) of the Insolvency Bankruptcy Code, 2016 against the personal guarantors of the Corporate Debtor is maintainable by virtue of Section 60(1) of the Code before the National Company Law Tribunal having territorial jurisdiction over the place where the Registered office of the Corporate Person is located.
The Supreme Court vide its order dated 21.03.2022 by relying on the observations in the case of Lalit Kumar Jain versus Union of India, had stayed the operation of the judgment of the NCLAT, but now the position is clear since the Apex Court by way of the instant judgment has retracted its stay and upheld the findings of the NCLAT.
The NCLAT had held that “The use of words 'a' and 'such' before National Company Law Tribunal clearly indicates that Section 60(2) was applicable only when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before NCLT. The object is that when a CIRP or Liquidation Proceeding of a Corporate Debtor is pending before 'a' NCLT, the application relating to the Insolvency Process of a Corporate Guarantor or Personal Guarantor should be filed before the same NCLT. This was to avoid two different NCLTs to take up CIRP of Corporate Guarantor. Section 60(2) is applicable only when CIRP or Liquidation Proceeding of a Corporate Debtor is pending, when CIRP or Liquidation Proceeding are not pending with regard to the Corporate Debtor there is no applicability of Section 60(2).”
“The Adjudicating Authority erred in holding that since no CIRP or Liquidation Proceeding of the Corporate Debtor are pending the application under Section 95(1) filed by the Appellant is not maintainable. The Application having been filed under Section 95(1) and the Adjudicating Authority for application under Section 95(1) as referred in Section 60(1) being the NCLT, the Application filed by the Appellant was fully maintainable and could not have been rejected only on the ground that no CIRP or Liquidation Proceeding of the Corporate Debtor are pending before the NCLT. In result, we set aside the order dated 05th October 2021 passed by the Adjudicating Authority. The Application filed by the Appellant under Section 95(1) of the Code is revived before the NCLT which may be proceeded in accordance with the law.”