The National Company Law Tribunal, Mumbai has admitted Mrs. Ritu Chhabria (Personal Guarantor of Raghuleela Infraventures Private Limited) into personal insolvency resolution process in a company petition filed by Indiabulls Housing Finance Limited.
By its judgment, the National Company Law Tribunal, Mumbai settled that the default on the part of the Guarantor arises only when demand notice is issued as contemplated in the Deed of Guarantee and such default is valid ground to initiate personal insolvency resolution process against a personal guarantor. The Tribunal also reiterated that (i) sufficient security of the principal amount under the loan agreement is no ground to wriggle out of personal insolvency in terms of the surety’s co-extensive liability under Section 128 of the Contract Act, 1872 and (ii) the insolvency proceedings initiated against a personal guarantor remain unaffected by the debt recovery actions initiated by the Petitioner by way of arbitration proceedings or otherwise.
The Personal Guarantor contested the petition on the grounds that – (i) Orders of injunction are operating against the principal borrower in the arbitration proceedings pending in Delhi High Court and the Bombay High Court, thus, no useful purpose would be served by initiating insolvency proceedings against the Personal Guarantor and that once the Financial Creditor has availed its remedy under arbitration, it cannot double dip by initiating insolvency for the same cause of action; and (ii) the loan facilities availed by the principal borrower are adequately secured and safeguarded by the assets, which are five times more in value than the principal outstanding loan amount.
By its judgment, the National Company Law Tribunal, Mumbai settled that the default on the part of the Guarantor arises only when demand notice is issued as contemplated in the Deed of Guarantee and such default is valid grounds to initiate personal insolvency resolution process against a personal guarantor. The Tribunal also reiterated that (i) sufficient security of the principal amount under the loan agreement is no ground to wriggle out of personal insolvency in terms of the surety’s co-extensive liability under Section 128 of the Contract Act, 1872 and (ii) the insolvency proceedings initiated against a personal guarantor remain unaffected by the debt recovery actions initiated by the Petitioner by way of arbitration proceedings or otherwise.
Deal value: INR 30.29 Crores
Our Disputes Team Comprised Partners – Dheeraj Nair and Varghese Thomas, Principal Associate – Vishrutyi Sahni and Senior Associate – Ahsan Allana.