National Company Law Tribunal, New Delhi: In an application seeking substitution of the legal heirs in place of the deceased guarantor in an insolvency proceeding against the personal guarantor (respondent) of a Corporate Debtor, a division bench of Mahendra Khandelwal* (Judicial Member) and Rahul Bhatnagar (Technical Member), held that insolvency proceedings against a deceased Personal Guarantor do not continue against the legal heirs as the those obligations are personal under the IBC and dismissed the application seeking substitution of the legal heirs.
In the instant matter, the applicant filed a petition under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking the initiation of insolvency proceedings against the personal guarantor (respondent) of a Corporate Debtor. During the pendency of the case, the personal guarantor passed away. Consequently, the applicant filed an Interim Application, seeking substitution of the legal heirs in place of the deceased guarantor. The main issue before the NCLT was whether insolvency proceedings under Part III of the IBC abate upon the death of the personal guarantor or can the proceedings continue against their legal representatives.
The applicant relied on Sections 123(5) and 169 of the IBC, Section 17 of the Provincial Insolvency Act, 1920, and Molhar Singh v. Raghunath, 1972 SCC OnLine All 42 and argued that substitution of legal heirs in place of the deceased guarantor is permitted. The appplicant
The NCLT found the applicant’s reliance on Sections 123(5) and 169 of the IBC misplaced, as no bankruptcy order was passed in the current case. The NCLT stated that Molhar Singh (Supra) is not applicable in the present case, as the case is pertained to the Provincial Insolvency Act, not the IBC. The NCLT found no merit in the applicant’s arguments, as the IBC does not provide for the substitution of legal representatives in such cases.
The Court cited Alchemist Asset Reconstruction Co. v. Deepak Puri, 2021 SCC OnLine NCLT 22414, where the NCLT held that insolvency proceedings abate upon the death of the personal guarantor, and no proceedings can continue against a dead person; Bank of Baroda v. Divya Jalan, 2022 SCC OnLine NCLT 191, where it was held that the IBC does not provide for substitution of legal heirs in place of the deceased guarantor; Bank of Maharashtra v. Ashok Kumar Bansal,1 where the petition under Section 95 following the death of the personal guarantor was dismissed and Vinayak Purushottam Dube v. Jayashree Padamkar Bhat, 2024 SCC Online SC 212, where the Supreme Court held that the legal representatives cannot be held liable to discharge the personal obligations of a deceased guarantor under a contract. Citing the mentioned above precedents, the NCLT reaffirmed that upon the death of a personal guarantor, the insolvency proceedings abate.
The NCLT held that insolvency proceedings under Section 95 of the IBC cannot continue after the death of the personal guarantor as the obligation is personal and non-transferable. The NCLT dismissed the application, the closed the insolvency proceedings against the personal guarantor following their death
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[Apogee Enterprises (P) Ltd. v. Anil Nanda, 2024 SCC OnLine NCLT 3562, Decided on 03-09-2024]
*Judgment by Mahendra Khandelwal (Judicial Member)
Advocates who appeared in this case:
Ms. Anandana H. Wadhwa, Mr. Keshav Gulati and Mr. Shashwat Awasthi, Counsel for the Petitioner/Appplicant
Mr. Arjun Syal, Counsel for the Respondent/Personal Guarantor
1. CP (IB) No. 300/ND/2022, decided on 21-11-2022.