NCLT Kochi: Creditors Can't Initiate Insolvency Proceedings Against Personal Guarantor Without Establishing Independent Default By CD

The National Company Law Tribunal (NCLT) Kochi dismissed an application to initiate insolvency proceedings against personal guarantors under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). The tribunal, comprising Justice T Krishna Valli and Mr. Shyam Babu Gautam, ruled that creditors cannot solely rely on the initiation of Corporate Insolvency Resolution Process (CIRP) to pursue personal guarantors unless there is a distinct default by the corporate debtor. The case involved Piramal Capital and Housing Finance Limited sanctioning a ₹55 crore loan to Asten Realtors Private Limited, with personal guarantees provided by Mr. Kakkanattil Ibrahimkutty Mohammed Rafi Mather and Mr. Kakkanattil Abdul Rahiman Siraj Mather. Despite the corporate debtor defaulting on the loan, the NCLT held that the default did not occur before the CIRP began, thus dismissing the application against the guarantors. The decision underscored that a guarantor's liability hinges on the principal borrower's default, necessitating clear proof of such default before initiating proceedings against guarantors.