Introduction
The Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”) was established to provide a comprehensive framework for addressing financial distress among corporate debtors (“CDs”) and individuals, including personal guarantors (“PGs”) of CDs. Part III of the IBC, along with the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, outlines the Personal Guarantor Insolvency Resolution Process (“PGIRP”). This includes appointing a resolution professional (“RP”), verifying creditor claims, creating a repayment plan by the PG, CoC deliberation, and seeking approval from the National Company Law Tribunal (“NCLT”).
Moratorium Under Section 101
Crucial to the PGIRP is the moratorium under Section 101, which prevents new legal actions against the PG during its period. However, unlike the corporate insolvency process under Section 14, which lasts the entire duration of the process, the PG moratorium expires either 180 days from insolvency admission or upon NCLT’s decision on the repayment plan. If the NCLT has not approved the repayment plan within 180 days, creditors may resume recovery actions, potentially fragmenting the PGIRP process.
Judicial Interpretations
The NCLAT, in Anil Kumar vs. Mukund Choudhary, addressed whether the moratorium under Section 101 could extend beyond 180 days. The NCLAT held that the statutory language was explicit, leaving no room for extensions by the NCLT or NCLAT. However, the NCLAT allowed for the PGIRP timeline to be extended, as seen in Purusottam Behera vs. SBI, where it was noted that the PG Regulations do not set a strict completion deadline, unlike the CIRP’s 330-day cap.
The Supreme Court, in Mukund Choudhary vs. Union of India, upheld the constitutionality of Section 101, acknowledging the distinct purposes of moratoria in corporate and individual insolvency contexts. However, it recognized concerns about potential creditor actions post-moratorium and issued a notice for further scrutiny.
Practical Implications
In the Vistra ITCL (India) Ltd. vs. Pranav Ansal case, the Delhi High Court dealt with real-world effects of the moratorium’s expiry. A creditor sought enforcement against PG properties included in a proposed repayment plan. The High Court ruled that Section 101 requires strict adherence, allowing the creditor’s petition.
Conclusion
The strict interpretation of Section 101, evident in recent judgments, poses challenges that may undermine IBC’s objectives. The legal framework requires careful examination to ensure the insolvency process for PGs aligns with its intended goals.
About the Authors: Palash Taing is a Partner and Shobhna Vijay is an Associate at TLH, Advocates & Solicitors.
Disclaimer: The views expressed are those of the authors and do not necessarily reflect the opinions of Bar & Bench.
