Shapoorji Pallonji Finance Private Limited v. REKHA SINGH

5 226lJPN202l as the typical illustrative case in the present matter and therefore, we observe, analyse and decide as follows hereinafter. 2. The Company Petition No. (IB)- 27l95lJPN202l has been filed by Shapoorji Pallonji Finance Private Limited, the Financial Creditor, under Section 95 of IBC, 2016 to initiate insolvency resolution process in the case of Shri Ajay

Singh (hereinafter referred to as the Personal Guarantor / Applicant) under Section 60 & 95 of IBC read with Rule 7(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019. The Personal Guarantor had through a personal guarantee secured repayment of a term loan of Rs. 25,00,00,000/- advanced by the petitioner to Jumbo Finvest (India) Limited, a Non-Banking Finance Company ('NBFC'), under facility agreement dated 27.03.2018. However, the Debtor had failed to make payment of interest amounts for the months of September 2O2O & October

2020 and also failed to repay the principal amount instalment for the quarter ending in September 2020. The Petitioner was heard on 17.06.2021 when the following order was passed in related CP No. (IB) 25l95lJpV202l:

Heard Mr. cyrus Bharucha, Adv. and Mr. shivangshu Naval, Adv., Ld.

Couhsels for the petitioner. The Petitioner shall file a short ffidavit with regard to the page reference of the relevant demand notice,

aclcnowledgement of the receipt of the said demand notice and the relevant

emails within two weeks. The Petitioner shall also file copy of the master data of the Corporate Debtor for which the Respondent is a personal

guorantor along with the ffidavit. Order is resery,ed.

sd IA No. 229/JPR/2021 lA No. 227/JPN202l IA No.226/JPR/2021 S"l -

5

6

a J.

On 12.07.2021, the Personal Guarantor filed IA No. 180/JPR/2021 to set aside the aforesaid order dated 17 .06.2021 on the basic premise that the same had been passed without hearing the Personal Guarantor. The said IA was heard on 20.07.2021 and dismissed on the anvil, as inter-alia the reserved order of 17 .06.2021 in the main CP was already pronounced on 16.07 .2021.

4.

This Adjudicating Authority had innately addressed concern of the Personal Guarantor since notice of presence was issued to the Applicant/ Personal Guarantor herein, i.e. Shri Ajay Kumar in the main Company Petition vide the aforementioned order dated 16.07.2021, which is extracted as follows: "3. Facts as stated in the present application are that the Personal Guarantor by way of personal guarantee secured repayment of a term loan of {25,00,00,000/- advanced by the Applicant to Jumbo Finvest (ndia) Limited underfacility agreement dated 27.03.2018 (Annexure- B) However, the Debtor has failed to make poyment of interest amount for the months of September 2020 & October 2020 and also failed in making repayment of principal amount instalment for the quorter ending in September 2020. Thus, the present application is filed against personal guarantor.

4. Heard the submissions made by the Counselfor the Applicant. Issue notice to the Non-Applicant Personal Guarantor. Counsel for the Applicant shall collect the notice fro* the Registry and send the same along with complete paper book immediately to the Non-Applicant at

its registered address by speed post andfile ffidavit of service along with tracking report within two weel

5'. Response, tf any, may be filed within 3 weeks and rebuttal thereof, ,f ,ny, may be filed within 2 weehs thereafter. List the motter for

further proceedings in the case on 07.09.2021. " Quite independently, and soon thereafter on 12.08.2021, the Hon'ble NCLAT had pronounced its judgement in the case of Ravi Ajit Kulkarni vs. _SaJ ,-- IA No.229/JPN202l

_sd

CP .\o. tlBt --\ Y-'t, ,. -IA No. 227/JPR/2021

CP ir'o. (lBt )6 95 JPR l0: I IA No.226/JPN202l CP itio. (lBt ]- 95 JPR :01I

7 State Bank of India INCLAT Company Appeal (AT) (Insolvency) No' 316 of

202|J,which inter alia outlined ^the need to issue limited notice in section 95 cases for presence of the Personal Guarantors. The order of this Adjudicating Authority dated 16.07.2021 was not in variance therewith' 5. Subsequently, after receipt of notice in the main petition, the Applicant I Personal Guarantor filed the captioned IA No. 2261JPN2021, seeking dismissal of the relevant company petition on the following main grounds: i. Jumbo Finvest (India) Ltd. is a NBFC registered with the Reserve Bank of India. As per the provisions of Section 3(7) of IBC, the provisions of the Code are not applicable to a Non-Banking Financial companl'. As per Section 3(7), a 'corporate Person' means a companl. as defined in clause (20) of Section 2 of the companies Act, 2013 ( l8 of 2013), a Limited Liability Partnership as defined in clause (n) of sub-section (1) of Section 2 of the Limited Liabiliq' Partnership Act, 2008 (6 of 2009), or any other person incorporated rvith limited liabiliry under any law for ^thetime being in force but shall not include an)' Financial Service Provider. lEmphasis added\ ii.

