JSA successfully advised and defended KEB Hana Bank, Chennai (“Bank”), a branch of foreign bank, in a civil revision petition filed by Mr. Rohit Nath before the Madras High Court challenging the jurisdiction of Debts Recovery Tribunal, Chennai (“DRT”) to adjudicate and deal with the bankruptcy process of a personal guarantor to the corporate debtor in terms of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
Mr. Rohit Nath (“Promoter”), the promoter of the corporate debtor, Alectrona Energy Private Limited (“Corporate Debtor”), was subjected to insolvency resolution process under the IBC before the DRT. The repayment plan of the Promoter was rejected and consequently the proceedings relating to insolvency resolution process was closed. The Bank filed an application before the DRT to initiate the bankruptcy process of the Promoter. The Promoter challenged the jurisdiction of the DRT to entertain the application filed by the Bank. The DRT vide order dated August 8, 2022, upheld its jurisdiction to deal with the bankruptcy process of the Promoter.
The Promoter challenged the order of the DRT before the Madras High Court in a revision petition filed under Article 227 of the Constitution of India, by contending that the National Company Law Tribunal, Chennai (“NCLT”) is the jurisdictional forum in view of Section 60(1) of the IBC, which confers exclusive jurisdiction to the NCLT. It was further contended on behalf of the Promoter that, since the Bank had filed application before the NCLT against the Corporate Debtor for its corporate insolvency resolution process (“CIRP”) which had also been admitted by the NCLT, the application for bankruptcy process can be filed only before the NCLT.
JSA represented the Bank before the High Court and contended that under the scheme of the IBC while insolvency resolution process is aimed at resolving the insolvent state by restructuring the debts of the company or the individual, liquidation and bankruptcy process aims at realizing the assets of the company or the individual, as the case may be, to settle the creditors. The object and purpose of the insolvency resolution process and liquidation / bankruptcy process being different, it was contended that proceedings of similar nature can alone be clubbed viz., bankruptcy process of personal guarantor to a company can be clubbed with liquidation process of the said company. Since the Corporate Debtor was undergoing CIRP and not liquidation, it was contended that the bankruptcy process of the Promoter must be independently dealt with. Reliance was placed on Sections 60(2) and 60(3) of the IBC to substantiate that law contemplates clubbing of proceedings with similar object; and Section 179 of the IBC read with Rule 3 of Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtor Rules, 2019 (“2019 Rules”) which states the DRT to be an adjudicating authority.
The Madras High Court vide its judgement dated March 30, 2023, dismissed the petition filed by the Promoter and upheld the jurisdiction of the DRT to deal with the bankruptcy process of the Promoter. The Madras High Court placing reliance on Supreme Courts’ judgement in State Bank of India v. V. Ramakrishnan (2018 17 SCC 394) held that Section 60(1) of the IBC does not confer exclusive jurisdiction to NCLT to deal with insolvency proceedings of personal guarantors to corporate debtors and it only states the territorial jurisdiction of the NCLT; and further relied on Section 179 read with 2019 Rules stating the DRT as an adjudicating authority under the IBC. The High Court further held that, since the bankruptcy process of the Promoter and the CIRP of the Corporate Debtor are proceedings with different objectives, the bankruptcy proceedings need not be transferred to the NCLT.
This judgement assumes significance since it settles the tests to be applied in determining the jurisdiction of the Debts Recovery Tribunal and National Company Law Tribunal in dealing with insolvency resolution process and bankruptcy process of personal guarantors.
Our Disputes Team Lead Partner – Vinod Kumar, and Principal Associate – Srinivasan M.D.