Matter: Shapoorji Pallonji Finance Pvt. Ltd. v. Rekha Singh
Order date: 22 February 2022
Summary:
Shapoorji Pallonji Finance Pvt. Ltd. (Shapoorji) filed a petition seeking initiation of insolvency process against Mr. Siddharth Singh and Mr. Ajay Singh, being the personal guarantor (Guarantors). The Guarantors had provided personal guarantees for the repayment of the term loan advanced by Shapoorji to Jumbo Finvest (India) Ltd. (Jumbo), a Non-Banking Financial Company (NBFC). Applications were filed by the Guarantors seeking dismissal of the petition filed against them.
One of the issues before the NCLT was whether insolvency process can be initiated against the personal guarantors of NBFCs before initiation of CIRP against such NBFC.
The NCLT noted that as per the present framework of the Code, only NBFCs with asset size of INR Five Billion or more, as per last audited balance sheet, can be taken up for CIRP under the Code. In the present case, Jumbo had assets below the INR Five Billion threshold and therefore it did not fall within the purview of the Code and is not a “Corporate Debtor” under the Code. Since NCLT only has jurisdiction to initiate insolvency process of personal guarantors of “Corporate Debtors”, and as in the present case Jumbo was not a ‘Corporate Debtor’, it was held that insolvency process cannot be initiated against the Guarantors by NCLT under the provisions of the Code.
