UCO Bank's Appeal Succeeds as Tribunal Clarifies Jurisdictional Powers Under IBC
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has allowed UCO Bank to proceed with insolvency proceedings against personal guarantors without the necessity of initiating Corporate Insolvency Resolution Process (CIRP) against the principal borrower, M/s Haridra Vintrade Private Limited. This decision, delivered by Justice Mohammad Faiz Alam Khan and Naresh Salecha, overturns the previous orders by the National Company Law Tribunal (NCLT) which had rejected UCO Bank's applications.
UCO Bank, represented by advocates Mr. Sarfaraz Khan, Ms. Mirza Amir Baig, and Mr. A. Wahid Mashaal, had filed appeals against NCLT orders that dismissed their applications under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC). The applications aimed to initiate insolvency proceedings against personal guarantors Subrata Das and Rahul Gupta, both directors of the defaulting company.
The NCLAT's decision is rooted in the interpretation that the liability of personal guarantors is co-extensive with that of the corporate debtor. The tribunal emphasized that under the IBC, financial creditors possess the flexibility to initiate proceedings against personal guarantors independently, citing concurrent jurisdictional powers of the NCLT and Debt Recovery Tribunal (DRT).
The tribunal's judgment draws on several precedents, including the Supreme Court's rulings in cases like "Laxmi Pat Surana v. Union of India" and "State Bank of India v. V. Ramakrishnan," which clarify that the liability of a guarantor is independent and not contingent upon proceedings against the corporate debtor. The NCLAT also referenced its own prior decisions, notably in "State Bank of India v. Mahendra Kumar Jajodia," to support its stance.
The ruling highlights the commercial wisdom afforded to creditors under the IBC, allowing them to pursue legal recourse based on the financial realities and prospects of recovery. This judgment reaffirms that creditors can directly target personal guarantors, preserving the efficacy of guarantees as a financial instrument.
The matter has been remanded back to the NCLT, with instructions to proceed in accordance with the clarified legal framework. The parties are scheduled to appear before the adjudicating authority on July 27, 2026, to continue the proceedings.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 Section 95 application against Personal Guarantors can be initiated independently without prior Corporate Insolvency Resolution Process (CIRP) or liquidation proceedings against the Corporate Debtor.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 60, 95; Indian Contract Act, 1872 Section 128
UCO Bank v. Subrata Das, (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc id # 2941913