Presently, there is no on-going insolvenc;- Process with respect to Jumbo Finvest (India) Ltd- and therefore" &e rylication filed by the petitioner is not maintainable-

s,[ - IA No. 229/JPR/2021 IA No.227/JPN202l _sd IA No.226/JPN202l

7

8 iii. As per Section 60 of IBC, insolvency of a Personal Guarantor can be filed before the Hon'ble Adjudicatory Authority only if either Corporate Insolvency Resolution Process (CIRP) or liquidation

proceedings are pending against the Corporate Debtor before ^theNational Company Law Tribunal (NCLT). Therefore, Do insolvency application can be filed against the personal guarantor of Non-Banking Financial Company (NBFC) and hence, the main Petition cP No. (IB)- 27l95lJPPU2021which has been filed by ^theFinancial Creditor, under Section 95 of IBC, 2016 against the Applicant / Personal Guarantor is not admissible. Further, reliance was placed on clause 29 of the Insolvency and Bankruptcy ^Code

(Second Amendment) Bill, 201 8. 6.

Since the aforesaid application raised a fundamental question at the threshold of hearing of the instant case, it was taken up at the very inception. The Petitioner / Financial Creditor filed its reply to the aforementioned IA 226lJPN202l of the Applicant / Personal Guarantor as follows: i. The Petitioner / Financial Creditor submiued that Section 60(l) of the ,o IBC states that as regards insolvency resolution or liquidation of corporate persons, the NCLT bench having territorial jurisdiction of

the area where the registered office of the Corporate Person is located will be the concemed Adjudicating Authority. Section 60(l) further provides that insolvency resolution or liouidation of Personal S4_ IA No. 229/JPR/2021

_sd

\tD/ - Jl IA No. 227/JPR/2021

-

cP No. (D zotcYtPR/)ozt IA No. 226/JPR/2021 CP No. (lB) 27/95/JPN202l

8

9 Guarantors of such Corporate Persons will also go before the same NCLT having territorial jurisdiction where the registered office of the Corporate Person is located. ii. Section 60(1) of the IBC makes it clear that there is no necessity for a CIRP to exist against a Corporate Person for a CIRP to be entertained against the Personal Guarantor of such Corporate Person. A CIRP against the Personal Guarantor of such Corporate Person can be entertained by the NCLT having territorial jurisdiction where the registered office of the Corporate Person is located. The above shows that Section 60(1) of the IBC would include in its ambit an individual

covered by Section 95 of the IBC, if being sued in his capacity ^{as a}Personal Guarantor.

111 . The Non-Applicant / Financial Creditor submitted that the contention

of the Petitioner stating that in light of changes made to the IBC read with the Insolvency and Bankruptcy (Insolvency and Bankruptcy Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019, the petitioner is barred by law from initiating CIRP against an NBFC like Jumbo Finvest (India) Limited can in no way mean that no CIRP can be initiated against Personal Guarantors ofNBFCs till the RBI has initiated CIRP against

the requisite NBFC

So) - IA No. 229/JPR/2021

s-t-

CP No. (tB) 25/9\/JPN2021IA No. 227/JPR/2021 CP No. (tB) 26/95/JPN2021 IA No.226/JPN202l

CP No. (tB) 27/95/JPR/202t

9

10 iv. The Non-Applicant / Financial Creditor further submitted that in addition to the provisions of the IBC, the contract of guarantee provided by the Personal Guarantor is also covered under the Contract Act, 1872. Under Section 126 of the Contract Act, a contract of guarantee means a contract to perform a promise or discharge the liability of a third person, in case of his failure to perform such promise or discharge such liability. Section 128 of the Contract Act stipulates that the liability of the surety is co-extensive with that of

the principal debtor, unless it is otherwise provided by the contract. In the present case, the liability of the Personal Guarantor is as if he himself was a co-obliger along with Jumbo Finvest (India) Limited. Thus, the Personal Guarantor can be proceeded against even under the Contract Act. The Non-Applicant / Financial Creditor placed

reliance upon the Report of the Insolvency Law Committee, February 2020. The said report under Para 7.1 and 7.3 referred to Section 128 of the Contract Act to enunciate that the creditor has the right to recover its dues from either the principal debtor or the guarantor; or ,' from both of them simultaneously. The said report also held that to restrict the above rights would prejudice the rights of the creditor provided under the contract of guarantee.

7. The Applicant / Personal Guarantor preferred a Rejoinder to the Reply of

the Financial Creditor I Petitioner in the present mattet vide Diary No. IA sd.-No. 229/JPM2021 IA No. 227/JPM2021

_sd

CP \o. rlBt 26,95iJPR/202I lA No. 226/JPN202l

CP-\o rlBt 27 95,/JPR/2021

10

11. 157412021. The submissions made by the Financial Creditor / Petitioner were strongly denied vide the aforesaid Rejoinder on the following grounds: i. The Applicant / Personal Guarantor submitted that unless & until, CIRP has been initiated against the Corporate Debtor, no insolvency application against Personal Guarantor can be filed and placed reliance on the order of the NCLT Mumbai Bench-IV in Insta Capital Private Limited vs. Ketan Vinod Kumar Shah TCPQB)/I365/MB- rv/2020J. ii. The Applicant / Personal Guarantor further submitted that a bare perusal of Section 60(2) of IBC would go to show that it is necessary that CIRP has already been initiated against the Corporate Debtor prior to the filing of the Insolvency application against the Personal Guarantor. As far as Section 60(1) of IBC is concerned, the same does not deal with the situation as to when an Insolvency Resolution or

Bankruptcy against the Personal Guarantor can be initiated. It merely deals with the territorial jurisdiction with the NCLT for dealing

insolvency application. iii.' The Applicant / Personal Guarantor submitted that the notification no. S.O. 4139(E) dated 18.11.20.19 issued by Ministry of Corporate Affairs would go to show that CIRP can only be initiated against Financial Service Providers by the Reserve Bank of India, where the asset size of the NBFC is Rs. 500 crores or more as per the last audited _=-...-_

