In a recent ruling, the National Company Law Tribunal (NCLT) bench in New Delhi, headed by Justice Ramalingam Sudhakar and Sh. Hemant Kumar Sarangi, delivered a significant decision in the case of Alchemist Asset Reconstruction Company v. Mr. Deepak Puri. The case dealt with an application filed by a Financial Creditor under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016, against the Personal Guarantor of a Corporate Debtor.
The essence of the matter revolved around the status of legal proceedings under Section 95 of the IBC against a Personal Guarantor who had passed away. The NCLT, after careful consideration, ruled that such proceedings abate upon the death of the Personal Guarantor.
The IBC, enacted to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner, provides for the initiation of insolvency proceedings against a Corporate Debtor or its Personal Guarantor in certain circumstances.
Section 95 of the IBC specifically deals with the proceedings against a Personal Guarantor and provides a mechanism for initiating insolvency proceedings against them. However, the section is silent on the consequences of the death of the Personal Guarantor during such proceedings.
In the case at hand, the Financial Creditor had filed an application against Mr. Deepak Puri, the Personal Guarantor, seeking to recover the outstanding debt from him. However, Mr. Puri passed away during the pendency of the proceedings. The question before the NCLT was whether the proceedings against Mr. Puri could continue after his death.
The NCLT, in its ruling, referred to various legal precedents and analyzed the provisions of the IBC. It noted that the IBC is a special legislation that deals with insolvency and bankruptcy matters and is intended to provide a speedy resolution to such cases. In light of this, the NCLT held that allowing the proceedings to continue against a deceased Personal Guarantor would defeat the purpose of the IBC.
The tribunal also observed that the IBC does not contain any provision for the legal representatives of a deceased Personal Guarantor to be substituted in the proceedings. Additionally, it noted that the Personal Guarantor is liable only to the extent of the assets of the Corporate Debtor for which they have given personal guarantees.
Based on these considerations, the NCLT concluded that the legal proceedings under Section 95 of the IBC against Mr. Deepak Puri abate upon his death. The tribunal emphasized the need for clarity in the law regarding the consequences of the death of a Personal Guarantor during insolvency proceedings and called for legislative intervention to address this lacuna.
In conclusion, the NCLT’s ruling in the Alchemist Asset Reconstruction Company v. Mr. Deepak Puri case clarifies the legal position regarding the abatement of insolvency proceedings against a Personal Guarantor upon their death. The decision underscores the need for legislative clarity on this issue and highlights the complexities involved in insolvency proceedings under the IBC.
