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JM Financial Asset Reconstruction Company Limited v. JOHN ZACHARIAH
Factual and Procedural Background
The case concerns an application filed by M/s. J M Financial Asset Reconstruction Company Limited under Rule 53 of the NCLT Rules, 2016 seeking to implead the legal heir of the deceased Personal Guarantor, Smt. Susan Zachariah, in CP(IBC)/14(KOB)/2021. The original insolvency petition was initiated against Smt. Susan Zachariah as the Personal Guarantor. The Demand Notice in Form B was received by her, but subsequent notice was returned with the endorsement "Addressee Expired." Upon inquiry, it was revealed that the legal heir, Mr. John Zachariah (her husband), inherited her assets and was arrayed as the Respondent. The application seeks to substitute the legal heir in the ongoing insolvency proceedings.
Legal Issues Presented
- Whether the legal heir of a deceased Personal Guarantor can be impleaded in ongoing insolvency proceedings initiated against the Personal Guarantor under the Insolvency and Bankruptcy Code, 2016.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Tribunal examined Rule 53 of the NCLT Rules, 2016, which allows substitution of legal representatives upon the death of a party during ongoing proceedings, subject to certain conditions and time limits. However, the court emphasized the definition of "Personal Guarantor" under Section 5(22) of the Insolvency and Bankruptcy Code, 2016, which identifies the Personal Guarantor as an individual surety to a Corporate Debtor. The court reasoned that insolvency proceedings under the IBC against a Personal Guarantor are not recovery proceedings but insolvency resolution processes. Consequently, the death of the Personal Guarantor leads to abatement of proceedings against that individual. The court further noted that continuing proceedings against the deceased Personal Guarantor’s legal heirs would contradict the scheme of the IBC. Therefore, the application to implead the legal heir was declined.
Holding and Implications
The Tribunal dismissed IA(IBC)/36(KOB)/2022, thereby refusing to allow the impleading of the legal heir of the deceased Personal Guarantor in the insolvency proceedings.
The direct effect of this decision is that insolvency proceedings against a Personal Guarantor abate upon the guarantor’s death, and legal heirs cannot be substituted to continue such proceedings. The opinion does not establish any new precedent beyond this case’s immediate context.
IA(IBC)/36(KOB)/2022
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IN THE NATIONAL COMPANY LAW TRIBUNAL
KOCHI BENCH, KOCHI
IA(IBC)/36(KOB)/2022
IN
CP(IBC)/14/KOB/2021
(Under Rule 53 of the NCLT Rules, 2016)
Order delivered 17.03.2022 Coram:
Hon'ble Mr. Ashok Kumar Borah, Member (Judicial) Hon'ble Mr. Anil Kumar. B, Member (Technical)
M/s. J.M Financial Asset Reconstruction Company Ltd, 7thFloor, Cnergy, Appasaheb Marathe Marg, Prabhadevi, Mumbai- 400 025 acting in its capacity as the trustee of JMFARC -Federal Bank March 2013 Trust,
Represented by its Authorised Signatory
Mr. Vivekh Mehra. … Applicant
Verses
Mr. John Zachariah
Marikudiyil House, Pzhanganad,
Kizhakkambalam, Ernakulam - 683 562. … Respondent/Legal heir of Personal Guarantor
Parties/Counsel Present (through video conference)
For Applicant : S/Sh. K N Sivasankaran, A Sunil Shankar, Unnikrishnan S
ORDER (ORAL)
Per: Ashok Kumar Borah, Member (J)
This IA(IBC)/36(KOB)/2022 has been filed by M/s. J M Financial Asset Reconstruction Company Limited under Rule 53 of the NCLT Rules, 2016 for impleading the legal heir of Smt. Susan Zachariah.
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2. The brief facts of the case are that the Respondent herein is the legal heir of deceased Personal Guarantor Smt. Susan Zachariah in CP(IBC)/14(KOB)/2021 which was filed before this Tribunal for initiation of Insolvency Resolution Process against the Personal Guarantor.
3. It is stated that the Demand Notice in Form B addressed to the Personal Guarantor (Smt. Susan Zachariah) was received by her. Later, the notice issued in CP(IBC)/14(KOB)/2021 to the aforesaid Guarantor was returned with the endorsement "Addressee Expired". Upon enquiry, it came to light that pursuant to the demise of the Personal Guarantor Smt. Susan Zachariah, her properties and assets have devolved upon her legal heir Mr. John Zachariah (her husband), who is arrayed as the Respondent herein.
4. We have heard the learned counsel for the applicant and perused the documents produced. In order to consider the issue of impleading, it is profitable to quote Rule 53 of the NCLT Rules, 2016 as under:
53. SUBSTITUTION OF LEGAL REPRESENTATIVES-
(1) Where a party to a proceeding pending before a Bench dies or is adjudged insolvent or, in the case of a company, being wound up, the proceeding shall not abate and may be continued by or against the executor, administrator or other legal representative of the parties or by or against the assignee, receiver or liquidator, as the case may be.
(2) In the case of death of a party during the pendency of the proceedings before the Tribunal, the legal representative of the deceased party may apply within ninety days of the date of such death for being brought on record.
(3) Where no petition or application is received from the legal representatives within the period specified in sub-rule (2), the proceedings shall abate: Provided that for good and sufficient reasons shown, the Tribunal may allow substitution of the legal representatives of the deceased at any time before disposing the petition on merits.
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5. Now the question arises as to whether legal heir of the deceased Personal Guarantor can be impleaded?
In this regard Section 5(22) of the IBC, 2016 is relevant, which reads thus:
"Personal guarantor" means an individual who is the surety in a contract of guarantee to a Corporate Debtor; A reading of the above Section makes it clear that the Personal Guarantor is an individual who stood as a Guarantor to a Corporate Debtor and, therefore, on his demise the proceedings against the Personal Guarantor would abate. Besides that, the proceedings under IBC, 2016 is not in the nature of recovery and therefore it would be proper to close the proceedings on the death of the Personal Guarantor.
7. It may also be mentioned that the case of proceedings under Section 95 of the IBC, 2016 for initiation of Insolvency Proceedings against the Personal Guarantor is not a case for recovery of any amount because that will go contrary to the scheme of IBC, 2016. In such a situation on the demise of the Personal Guarantor, an individual who has given the guarantee in favour of the Corporate Debtor, the question of continuing the proceedings against such a dead person through his legal heirs will not arise.
8. Under such circumstances, we decline to accept the submission of applicant. Hence, we dismiss IA(IBC)/36(KOB)/2022. Dated this the 17thday of March, 2022
Sd/- Sd/-
(Anil Kumar. B) (Ashok Kumar Borah) Member (Technical) Member (Judicial)
AJ
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