S"l IA No.229/.1PM2021 - IA No. 227/JPN202l

_s/

CP No. (lB) 26/95/JPR20ttIA No. 226/JPR/2021 CP No. (lB) 27/95/JPR/2021

11

12 balance sheet. In this regard, it is submitted that as per the last audited balance sheet of the Jumbo Finvest (India) Limited, the asset size ^asper the Note No. 17 for the balance sheet as at 3 1.03.2020 is approx. Rs. 487 crores and therefore, even the aforesaid notification is not applicable in the present facts and circumstances. It is further relevant

to note that even for the balance sheet as ending on 31 .03.2021 as per

the unaudited figures, the total asset size of the Jumbo Finvest (India) Ltd. is approx. Rs. 407 crores, which is far below than the threshold limit as specified in the aforesaid notification. In view of the aforesaid submissions, it is clear that even RBI is not empowered to initiate CIRP against Jumbo Finvest (India) Limited and accordingly, no personal insolvency application can be filed against the Personal Guarantors. Furtherrnore, even assuming though not admitting that CIRP can be initiated against Jumbo Finvest (India) Limited, then also, since no application either under Section 7 or 9 of IBC is pending against Jumbo Finvest (India) Limited. Therefore, the present application filed by the petitioner is not maintainable and the

same is required to be dismissed with heavy cost. iv. The Applicant / Personal Guarantor submitted that the provisions of

the Contract Act have nothing to do with the initiation of the insolvency against the Personal Guarantors. It was also submitted that

there is no provision for filing of the 'r"-\reAg/ application against

lA No. 229/JPPJ2021

So/ lA No. 227/JPM202l

S tl <-'

(-L- IA No.226/JPN202l

12

13 the Personal Guarantors when no CIRP is pending against the Corporate Debtor. Moreover, it was submitted that even the aforesaid report cited by the petitioner only discussed the initiation of the conculrent proceedings against the Principal Borrower and the guarantor; however, the Insolvency Law Committee has not made any recommendations in its report. It is fumher submitted that even going by report of the committee, there is no concurrent proceeding pending before the NCLT in respect of Jumbo Finvest (India) Limited

and hence, even the contents of the aforesaid report do not have any bearing on the present application filed by the applicant. 8. The question for consideration is whether CIRP can be initiated against any

Personal Guarantor of M/s Jumbo Finvest (India) Limited, who is a NBFC and a Financial Services Provider ('FSP'), by the Financial Creditor /

Petitioner under Section 95 of IBC, particularly in absence of any CIRP

against the NBFC? In order to answer the same, it is important to consider

the following: a) Whether CIRP can be initiated against any Personal Guarantor(s) to a

I Corporate Debtor before initiation and I or irrespective of CIRP against ,n. ao*orate Debtor? . b) Whether insolvency resolution process(es) can be initiated a-eainst the Personal Guarantors of a NBFC / Financial Sen'ices Provider betbre sd-

lA No. 229/JPM202l

IA No. 227/JPM2021

_sd IA No. 226/JPN2021

13

14 initiation and I or irrespective of CIRP against the NBFC? If so, under what criteria? 9. The Petitioner / Non-Applicant has relied on the following citations: i. Lalit Kumar Jainv Union of India [(2021) 9 SCC 32U ii. Dr. Vishnu Kumar Agarwal v. Piramol Enterprises Pvt Ltd. [NCLAT Company Appeal (AT) (Insolvency) No. 346 of 2018J iii. M/s Piramal Enterprises Ltd v. Dr. Vishnu Kumar Agarwal [NCLAT Civil

Appeal No. 878/2019J iv. Spectrum Voyages v. Fortis Heolthcare [NCLAT Company Appeal (AT) (Insolvency) No. 409 of 2018J v. Edelweiss Asset Reconstruction Co. Ltd. v. Sachet Infrastructure Pvt. Ltd. [NCLAT Company Appeal (AT) (Insolvency) No. 377 of 2019J vi. Robust Hotels Vs. EIH Ltd. [(2017) I SCC 622J vii. M D Frozen Food Exports V. Hero Fincorp [(2017) 16 SCC 741J viii. Piramal Capital & Housing Finance Limited v. Anil Kumar & Ors. [2020 SCC OnLine Bom 5l5J ix. SBI v. Athena Energy Private Ltd. INCLAT Company Appeal (ATl

No. 633 of 2020J ,(Insolvency) 10.Before continuing further, it is important to take a look at Section 60 of the '

Code which is extracted as follows:

60. Adjudicoting Authority for corporate persons (l)The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be th" Natiqal Cr*pow Lo*

IA No.229/JPPJ202l S"l --

IA No. 227/JPR/2021

94-

CP.Vo. (lB) 26/95/JPru/u/ t IA No. 226/JPR/2021 CP .\'o. rlBt 27/95/JPR/2021

14

15 Tribunal having territorial jurisdiction over the place where the registered ffice of the corporate person is located.

