Insolvency Resolution Process cannot be maintained against the legal heirs of the Personal Guarantor: NCLT [Read Order]

Insolvency Resolution Process - maintained - legal heirs - Personal Guarantor - NCLT - Taxscan

The Kolkata bench of National Company Law Tribunal has held that Insolvency Resolution Process cannot be maintained against the legal heirs of the Personal Guarantor.

Kilburn Chemicals (Corporate Debtor) had approached the Petitioner, Bank of Baroda, Stressed Asset Management Branch (SAMB) a Body Corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, to provide credit facilities for setting up of Rutile Grade Titanium Dioxide manufacturing plant. Thereafter, a term loan consortium Agreement was executed between the Corporate Debtor, Petitioner and State Bank of India. The Petitioner had sanctioned total credit facilities to a sum of Rs.103,90,00,000/-.

The Petition filed for initiating of the Insolvency Resolution Process (‘IR Process’) of the Personal Guarantor on failure to pay a sum of Rs.112,35,09,310/- including unapplied interest, legal charges and others against Ms. Divya Jalan, legal heir of Personal Guarantor, late Sandeep Kumar Jalan.

The Tribunal has observed that when a section 95 application is filed the assets of the Personal Guarantor is hit by moratorium and if we put the legal heirs of the deceased Personal Guarantor into the shoes of the Personal Guarantor then their personal assets will also get automatically hit by moratorium, which will cause grave prejudice to the rights of the third party. However, there is no provision in the code which envisages that the concept of legal heirs stepping into the shoes of the deceased Personal Guarantor. In this instant case the petitioner can take appropriate steps to recover the guaranteed amount from the assets/estates of the deceased Personal Guarantor rather than the personal assets of the legal heirs of the Personal Guarantor. Further, the legislature is very much clear in defining the term ‘Personal Guarantor’, the Code talks about the estate/assets of the Personal Guarantor only.

The Coram of Sri Rajasekhar V.K, Member (Judicial) and Sri Balraj Joshi, Member (Technical) while dismissing the petition has held that, “we hold that the instant application cannot be maintained against the legal heirs of the Personal Guarantor under the Code, and the remedies may lie elsewhere. Hence, clause 21 and clause 24 (k) of the Personal Guarantee Agreements dated 14 January, 2016 and April 24, 2018 is inconsistent with the definitions of the Personal Guarantor as defined in the Code”.

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