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JC - Legal Updates - Personal Property of Guarantors cannot be transferred during CIRP of Corporate Debtor without initiating separate proceedings - NCLAT

Legal Updates

16 Sep 2021

Personal Property of Guarantors cannot be transferred during CIRP of Corporate Debtor without initiating separate proceedings - NCLAT

The Hon’ble NCLAT has held that CIRP against the Corporate Debtor cannot include Resolution Process against Personal Guarantors, even though the properties were mortgaged with the Financial Creditors. This has been ruled in the matter of “Mr. Nitin Chandrakant Naik & Anr. Vs. Sanidhya Industries LLP & Ors.’ vide judgement dated 26th August 2021

Earlier, the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench (“Adjudicating Authority”) upheld the Resolution Plan having certain provisions allowing for transfer of the personal properties of the guarantors.

While overruling the decision of the Adjudicating Authority, the Hon’ble NCLAT has observed that:

1)        If the Financial Creditors had to proceed against the Personal Guarantors, he could avail the provisions of

(a)       ‘Presidency Towns Insolvency Act, 1909’,

(b)       ‘The Provincial Insolvency Act, 1920’, and

(c)       ‘Recovery of Debts Due to Banks and Financial Institutions Act, 1993’.

To Note: Part III of the IBC enables the Financial Creditors to avail remedies against the Personal Guarantors. However the same was not considered by the NCLAT as the dispute in question was prior to 1st December 2019 being the date of notification of Part III of the IBC.

2)        Under section 61(3) of the Insolvency and Bankruptcy Code, 2016 the Resolution Plan approved by the Adjudicating Authority is in contravention to the provisions of law and the right of a Financial Creditor to proceed against the Personal Guarantor can be there, but enforcement of such right has to be as per provisions of law.


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).