(2) Without prejudice to sub-section ⁽ I ) and notwithstanding anything to the contrary contained in this Code. vhere a corporote insolvency resolution process of a corporate debtor is pending before a National

Company Law Tribunal, an application relating to the insolvency resolution or [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case may be, of such corporate debtorJ shall befiled before such National Company Law Tribunal

(3) An insolvency resolution process or fiiquidation or bankruptcy

proceeding of a corporate guarantor or personal guarantor, as the case may be, of a corporate debtorJ pending in any court or tribunal shall transferred to the Adjudicating AuthoriQ dealing with insolvency resolution process or liquidation proceeding of such corporate debtor. @ The National Company Law Tribunal shall be vested with all the powers

of Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2). (s) -----x----- -----x----- -----x----- (6) -----x----- -----x----- -----x-----

1 1.The reading of Section 60 is clear. It states in sub clause (1) that jurisdiction for insolvency resolution and liquidation of Corporate Persons including Corporate Debtors and Personal Guarantors thereof shall lie with the NCLT

{bench} in whose jurisdiction the re-eistered office of the Corporate Person is located. Sub clause (2) states that without prejudice to sub clause (l) and notwithstanding anything contrary in the Code, if resolution / liquidation of a Corporate Debtor is pending before a NCLT {bench}, an{y} application relating to resolution / liquidation / bankruptcy of a Corporate / Personal

Guarantor, as the case may be, shall be filed before the said NCLT {bench}.

Further, as per sub clause (3), any resolution / liquidation / bankruptcy

proceeding of a Corporate / Personal Guarantor, if pending in any other

court / tribunal, shall be transferred to the Adjudi

Sn/ IA No. 229/JPR/2021 IA No. 227/JPR/2021

g{- Cp No. (tB) 26/I5/JPR- )o: t IA No. 226/JPN2021 CP No. (lB) 27/95/JPR )0:l

15

16 the jurisdictional NCLT {bench} dealing with resolution / liquidation proceedings of the concerned Corporate Debtor. This enunciation in sub clause 3 may appear confusing and give rise to an incorrect implication that resolution / liquidation of a Corporate Debtor should be pending before ^theAdjudicating Authority prior to initiation of resolution I liquidation / bankruptcy of a Corporate / Personal Guarantor. However, on a conjoint

reading, it is clear that these sub clauses imply convergence of proceedings for a Corporate Debtor and its related Corporate / Personal Guarantors in the NCLT {bench} having jurisdiction over the concerned Corporate Debtor. Sub clause 4 states that the NCLT {bench} would be vested with powers of the Debt Recovery Tribunal ('DRT') as per Part III of IBC, which

has been brought into effect only in respect of Personal Guarantors.

12. While this order was being finalised, the Hon'ble NCLAT pronounced its

order in SB1v. Mahendra Kumor Jajodia [Company Appeol (AT) Insolvency No. 60 of 2022J which held as follows:

Sub-Section I of Section 60 provides that Adjudicating Authority for ^thecorporate persons including corporate debtors and personal guarantors shall be the NCLT. The Sub-Section 2 of Section 60 requires that where a CIRP,or Liquidation Process of the Corporate Debtor is pending before 'a' Nationol Company Law Tribunol the application relating to CIRP of the Coiporate Guarantor or Personal Guorantor as the case may be of such Corporate Debtor shall be filed before 'such' It{ational Company Law Tribunal. The purpose and object of the sub-section 2 of Section 60 of the Code is that when proceedings are pending in 'a' National Company Law Tribunal, any proceeding against Corporote Guarantor should also befiled

before 'such' Notional Company Law Tribunal. ^The idea is that both proceedings be entertained by one and the same NCLT. The sub-section 2 s{-

IA No. 229/JPN202l

CP No. (tB) 25/95/JPN202l IA No. 227/JPN202l

94-

CP No. (tB) 26/95/JPN2021IA No. 226/JPR/2021 CP No. (lB) 27/95/JPN2021

16

t7 of Section 60 does not in ony woy prohibit filing of proceedings under Section 95 of the Code even if no proceeding are pending before I\\CLT. l3.Therefore, reliance of the Applicant / Personal Guarantor on judgement of NCLT Mumbai in Insta Capital Private Limited vs. Ketan Vinod Kumar

Shah (supra) is unfounded and appears to be per incuriam. The issue of

whether CIRP against a Corporate / Personal Guarantor can be initiated

prior to commencement of CIRP against a Corporate Debtor is no longer res integra. This does not help case of the Personal Guarantor / Applicant. 14.The Petitioner / Non-Applicant has referred to the case of Dr. Vishnu Kumar Agorwal vs. Piramal Enterprises Pvt Ltd. (supra). This matter dealt with the issue of whether a CIRP can be initiated against a Corporate Guarantor, if

the Principal Borrower is not a Corporate Debtor / Corporate Person and whether CIRP can be initiated against two Corporate Guarantors simultaneously for the same set of debt / default, to which the Hon'ble NCLAT decided in affirmative in relation to the former issue and held that without initiating any CIRP against the Principal Borrower, it is always open to the Financial Creditor to initiate CIRP under Section 7 against the Corporate Guarantors, as the creditor is also the Financial Creditor qua a Corporate Person who is also a Corporate Guarantor liable for any default of the Principal Borrower by virtue of griarantee agreement. With respect to

the latter issue, the Hon'ble NCLAT held that Corporate Guarantor(s), who is / are implicitly Corporate Debtor(s), is / are liable for any default. S rJ <--

IA No.229/JPR/2021 O CP No. (IB) 2s/9s/JPM202t

IA No. 227/JPN2021 \d t \ -

CP No. (tB) 26/95/JPN202 t lA No. 226/JPN2021 /

CP No. (tB) 27/91/JPR/2021

17

18 However, for a particular claim, once CIRP has been admitted against a Corporate Debtor, who may be either a Corporate Guarantor or Principal Borrower, then the same Financial Creditor cannot trigger CIRP against any other associated Corporate Debtor (either Corporate Guarantor or Principal Borrower), for the same claim amount. This case dealt with the restriction of simultaneous proceedings and is currently sub-judice before the Hon'ble

