Admission of Section 95 IBC Application Against Personal Guarantors Upheld: NCLAT Clarifies RP’s Role on ECLGS Objections
- REEDLAW
- Aug 4
- 3 min read
Updated: Aug 12
REEDLAW Legal News Network reports that the NCLAT, New Delhi, has upheld the admission of a Section 95 IBC application against personal guarantors after the invocation of the guarantee and due process. The Tribunal clarified that objections related to ECLGS or other facility-specific claims must be handled by the Resolution Professional during the preparation of the repayment plan.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a batch of five Company Appeals, held that once a personal guarantee is invoked and a Section 95 IBC application is filed within the period of limitation and due procedure is followed, the Adjudicating Authority’s admission of the application is legally valid. The Tribunal further clarified that objections relating to specific credit facilities like ECLGS must be examined by the Resolution Professional at the stage of repayment plan formulation. Finding no legal infirmity, the NCLAT affirmed the initiation of insolvency proceedings against the personal guarantors.
The National Company Law Appellate Tribunal (NCLAT), while adjudicating appeals filed by the Personal Guarantors of SKS Textiles Pvt. Ltd., upheld the order dated 22.10.2024 passed by the NCLT, Mumbai Bench-I, whereby the application under Section 95 of the IBC filed by DBS Bank had been admitted. The Bank had alleged a default of approximately Rs. 28.79 crore, and the personal guarantee had been invoked on 18.05.2021. The Adjudicating Authority had found the application to be within the limitation period, having been filed after the issuance of a valid notice in Form B.
The Appellants contended that the default arising from a loan extended under the Emergency Credit Line Guarantee Scheme (ECLGS) dated 27.10.2020 should not be attributed to them, as they had not provided a personal guarantee for that facility. They argued that the ECLGS liability could not be enforced against their guarantees and expressed willingness to submit a repayment plan to the Resolution Professional, requesting independent consideration of their objections regarding the ECLGS loan.
The NCLAT examined the contentions and observed that, since the facility letter and relevant ECLGS documentation were not available on record, it could not form an opinion on whether the ECLGS facility was indeed covered by the personal guarantee. However, it permitted the Appellants to submit a repayment plan and directed the Resolution Professional to consider the Appellants’ objections, including the nature of the ECLGS facility, before finalising the plan for consideration by the Committee of Creditors (CoC). Finding no procedural or legal infirmity in the NCLT’s admission of the Section 95 application, the NCLAT dismissed the appeals while allowing two weeks’ time for the Appellants to submit their repayment proposal.
Mr. Varun Chugh, Mr. Jenil Shah, Mr. Atul Dong and Mr. Saurish Shetye, Advocates, represented the Appellants.
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