National Company Law Tribunal rules foreign citizenship does not exempt personal guarantors from liability under IBC
In a landmark decision, the National Company Law Tribunal (NCLT) Chennai has initiated insolvency proceedings against Mr. A. Dominic Savio, the personal guarantor of Oceanic Edibles International Ltd., affirming that foreign citizenship does not exempt personal guarantors from their liabilities under the Insolvency and Bankruptcy Code, 2016 (IBC). The judgment, delivered by a bench comprising Shri. Sanjiv Jain and Shri. Venkataraman Subramanian, addresses significant legal contentions regarding the applicability of the IBC to foreign nationals and the limitations period for insolvency proceedings.
The Central Bank of India, acting as the financial creditor, filed the petition against Mr. Savio, citing a default amount exceeding Rs. 160 crore. The petition was based on a debt recovery certificate issued by the Debt Recovery Tribunal (DRT), which held Mr. Savio jointly and severally liable with the corporate debtor, Oceanic Edibles International Ltd. Despite Mr. Savio's contention that his foreign citizenship and lack of assets in India exempted him from IBC's jurisdiction, the NCLT ruled otherwise.
The tribunal emphasized that the recovery certificate issued by the DRT provides a fresh cause of action for initiating insolvency proceedings under the IBC. It also clarified that the provisions of the IBC are applicable to personal guarantors of corporate debtors, irrespective of their citizenship or residency status. The judgment further stated that the Central Government's lack of reciprocal agreements with other countries under Sections 234 and 235 of the IBC does not exempt personal guarantors from their liabilities.
Furthermore, the tribunal addressed the issue of limitation, asserting that the petition was filed within the permissible period since the issuance of the recovery certificate constitutes a fresh cause of action. The NCLT's decision underscores the co-extensive liability of personal guarantors with the principal debtors, as stipulated under Section 128 of the Indian Contract Act, 1872.
The tribunal has appointed Mr. Chandrasekhar Sagutoor as the Interim Resolution Professional to oversee the insolvency resolution process. The ruling reinforces the applicability of Indian insolvency laws to personal guarantors, regardless of their nationality, and sets a precedent for similar cases involving cross-border insolvency issues.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Liability of a personal guarantor to corporate debtor under insolvency resolution process - Held, recovery certificate issued by Debt Recovery Tribunal gives rise to fresh cause of action to initiate insolvency proceedings under the Code - Personal guarantors, even if foreign citizens, are bound by statutory obligations under IBC and cannot escape liability merely due to foreign citizenship or absence of assets in India.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 95, 128, 3(24), 234, 235; Indian Contract Act, 1872 Section 128
Central Bank of India v. Mr. A. Dominic Savio, (NCLT)(Chennai) : Law Finder Doc Id # 2833347
