Insolvency Resolution Plea u/s 95 of IBC Can Be Initiated Against Personal Guarantor Irrespective of His Citizenship

Case Details: ZTE Corporation v. Mahesh Lingareddy (Smartron India (P.) Ltd.) - [2024] 168 taxmann.com 425 (NCLT-Hyd.)

Judiciary and Counsel Details

• Dr. Venkata Ramakrishna Badarinath Nandula, Judicial Member & Charan Singh, Technical Member
• Mayur Mundra & Sunil Kumar, Advs. for the Petitioner.
• Rajesh Maddy, Adv. for the Respondent.

Facts of the Case

In the instant case, the corporate debtor entered into a supply agreement with the petitioner-creditor to supply smartphone products and services. The Respondent-personal guarantor had independently signed a guarantee agreement, agreeing to pay the creditor’s outstanding balance from his personal funds in case the corporate debtor failed to make payment.

Due to the non-payment of long outstanding debts, a statutory demand notice was issued by a creditor under section 8 of the IBC to the corporate debtor. A petition was filed by a creditor to initiate the CIRP against the corporate debtor, and the same was admitted.

Subsequently, the corporate debtor entered into a settlement agreement, wherein the corporate debtor had paid an amount before signing the settlement agreement, and the creditor agreed to extend the time to make payment of the balance amount. However, the corporate debtor completely neglected and failed to make the payment.

Due to non-payment of long outstanding debts, the creditor issued a legal notice to the guarantor and filed a petition under section 95 of the IBC against the respondent. The Respondent alleged that he was an American citizen and, therefore, IBC did not apply to him.

It was noted from the Guarantee Agreement that the respondent was residing in India, with a residential address in Hyderabad, Telangana and was also carrying out business as a Director in a corporate debtor when the guarantee agreement was executed.

NCLT Held

The NCLT held that section 95 of the IBC only stated the relationship between the creditor and corporate debtor, irrespective of their citizenship. Therefore, the corporate debtor’s being an Indian citizen or foreign national made no difference in adjudicating the instant application, which was filed under section 95 of the IBC.

Therefore, the IBC Code applied to the respondent irrespective of citizenship, and an instant petition filed under section 95 of the IBC was to be admitted in terms of section 100 against the personal guarantor.

List of Cases Referred to

• Surendra B. Jiwrajka v. Omkara Assets Reconstruction Private Limited 2023 INSC 1018 (para 43).