In a recent order passed by the
BACKGROUND
In the interim, on
In relation to the above, two appeals arose challenging (a) order dated
ISSUES
- Whether the Respondent can initiate proceedings under Section 95(1) of the Code against the Appellant, given that Appellant is a foreign citizen?
-
Whether it was necessary for the Central Government to enter into an agreement with the Government of
Singapore as is required under Section 234 and 235 of the Code to enable the adjudicating authority to proceed under Section 95(1) of the Code against the Appellant?
FINDINGS OF THE NCLAT
The NCLAT while dismissing the above appeals held as follows:
- Section 3(23) of the Code defines 'person' to include a person resident outside
India . Further, section 3(25) of the Code defines 'person resident outsideIndia ' as a person other than a person resident inIndia . Furthermore, Section 2 of the Code which provides for applicability of the Code, extends its applicability to 'personal guarantors to corporate debtors'. -
Section 60(1) of the Code provides that the adjudicating authority in relation to insolvency resolution for corporate persons including personal guarantors shall be the
National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. The mere fact that the Appellant is a citizen of theRepublic of Singapore is irrelevant for initiating proceedings against the Appellant as the residence of the personal guarantor is not a relevant factor. Since the registered office of the Corporate Debtor is within the territorial jurisdiction of the NCLT Kolkata, insolvency proceedings could be initiated against the personal guarantor in the same tribunal. Further, the adjudication of disputes related to a personal guarantor under Section 60(1) of the Code does not have any nexus to the personal guarantor's residency status. - The scheme of the Code does not indicate that a personal guarantor shall be absolved from his liability on the pretext that he has obtained citizenship of a foreign country.
-
The Hon'ble
Supreme Court of India inLalit Kumar Jain v.Union of India & Ors . (2021) 9 SCC 321, held that insolvency proceedings against a personal guarantor should be considered by the same adjudicating body dealing with the insolvency proceedings of the corporate debtor. -
The applicability of Section 234 of the Code arises if the assets or property of a personal guarantor are situated outside
India . In the present case, the assets of the personal guarantor were not situated outsideIndia and the said personal guarantor could not take refuge under Section 234 and 235 of the Code. - The NCLAT held that “the right given to the financial creditor under the Code to initiate proceedings under Section 95(1) of the Code is independent” and the financial creditor can always invoke special proceedings “despite there being availability of any other forum or proceedings in this context”.
JUDGEMENT
The NCLAT dismissed both the appeals and held that the NCLT Kolkata has jurisdiction to initiate insolvency resolution proceedings against the Appellant in accordance with the scheme of Section 95(1) read with Section 60 of the Code even though the Appellant may have obtained citizenship of the
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