A personal guarantor to CD can’t escape from his liability even after obtaining citizenship of a foreign country: NCLAT

Case Details: Sudip Dutta @ Sudip Bijoy Dutta v. State Bank of India - [2022] 143 taxmann.com 366 (NCLAT-New Delhi)

Judiciary and Counsel Details

• • Justice Ashok Bhushan, Chairperson, M. Satyanarayana Murthy, Judicial Member
    & Barun Mitra, Technical Member
  • Dhruba Mukherjee, Sr. Adv., Raja Ratan Bhura & Shwetank Singh, Advs. for the Appellant.
  • Ashwini Kr. Singh, Joydeep Mukherjee, Ms Rubina Khan, Advs. & Prashant Jain for the Respondent.

Facts of the Case

In the instant case, the respondent-bank had granted loans and various credit facilities to EDAL (corporate debtor) and numerous documents pertaining to the same had been executed since the date of sanction.

The personal guarantor viz., the appellant had executed a personal guarantee in favour of the bank to secure the repayment of the principal amount together with all interest, additional interest, liquidated damages, the premium on pre-payments, reimbursement of all costs, charges and expenses and all other obligations payable by the corporate debtor in respect of the term loan.

The corporate debtor failed to make payment of its dues and finally, the account was declared as NPA. Thereafter, the bank issued a demand notice u/s 8 which was sent to the guarantor. Due to the default in payment of dues by the corporate debtor, an application was filed u/s 7 of the IBC.

However, the said application was admitted by the Adjudicating Authority (NCLT). Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

The appellant contended that the Adjudicating Authority had committed an error in admitting the section 95(1) application filed by the bank against the appellant who was no more within the jurisdiction of the NCLT as he had obtained the citizenship of Singapore w.e.f 18.06.2018.

Further, the appellant contended that the IBC was applicable only to those personal guarantors who were Indian citizens and the foreign citizens didn’t come within the ambit of personal guarantors. Also, the appellant being a citizen of Singapore, and a foreign national, IBC was not applicable.

The appellant also stated that there was no agreement between the Central Government with the Government of Singapore so as to initiate the CIRP against the appellant who was a citizen of Singapore. Thus, the NCLT had acted beyond the scope of the Code and its action of admitting the section 95(1) application was ultra vires.

NCLAT Held

The NCLAT observed that provision under section 60(1) of the IBC makes it clear that the residence of the personal guarantor is not taken into consideration when proceedings against the personal guarantor are initiated.

The NCLAT, further observed that the personal guarantor, who is residing in India or residing outside India, when an application is filed against the personal guarantor, the jurisdiction shall be before the NCLT in whose territorial jurisdiction the registered office of the corporate person is located.

The NCLAT held that there is no indication in the statutory scheme that a personal guarantor can escape from his liability under the guarantee deed only for reason that he has after execution of the guarantee deed obtained citizenship of a foreign country

The NCLAT, further held that for Central Government to enter into an agreement as required under sections 234-235 to enable the NCLT to proceed against the guarantor, a foreign citizen, arises only in a case where assets or property of the personal guarantor are situated at any place in a country outside India.

List of Cases Reviewed

• • Order of NCLT – Kolkata in CP (IB) No. 54/KB/2021, dated 3-8-2021 (para 31) affirmed.

List of Cases Referred to

• • Ravi Ajit Kulkarni v. State Bank of India [2021] 130 taxmann.com 442 (NCL – AT) (para 5)
  • Lalit Kumar Jain v. Union of India [2021] 127 taxmann.com 368 (SC)/[2021] 9 SCC 321 (para 25)
  • A. Navinchandra Steels (P.) Ltd. v. SREI Equipments Finance (P.) Ltd. [2021] 125 taxmann.com 50 (SC)/[2021] 4 SCC 435 (para 29).