The NCLT, Kochi bench on February 25, 2022 in the matter of E. Iqbal v. State Bank of India held that when an application for initiation of Corporate Insolvency Resolution Process (CIRP) is pending before the NCLT, initiation of CIRP against the Corporate Debtor is not a prerequisite.

In the instant case, an application for CIRP was filed by the Union Bank of India against M/s. Green Gateway Leisure Limited (“Corporate Debtor”) which was admitted by the NCLT and moratorium was declared. This order of the NCLT was challenged before the NCLAT, seeking to set aside the order of the Adjudicating Authority approving commencement of CIRP against the Corporate Debtor. The NCLAT set aside this order, subsequent to which, the CIRP ended.

In the meantime, the SBI, (one of the financial creditors) of the Corporate Debtor issued a demand notice invoking Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to the Corporate Debtor) Rules 2019 and invoked the personal guarantee of the personal guarantor. The NCLT allowed these applications and appointed a Resolution Professional. An application was filed by the personal guarantor (“Applicant”) of the Corporate Debtor seeking recall of order admitting application against the Applicant/ personal guarantor.

NCLT bench observed, SBI have filed application under Section 7 of IBC before this tribunal against the Corporate Debtor and same is now pending before this tribunal.

The NCLT dismissed the application filed by the Applicant/ personal guarantor and held that since an application for initiation of CIRP against the against the Corporate Debtor was filed and pending before the Adjudicating Authority, in such a case, initiation of CIRP against the Corporate Debtor is not a prerequisite for maintainability of an application u/s 95, IBC filed for initiating IRP against the personal guarantor of the Corporate Debtor.