Supreme Court of India. It is quite clearly different from the facts of the

present case. 15.The Petitioner / Non-Applicant also referred to SB1 vs. Athena Energt

Ventures PvL Ltd. (supra). However, the ruling in this case differed to a certain extent from the Vishnu Kumar Agarwal case (supra) because it dealt with the issue of whether a CIRP can be initiated against a Corporate Guarantor and its Principal Borrower simultaneously for the same set of debt I default, to which the Hon'ble NCLAT took into consideration the applicability of Section 60 of the Code and held that the Code does not

prevent the creditor from filing CIRP petitions simultaneously against both the Principal Borrower and the surety. The Hon'ble NCLAT bench was

unabl6 to agree with the fact that when for a specific debt, CIRp is initiated

against the Borrower, then the amounj may be said to be not due or not

payable in law by the Guarantor. In simultaneous resolution proceedings, it

could be a matter of adjustment when the creditor receives debt due from

the Borrower / Guarantor in the respective cIRP; thallhe Earne_shauld be

IA No. 229/JPM202l s{_

IA No. 227/JPM202l

94-

CP No. 1ttil ZO1OSU\N2L2t lA No.226/JPR/202t CP No. (lB) 27/95/JPR/202t

18

19 taken note of and adjusted in the other CIRP, which could be conveniently done, more so when an IRP / RP in both the CIRP is same. In other words, double dip is allowed for the creditor but double payment is not permissible. Hence, this case helps the petitioner / Non-Applicant only to the extent that an application for insolvency resolution can be filed simultaneously against various sureties of the Principal Borrower that is a NBFC in the present case, which presents its own challenges as examined subsequently herein. 16.The Petitioner / Non-Applicant has also referred to Lalit Kumar Jain vs. Union of India (supra), which dealt with constitutionality of the impugned Notification S.o. 4126(E) passed by the Central Government, dated 15.11.2019. The Hon'ble Supreme Court upheld the validity of the said notification that brought into effect various provisions of IBC including certain sections of Part III, only in relation to Personal Guarantors. The said judgement clarified issue of jurisdiction within which the application of

insolvency resolution against the Personal Guarantors shall lie. Option to proceed against Personal Guarantors is not a contentious question in the instant case. Reference to Section 179 ofthe Code adequately clarifies issue of forum in which proceedings may be initiated against individuals and p.rronul Guarantors. Sectio n lTgreads qs follows: (l) Subiect to the provisions qf section 60, the Adjudicating Authorie, in relation to insolvency matters of individuals and firms shall be the Debt Recovery Tribunal having territorial jurisdiction over the place where the individual debtor actually and voluntarily resides or c

s4- IA No. 229/JPR/2021

S/

CP No. (lB) 25/95/JPN202lIA No. 227/JPR/2021

CP No. (tB) 26/9\/JPPJ202t IA No. 226/JPN2021 CP No. (tB) 27/95/JPN202l

19

20 personally worlcs for gain and can entertain an application under this Code regarding such person. [Emphasis AddedJ (2) The Debt Recovery Tribunal shall, notwithstanding anything contained in any other law for the time being inforce, have jurisiirtio, to-entertain or

dispose of-

(a) any suit or proceeding by or against the individual debtor,. (b) any claim made by or against the individual debtor; k) any question of priorities or any other question whether of law orfacts, arising out of or in relation to insolvency and bankruptcy oi the individual

debtor or firm under this Code. (3) -----x----- -----x----- -----x----- It is unequivocally clear from the above that proceedings against personal Guarantors of Corporate Debtors shall be initiated as per Section 60 before

the appropriate NCLT {bench} and in any case do not lie before DRT.

17'The Petitioner / Non-Applicant also relied on Spectrum Voyages vs. Fortis

Healthcare (supra), where the issue of territorial jurisdiction in Section 60(1) of the code had been clarified on the basis that the power to adjudicate will lie with that NCLT under whose territorial jurisdiction the registered office of the corporate person is situated. The instant order does not detract from the same. 1S'The Petitioner / Non-Applicant relied on Edelweiss Asset Reconstruction Co' Lid. vs. Sachet Infrastructure Pvt. Ltd. (supra),also wherein different I entities had pooled their land for /evelopment of a township and consequently, it was held by the Hon'ble NCLAT that in such a situation, a group insolvency approach has to be adopted, which is quite different from s{-

IA No. 229/JPM202t IA CP No. 227/JPR/202t

'*--

No. (IB) 25/95/JPR/2021 oJ IA No. S CP 226/JPM202 t

No. (IB) 26/9s/JpN202t CP No. (tB) 27/95/JPN202t

20

2t the facts in consideration in the extant matter wherein CIRP has been sought to be initiated against the Personal Guarantors. 19.The Petitioner / Non-Applicant further relied on Robust Hotel Pvt. Ltd. vs. EIH Ltd. (supra), which dealt with the concept of bar ofjurisdiction of civil courts and temporary injunction. This judgement is not relevant to the core

issue in the facts of the present matter before this bench. 20.Finally, the Petitioner / Non-Applicant relied on M.D. Frozen Food Export Pvt. Ltd. vs. Hero Fincorp Ltd. (supra), where the Hon'ble Supreme Court

held that SARFAESI proceedings, which are in the nature of enforcement

proceedings, can go along simultaneously with arbitration proceedings that

are adjudicatory in nature. Financial institutions have an option of invoking

either or both. The basic ratio of the said judgement can be extrapolated to imply that a Financial Creditor can proceed against the Corporate Debtor or the Personal Guarantor, or both. Our analysis herein is not in direct conflict

with the underlying rationale. 2l.In order to decide the present dispute, it is essential to look into certain restrictive provisions of the Code related to nature of the Corporate Debtor. It is tipposite to go through the following definitions stated hereunder in logical sequence and the Notification S..o. 4139(E) dated 1g.11 .2019:

section 3 (8) "corporate debtor" means a corporate person who owes a

debt to any person,' Section 3 (7) "corporate person" meons q company as defined in clause (20) of section 2 of the Companies Act, 2013, a lim ( # 94--

