Mumbai Legal experts said the recent Supreme Court stay on a personal guarantor case is likely to be used in all personal guarantee cases pending before various national company law tribunals across the country.
In this case, private guarantor Gurmeet Sodhi has filed a petition in the Supreme Court challenging the individual insolvency provision under the Insolvency and Bankruptcy Code (IBC).
Advocate Srijan Sinha said the matter would be important for personal guarantors as it would require the court to explore the subject of individual guarantor rights.
On the other hand, Anoushka Arora, Principal and Founder, ABA Law Office, said that though there would be no direct impact on other NCLT cases, an implied effect could be observed in cases involving similar questions or points of law. “This may be a catch-all for the guarantors of pending cases to get interim relief on the same lines,” she said.
“Granting interim relief to Sodhi, the apex court went a step further, demonstrating its intent to decide the matter on merits. We will have to wait for a few more months to see how the law with respect to personal guarantors will evolve. The court indicated that the issue of personal guarantors in the IBC would be decided soon.
According to data from the Insolvency and Bankruptcy Board of India, applications invoking personal guarantees against corporate debtors filed by creditors increased from 191 in FY21 to 16 in FY20 as of March 2022. Total debt is currently 95,656.6 crore, while the guaranteed amount is 71,672.65 crores.
Ajay Shaw, partner, DSK Legal, said that as a result of the Supreme Court order other personal guarantors want to tag along with the case filed by Sodhi, so that proceedings under IBC against him be stayed till the final order is passed.
“Earlier, in the Lalit Kumar Jain case, the personal guarantors had challenged the authority (power) of certain provisions of the IBC before the Supreme Court, and several personal guarantors had tagged their cases in the petition filed by Lalit Kumar Jain. However, the order passed by the Supreme Court in the Lalit Kumar Jain case upheld the right of the creditors to proceed against the personal guarantors under the provisions of the IBC and disregarded the arguments presented by the personal guarantors. Questions of law not already involved in the Lalit Kumar Jain case and now being raised in the Gurmeet Sodhi case, will be decided by the Supreme Court so that it cannot be taken up by others later. Hopefully, with the final order in this matter, the ground for challenges on this issue will be reduced,” Shaw said.
The personal guarantor (Sodhi) had filed a writ petition in the Supreme Court under Article 32, alleging that the failure to confer the personal guarantor’s right of hearing before considering the insolvency petition of the creditor would result in natural justice. fundamental right is violated. Appointment of a solutions professional.
In his petition before the top court, Sodhi claimed that as a personal guarantor, he was entitled to notice and hearing by judicial authority before appointment of a conciliation professional, and initiation of an interim stay under sections 95, 96 and 97. is under. of code.
A bench headed by Justice Vineet Siran and Justice JK Maheshwari, while issuing notice in the writ petition to the resolution professional in the bankruptcy proceedings of the personal guarantor as interim relief, restrained him from submitting the statutory report before the adjudicating authority.
The Supreme Court directed the personal guarantor not to transfer, alienate, encumbrance or dispose of any of his property or his legal rights or beneficial interest.