Section 60(1) IBC does not confer exclusive jurisdiction on NCLT for insolvency proceedings: Madras High Court

The Madras High Court has held that Section 60(1) of the Insolvency and Bankruptcy Code (IBC) does not confer exclusive jurisdiction on the National Company Law Tribunal (NCLT) over insolvency and bankruptcy proceedings for personal guarantors to corporate debtors..A Bench of Acting Chief Justice T Raja and Justice D Bharatha Chakravarthy held that if the insolvency resolution process (IRP) of a corporate debtor was pending before the NCLT and if the IRP of the personal guarantor was also pending before any court or tribunal, the same must be transferred to the NCLT.However, if the IRP of the personal guarantor was already completed and bankruptcy proceedings had been initiated and were pending before Debts Recovery Tribunals (DRTs), no useful purpose would be served by transferring the proceedings to the NCLT, the High Court said..The Court further explained that NCLT is the adjudicating authority for Part II of the Code, which deals with Insolvency Resolution and Liquidation for Corporate Persons, and the DRT is the authority for Part III of the Code, which deals with Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms."Therefore, in this context, Section 60(1) of The IBC, which is part and parcel of Part-II, has to be read as indicating only the appropriate NCLT having territorial jurisdiction and would not mean the exclusive jurisdiction for NCLT," the order said..The Bench was hearing a petition filed by one Rohit Nath, a personal guarantor to a company called Electrona Energy that had defaulted on a bank loan. Nath had sought that the bankruptcy proceedings against him pending before the DRT be transferred to the NCLT, considering that the company, (the corporate debtor in the case), had opted for IRP before the NCLT.Meanwhile, the respondent bank filed an application under Section 7 of the IBC before the NCLT to commence the corporate insolvency resolution process against the company..Counsel for the respondent bank, however, argued that insolvency resolution and bankruptcy proceedings were "separate compartments" and that Section 3(1)(a)(ii) of the Insolvency and Bankruptcy Rules, 2019, clearly mentioned that the DRT was an adjudicating authority. He further said that the plea for transfer of proceedings was merely a delay tactic on the petitioner's part..The High Court agreed with the respondent bank after considering two major points. First, whether the NCLT was the exclusive adjudicating authority? And second, whether in view of the filing of the IRP against the corporate debtor, the pending proceedings before the DRT were to be transferred to the NCLT in view of Section 60(3) of the IBC?The Court answered the first question on NCLT's sole jurisdiction in the negative. "Thus, we answer this point in the negative and hold that the DRT shall have jurisdiction to entertain the applications against personal guarantors and Section 60(1) of The IBC cannot be read to confer exclusive jurisdiction only on the NCLT."On Section 60(3), the High Court said that if IRP of the corporate debtor was pending before the NCLT and the IRP of the personal guarantor was also pending before any court or tribunal, then the same was to be transferred. "But, in this case, the insolvency resolution process of the personal guarantor...was already disposed of by the DRT passing the final order rejecting the repayment plan under Section 114 of The IBC on 24.11.2021. Thereafter, much water has flown as the 'bankruptcy proceedings' has further been initiated and the same is taken on file as I.B.C.No.1 of 2022. Now, the further process which remain so is to distribute the assets of the bankrupt by the Bankruptcy Trustee in the manner as enunciated in The IBC and nothing else," the order said..The Court accordingly dismissed the civil revision petition filed by the petitioner and also imposed a cost of ₹1 lakh on him. The Court said that the respondent bank will be entitled to this amount of one lakh..Senior Advocate V Prakash appeared for the petitioner. Advocate P Vinod Kumar appeared for the respondent bank..[Read order].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.