IA No. 229/JPR/2021

s{-

L. ,,-. 1to1 zLry)/Jf lNo.226/JPR/2021 CP No. (lB) 27/95/JPM2021

21

22 defined in clause (n) of sub-section (l) of Section 2 of the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any lawfor the time being inforce but shall not include any financ ial s ervice provider,'

Section 3 (11) "debt" meens a liability or obligation in respect of a claim which ,s due from qny person and includes a financial debt and operational debt Section 3(12) "default" means non-payment of debt when whole or qny part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case maybe; Section 3 (17) "finoncial service provider" means a person engaged in the business of providing financial services in terms of authorisation issued or registration granted by afinoncial sector regulator;

Section 3(16) "financial service" includes any of thefollowing services, namely: - a) Accepting of deposits b) Safeguarding and administering assets consisting of financial

products, belonging to another person, or ogreeing to do so; c) Effecting contracts of insurance; d) Offering, managing or agreeing to manage assets consisting of

financial products belonging to another person; e) Rendering or agreeing, for consideration, to render advice on or

solicitingfor the purposes of- i. buying, selling, or subscribing to, a financial product; ii. availing afinancial service; or iii. exercising any right associated with a financial product or

financial service,' fl establishing or operating an investment scheme: g) maintaining or transferring records of ou'nership qf a -financial

product,' h1 underwriting the issuance or subscription qf a-financial product; or 'i) selling, providing, or issuing stored value or pcnnlent instruments

or providing payment services;* Section 5(22) "personal guarantor" meens an indiridual vho is the surety

in a contract of guarantee to a corporate debtor:

s/ IA No.229/JPN202l CP lla IA No. 227/JPR/2021 Sd. - CP llo. IA No.226/JPM202l CP Na

22

23 22.llndoubtedly, the Principal Borrower, i.e. Jumbo Finvest (India) Ltd. is a Financial Service Provider. As seen from the facts and documents presented before us, Jumbo Finvest (India) Limited (which was formerly known as Jumbo Finvest Private Ltd.) has been granted a Certificate of Registration dated 24.11.2011 to commence / carry on the business of Non-Banking

Financial Institution without accepting public deposits, by the RBI. 23.It is also important to refer to Notification S.O. 4139(E) dated 18.11 .2019

(also referred to as 'FSP Threshold Notification') which is as follows:

MINISTRY OF CORPORATE AFFAIRS NOTIFICATION

New Delhi, the l8th November,20l9 S.O.4139(E). -ln exercise of the powers conferred by section 227 of the Insolvency and Bankruptcy Code, 201 6 ⁽³ I of 20 1 6), the Central Government in consultation with the Reserve Bank of India hereby notifies as under: The insolvency resolution and liquidation proceedings of the following categories of financial service providers shall be undertaken in accordance with the provisions of the Insolvency and Bankruptcy Code,20l6 read with the Insolvency and Bankruptcy (lnsolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules,2019 (in this notification referred to as the'Rules') and the applicable Regulations:

Category of Financial

Appropriate Regulator

Dealing with third-party Sl. No.

Service Provider [clause (a) of sub-rule ( I ) assets (rule l0 of the (rule 2 of the Rules) of rule 3 of the Rulesl Rules) (l) (2) (3) (s) Non-banking finance Reserve Bank of India To be notified separately companies (which include housing finance

I

companies) with asset ^asize of Rs.500 crore or more, as per last audited

balance sheet.

[F. No. 30 I 4 1201 7 -lnsolvency Section] GYANESHWAR KUMAR SINGH, Jt. Secy. s{- IA No. 229/JPN202l

vt 1\(). ltD) z)/y)/JPIU202 I IA No.227/JPN2021

Srl <-- CP No. (tB) 26/91/JPN202t IA No. 226/JPN202l CP No. (tB) 27/91/JPN202t

23

24 24.The following diagram helps in getting a clear picture regarding the different definitions revolving around Corporate Debtor and Financial Creditors and their relation with the Financial Service providers:

Sureiy-fp

Excludes (*)

l_ r\

I

Financial Service Provider (FSp) Financial Central lSec-3(t ⁷⁾⁾

Service Govt. (CG)

I

I

Regulator Financial Services (FS) (FSR) I {Sec-3(t 6)) lSec-3 ( t 8)l t Sec-239(zk)l

I

I ,

Notification s.o.4l3e(E)

Insolvency and r/w R-2 Bankruptcy lExcluded in Notification llncluded in Notifrcation

