Insolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016, Section 7

Application under Section 7 is not a recovery proceeding or proceeding for determining of a claim on merit that can be decided only by a court of competent jurisdiction -  An application under Sections 7, 9 or 10 of the Code not being a money claim or suit and not being an adversarial litigation, NCLT is not required to write a detailed decision as to which are the evidence relied upon for its satisfaction - NCLT is only required to be satisfied that there is a debt and default had occurred - NCLT having held that a prima facie case was made out by the applicant about existence of debt and default.

V.R. Hemantraj v. Stanbic Bank Ghana Ltd., Company Appeal (AT) (Insolvency) No. 213 of 2018, 

DOD 29-08-2018.


  • Insolvency and Bankruptcy Code, 2016, Section 101  - Moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor. (2018)2 SCeJ 1323
  • Insolvency and Bankruptcy Code, 2016, Section 14 - Clarificatory amendment  - Report of the Committee makes it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an overbroad interpretation of Section 14 - That such clarificatory amendment is retrospective in nature. (2018)2 SCeJ 1323
  • Insolvency and Bankruptcy Code, 2016, Section 14, 96, 101  -  We are also of the opinion that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to a personal guarantor - When an application is filed under Part III, an interim-moratorium or a moratorium is applicable in respect of any debt due - First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III - Secondly, the protection of the moratorium under these Sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and not the debtor are stayed -  The difference in language between Sections 14 and 101 is for a reason -  Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies - The object of the Code is not to allow such guarantors to escape from an independent and coextensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them - However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them - And such guarantors may be complete strangers to the debtor – often it could be a personal friend -  It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor - We may hasten to add that it is open to us to mark the difference in language between Sections 14 and 96 and 101, even though Sections 96 and 101 have not yet been brought into force. (2018)2 SCeJ 1323
  • Insolvency and Bankruptcy Code, 2016, Section 2(e), which was brought into force on 23.11.2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpose contained in Section 60(2) and (3), as stated hereinabove. (2018)2 SCeJ 1323
  • Insolvency and Bankruptcy Code, 2016, Section 31  - This Section only states that once a Resolution Plan, as approved by the Committee of Creditors, takes effect, it shall be binding on the corporate debtor as well as the guarantor - This is for the reason that otherwise, under Section 133 of the Indian Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety’s consent, would relieve the guarantor from payment -  Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the Resolution Plan, which has been approved, may well include provisions as to payments to be made by such guarantor -  This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor.  (2018)2 SCeJ 1323
  • Insolvency and Bankruptcy Code, 2016, Section 60(1), 243, Part III - SARFAESI  - So far as personal guarantors are concerned, we have seen that Part III has not been brought into force, and neither has Section 243, which repeals the Presidency-Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 – The net result of this is that so far as individual personal guarantors are concerned, they will continue to be proceeded against under the aforesaid two Insolvency Acts and not under the Code - “bankruptcy” has reference only to the two Insolvency Acts referred to above -  Thus, SARFAESI proceedings against the guarantor can continue under the SARFAESI Act. (2018)2 SCeJ 1323
  • Insolvency and Bankruptcy Code, 2016, Section 60(2), (3) – The moment there is a proceeding against the corporate debtor pending under the 2016 Code, any bankruptcy proceeding against the individual personal guarantor will, if already initiated before the proceeding against the corporate debtor, be transferred to the National Company Law Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor, be filed only in the National Company Law Tribunal -  However, the Tribunal is to decide such proceedings only in accordance with the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be - Sub-section (4), which states that the Tribunal shall be vested with all the powers of the Debt Recovery Tribunal, as contemplated under Part III of this Code, for the purposes of sub-section (2), would not take effect, as the Debt Recovery Tribunal has not yet been empowered to hear bankruptcy proceedings against individuals under Section 179 of the Code, as the said Section has not yet been brought into force. (2018)2 SCeJ 1323
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