Bankruptcy proceedings against personal guarantor can be initiated irrespective of country of residence
The National Company Law Appellate Tribunal (NCLAT) has in a recent order said that a personal guarantor, whether he resides in India or outside India, when an insolvency petition is filed against him as a personal guarantor of the Corporate Debtor, the NCLT has jurisdiction, in whose territorial jurisdiction’, the registered office of the corporate person is located.
The tribunal cited Section 60 (1) of the Insolvency and Bankruptcy Code (IBC) to arrive at the conclusion that the residence of personal guarantor is not taken into account when proceedings against personal guarantor are initiated.
It maintained that based on the principle of law, the liability of the personal guarantor is co-extensive with that of the corporate debtor.
The tribunal made these points while dismissing an appeal of Satyan Kasturi, who had given personal guarantee for loan taken by corporate debtor PPS Enviro Power Private Limited. Kasturi had moved NCLAT against an order by the Hyderabad bench of the NCLT admitting State Bank of India’s plea for initiation of personal insolvency proceedings against him.
The appellant argued in the NCLAT that since Kasturi is stays in Australia national and a foreign national cannot guarantee a debt taken by an Indian company’ without the permission of the Reserve Bank of India.
The Counsel for the appellant also submitted that the debt allegedly to be owed by the appellant is clearly barred by limitation as cause of action for the purpose of IBC, in the absence of an acknowledgement begins from the date of non-performing asset and comes to an end three years thereafter.
State Bank of India, which was one of the respondents in the case pointed out before the NCLAT, that the personal guarantor (appellant) of the PPS Enviro Power had executed the personal guarantee’ by representing that he is an Indian citizen residing in India, which is evidenced from the resident address shown in guarantee agreement. Moreover, it argued that all the correspondences issued were only in regard to the Appellant’s India Address.
The NCLAT observed that it is not in dispute that Satyan Kasturi stood as guarantor in order to secure the repayment of financial assistance availed by the principal borrower or the corporate debtor.
It also noted that the notice was addressed to the personal guarantor of the corporate debtor and others on 11 October 2017, requiring them jointly and severally to pay the sum of Rs 2.27 crore along with interest and other charges.
On the issue of Limitation, the tribunal said that even though the loan account of the corporate debtor was classified as NPA on 26 December 2015, but notice demanding recall of loan was issued to the personal guarantor’ on 11 October 2017, and that the demand notice dated 23 September 2020 was issued to the personal guarantor through registered post demanding unpaid debt in default due from PPS Enviro Power Private Limited. The demand notice was served on the appellant on 06 October 2020 at the address bearing No. 102/36, Defence Officers’ Colony, Ekkattuthangal, Chennai – 600032.
Also Read: India’s first personal insolvency proceeding begins against first gen entrepreneur Anil Syal