(Insolvency and No.5.O.41sg(E)l No. S.o. 4t3s(E)l

For

Liquidation Insolvency Proceedings of I & Financial Service I

Liquidation Providers and ofFSP

Application to I Adjudicating t Authority) Rules, I

2019

tr-rr-r- U/r 4 occurrences of CD in -IB-C-- ---are to be read as FSp I' CP normally excludes a Financial Service Provider (FSP), Il' hence cD also usually excludes FSp. In normal situations, no clRP can be initiated against III' a cD, which per se (by definition) excludes a FSp. However, due to interplay of the notifications and'rules as shown in the diagram, FSps with assets size equal to, or greater than, Rs. 500 crores, are included IV' within the definition of CD.The dotted line shows the connection as to how FSPs having asset size equal to, or greater than, Rs. 500 crores are brought within the domain of CD. v' consequently, PGs to FSPs having asset size equal or greater than Rs. 500 crores are CIRp. brought under the ambit of initiating _

s d- lA No. 229/JPM202t

94-

CP IA No. (lB) No. 25/95/JPR/202 227/JPR/2021 t(tB) IA CP No. No. 226/JPR/202t 26/95/JPM202t CP No. (tB) 27/95/JPN202 t

25 25.While a Corporate Debtor is a Corporate Person, who owes a debt to any person, it must be kept in mind that Corporate Person does not normally include any Financial Service Providers. At the same time, this needs to ^be

seen through the filter of Section 227 of IBC, 2016 which reads as follows:

Section 227 Power of Central Government to notifyfinoncial service providers, etc. Not-,withstanding anything to the contrary [contained in this Code] or any other lawfor the time being inforce, the Central Government ^moy,if i t c o ns i der s ne c e s s ctry, in c o ns ult at i on w ith the appr opr i at e fi nanc i al sector regulators, notifu financial service providers or categories of

finoncial service providers for the purpose of their insolvency ond liquidation proceedings, which may be conducted under this Code, in such manner as maY ^be Prescribed- [Explanation.- For the removal of doubts, it is hereby clarified that the insolvency and liquidation proceedings for financiol service providers or categories of financial service providers may be conducted with such modifications and in such manner os may be prescribed.J The non-obstante clause in Section 227 empowers the Central Government to notiff the Financial Service Providers or categories of Financial Service Providers for proceedings that may be conducted in accordance with IBC. 26.Therefore, in exercise of the powers conferred by Section22T of the Code, the Central Government, in consultation with the Reserve Bank of India, vide 4otification G.S.R. 852(E) dated 15.11 .2019 notified the Insolvency and'Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to aA;uOicatory Authority) Rules, 2Ol9

(herein also referred to as 'FSP Rules'). The relevant rules under the said notification are as follows:

S4- lA No. 229/JPN202l

_sd

CP No. (tB) 25/9\/JPR/202tIA No. 227/JPN202l CP No. (tB) 26/95/JPN202t IA No.226/JPN202l

CP No. (tB) 27/95/JPN2021

25

26 2. Application These rules shall apply to such financial service providers or categories of financial service providers, as moy be notified by the Central Government under section 227, from time to time, for the purpose of their

insolvency and liquidation proceedings under these rules.

3. De/initions (l) In these rules, unless the context otherytise requires, - (") -----x'---- -----x----- -----x----- (c) "appropriate regulator" means thefinancial sector regulator, as may be notified by the Central Government under section 227, for a category offinancial s ervic e providers ; 4. General Modifications

For the purposes of these rules, in all the provisions relating to insolvency

and liquidation proceedings under the Code: - i. fo, the expression "corporate debtor" wherever they occur, shall

mean "financial service provider"; end ii. for the expressions "insolvency professional", "interim resolution

profes s ional ", ^" res olution profes s ionel " or ^" liquidator ", w herever

they occur, shall meen "administrator". 5. Corporate Insolvency Resolution Process of /inunciol service providers The provisions of the Code relating to the Corporate Insolvency Resolution Process of the corporate debtor shall, mutatis mutandis apply,

to the insolvency resolution process of afinancial service provider subject

to the following modifications: - a) Iniliution of Corporate Insolvency Resolution Process. - i. no corporate insolvency resolution process shall be initiated against afinancial service provider which has committed a default under section 4, except upon an application made by the appropriate regulator in accordance with rule 6,. b) , -----x-----

-----x----- -----x-----

2T.TheCentral Government in exercise of powers conferred under Section22T of the Code, vide FSP Threshold Notification dated 18.1 1 .2Ol9,notified the categories of Financial Service Provider, as per Rule 2, on which the aforementioned rules, i.e. the FSP Rules shall

accordingly be applicable. s/ IA No.229/JPN202l CP No. (IIJ) Z)/y)/Jrrvluzt IA No. 227/JPM202l

Sd ---

CP No. (tB) 26/95/JPN202tIA No. 226/JPN202l CP No. (tB) 27/95/JPR/2021

26

a

27 The FSP Threshold Notification clarified that insolvency resolution and liquidation proceedings of the Non-Banking Finance Companies (which include Housing Finance Companies) with asset size of Rs.500 crore or

more, as per last audited balance sheet, shall be undertaken in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 read together with the FSP Rules. RBI was notified as the appropriate regulator thereunder. 28.It has been submitted by the Applicant / Personal Guarantors that as per the

last audited balance sheet of Jumbo Finvest (India) Limited for year ending

on 3 1 .03.2020, the asset size is approx. Rs. 487 crores and as per unaudited

figures for the year ending 3 ¹ .03.2021, the total asset size of Jumbo Finvest (India) Limited is approx. Rs. 407 Crores. Therefore, the abovesaid NBFC

i.e. Jumbo Finvest (India) Limited, is excluded from the ambit of the FSP Threshold Notification dated 18.1 I .2019. which as per Rule 2 of FSP Rules,

