NCLT| Ongoing or fresh debt related legal proceedings against personal guarantor should remain stayed during interim moratorium period

Financial Creditor

National Company Law Tribunal, Kolkata Bench I: The Bench of Rajasekhar V.K., judicial member and Balraj Joshi, technical member has held that no fresh legal proceeding can be initiated, including personal debts, and all pending legal action will be stayed during the interim moratorium period, as per Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). The interim moratorium period commences from the date of filing of the application and continues until the application is rejected or admitted by the Adjudicating Authority.

EMC was admitted into Corporate Insolvency Resolution Process (CIRP) on 12-11-2018 and an Interim Resolution Professional (RP), Rakesh Kumar Agarwal, was appointed. On 06-02-2019 one Kannan Tiruvengadam was appointed as Resolution Professional, and the resolution was approved through order dated 21-10-2019.

In the present case, State Bank of India (‘SBI’) and Industrial Financial Corporation of India (‘IFCI’) filed two separate applications under Section 95 and Section 95(1) of the IBC for initiation of insolvency against Manoj Toshniwal (Personal Guarantor of EMC, EMC being the Corporate Debtor) on 09-07-2021 and 29-09-2021 respectively. In the application filed by SBI, a coordinate bench of the NCLT appointed a Resolution Professional (‘RP’) who was directed to file a report under Section 99 of IBC, by order of 14-01-2022 (‘SBI Order’). On 21-02-2022, the order was modified and a new RP was appointed. The NCLT also heard the application filed by the IFCI and appointed a different RP and directed him to submit the report vide order dated 17-02-2022 (‘IFCI Order’).

Meanwhile, Manoj Toshniwal also filed an application under Section 60(5) of IBC for setting aside the IFCI Order contending that by the virtue of the SBI Order, an interim moratorium period already commenced against the creditors ruling out initiation of any legal action against the personal guarantor with respect of any debt. Hence, the proceedings initiated by the IFCI must be stayed.

Analysis and decision

NCLT made the following observations-

  1. Interim moratorium commences from the date of filing of application under Section 95 of IBC and ceases to have effect on admission and rejection of the application from the same date. During this period, all legal actions pending in respect of any debt should be stayed and creditors cannot initiate any fresh legal action in respect of any debt.

  2. The Bench also observed that the term “and” in Section 96 IBC should be read as a conjunctive clause. Meaning, interim moratorium commences against all debts- including his personal debt, and creditors are barred from initiating any legal proceedings.

  3. It was concluded that the interim moratorium against the personal guarantor commenced from 09-07-2021 as the application by SBI was filed on the same and the application by IFCI was filed after that date, i.e. on 29-09-2021.

Hence, the application made by Manoj Toshniwal, personal guarantor of corporate debtor was allowed by this Bench. As a result, the application by IFCI was stayed and the RP appointed on 17-02-2022 by the virtue of IFCI Order was discharged of his duties.

[IFCI Limited v. Manoj Toshniwal, 2022 SCC OnLine NCLT 172, decided on 07-06-2022]

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