2019 classifies / prescribes applicability of the said Rules for Insolvency and Liquidation of FSPs having an asset size of Rs. 500 crores or more. 29.Inview of the above, Jumbo Finvest (India) Limited, the Principal borrower does not stricto sensuqualif,, within the tight definition of Corporate Person under IBC, as the said definition excludes FSP. Further, the FSP Threshold Notification does not sweep it back into inclusion as a Corporate Person. So, as per debt being carried, such Principal Borrower does not qualif, as a Corporate Debtor, as diagrammatically illustrated inPara24 herein. qJ- IA No.229/JPN202l \

IA No. 227/JPN202l

sd-

CP No. (lB) 26/95/JPN202l IA No. 226/JPR/2021 CP No. (tB) 27/95/JPN2021

27

28 30. Moreover, even if this FSP is excluded by virtue of the FSP Threshold Notification, the generic inclusion by virtue of Rule 4 of the FSP Rules enunciates that in all the provisions relating to insolvency and liquidation

proceedings under the Code, the expression "Corporate Debtor" wherever it

occurs, shall mean "Financial Service Provider". This cannot lead to a situation that the phrase Corporate Debtor in IBC is contextually read as FSP, while the FSP Threshold Notification excludes certain FSPs. The FSP Rules are applicable only to the extent that the concerned NBFC / Housing Finance Company qualifies under FSP Threshold Notification of asset size of Rs. 500 crores or more. In the present case, as stated earlier, the NBFC, i.e. Jumbo Finvest (India) Limited does not fall within the ambit of the category of NBFC having asset size of Rs. 500 crores or more; therefore, FSP rules shall not be applicable to it. Therefore, it is clear that Jumbo Finvest (India) Limited is not a Corporate Debtor in the present case. 3l.Further, Personal Guarantor means an individual who is a surety in a contract of guarantee to a Corporate Debtor. Therefore, in order for an individual to be a Personal Guarantor, all the following pre-requisites are required'to be fulfilled: i. it. inAiuidual has to be a surety. . ii. There has to be a contract of guarantee. iii. The individual has to be a guarantor to a Corporate Debtor. _sd IA No. 229/JPM202l CP No. (tB) 25/95/JPPJ202l IA No. 227/JPM202l S"l -

CP No. (tB) 26/95/JPM2021 IA No. 226/JPM202l CP No. (tB) 27/95/JPM202t

28

29 32.As follows from the preceding paras, Jumbo Finvest (India) Limited is shorn-off the tag of a Corporate Debtor and can, at best, qualiff as a principal Borrower albeit, as a corporate entity; therefore, the question of having a Personal Guarantor is out of picture. Unlike the Piramal ^case(supra), where guarantors to the Principal Borrower were Corporate

Guarantors and hence Corporate Debtors in their own right here, in this case, the guarantors to Jumbo Finvest (India) Limited do not strictly fall within

definition of Personal Guarantors and have existence as individuals only.

Provisions of IBC are not yet applicable for individuals.

33.The critical questions to ^be addressed can thus be concluded as follows: i. Application(s) for CIRP can be initiated against any Personal Guarantor(s) to a Corporate Debtor irrespective of CIRP against the corporate Debtor, which issue is no longer res integra. ii. Insolvency resolution process(es) can be initiated against the Personal Guarantor(s) of a NBFC / FSP irrespective of CIRP against the NBFC, provided that the concerned NBFC falls within the category of those FSPs having assets size of Rs. 500 cores or more, thus being included in the definition of Corporate Debtor under IBC and being construed as Financial Servic-e Provider wherever the term Corporate Debtor occurs in the Code. 34.In the present matter at hand, the three guarantors in CP No. (IB) - 27lgslJPFJzO2l i.e. Shri Ajuy Kumar Singh, CP No. (tB) - Z6D5|JPN2V\ S'l

29

30 i.e. Shri Siddharth Singh, and CP No. (IB) -251951JPPV2021 i.e. Smt. Rekha Singh, entered into respective deed of guarantee on 27.03.2018 in favour of the Financial Creditor / Non-Applicant. The definition of Personal Guarantors under Section 5(22) of the IBC cogently implies that they can be recognised as Personal Guarantors under IBC, subject to the condition, and only if, that the person or entity for whom they have given guarantee is a Corporate Debtor. Therefore, as it is amply clear that Jumbo Finvest (India) Limited is not a Corporate Debtor, the guarantors of the aforesaid company cannot be considered as Personal Guarantors under provisions of IBC. Since consequences of CIRP are drastic and almost penal for any entity, whether corporate or individual, definitions must be strictly

construed. 35.In view of entirety of the foregoing, the Interim Applications filed by the Guarantors, i.e. 226lJPN202l, 227lJPN202l and 229lJPN202r, are hereby allowed and accordingly stand disposed of.

36.Thus, we are of the view that the Company Petitions filed under Section 95 of the Code by the Financial Creditor against the Guarantors, CP No. (IB)

251951JPN2021, CP No. (IB) 26l95llPN202l, CP No. (rB) 27l95lJpV2o2t

are not maintainable and are accordingly dismissed.

s{- Deep Chandra Joshi Judicial Member sd __ Raghir Nayyhr Technical Member

IA No.229/JPN2021 CP No. (lB) 25/95/JPM2021 IA No. 227/JPN2021 CP No. (lB) 26/95/JPR/2021 IA l,,lo. 226/JPM202l CP No. (lB) 27/95/JPM202l

30