# STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR

- **Citation:** [2018] 10 S.C.R. 974
- **Court:** Supreme Court of India
- **Decided:** 2018-08-14
- **Case number:** Civil Appeal No. 3595 of 2018
- **Bench:** R. F. Nariman, Indu Malhotra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-bank-of-india-v-v-ramakrishnan-anr-32213
- **Pages:** 31

## Headnote

Insolvency and Bankruptcy Code, 2016: s.14 - Applicability
of, in case of personal guarantor - Whether s.14 of the Code which
provides for a moratorium for the limited period mentioned in the
Code, on admission of an insolvency petition, would apply to a
personal guarantor of a corporate debtor - Held: s.14 is applicable
only in case of corporate debtor - Said section does not mention
about the personal guarantor - So far as personal guarantors are
concerned, Part III has not been brought into force, and neither
has s.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
shall continue to be proceeded against under the aforesaid two
Insolvency Acts and not under the Code - The scheme of s.60(2)
and (3) of the Code is clear - 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 -
Presidency-Towns Insolvency Act, 1909 - Provincial Insolvency Act,
1920 - Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 - Banks/Banking.
Allowing the appeals, the Court
HELD: 1.1 Under Part II of the Code, which deals with
"Insolvency Resolution and Liquidation for Corporate Persons",
a financial creditor or a corporate debtor may make an application
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to initiate this process. Once initiated, the Adjudicating Authority,
after admission of such an application, shall by order, declare a
moratorium for the purposes referred to in Section 14. [Para 16]
[989-E-F]
M/s. Sicom Investments and Finance Ltd. v. Rajesh
Kumar Drolia and Anr. (2017) SCC Online Bom 9725;
Sanjeev Shriya v. State Bank of India and Ors. (2018)
2 All LJ 769 (decided on 06.09.2017) - referred to
1.2 Section 14 refers to four matters that may be prohibited
once the moratorium comes into effect. In each of the matters
referred to, be it institution or continuation of proceedings, the
transferring, encumbering or alienating of assets, action to
recover security interest, or recovery of property by an owner
which is in possession of the corporate debtor, what is
conspicuous by its absence is any mention of the personal
guarantor. Indeed, the corporate debtor and the corporate debtor
alone is referred to in the said Section. A plain reading of the said
Section, therefore, leads to the conclusion that the moratorium
referred to in Section 14 does not apply to personal guarantors
of a corporate debtor. [Para 17] [989-F-H]
2.1 Section 60 of the Code, in sub-section (1) thereof, refers
to insolvency resolution and liquidation for both corporate debtors
and personal guarantors, the Adjudicating Authority for which
shall be the National Company Law Tribunal, having territorial
jurisdiction over the place where the registered office of the
corporate person is located. This sub-section is only important
in that it locates the Tribunal which has territorial jurisdiction in
insolvency resolution processes against corporate debtors. So
far as personal guarantors are concerned, 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. Indeed, by a Press Re

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STATE BANK OF INDIA
v.
 V. RAMAKRISHNAN & ANR.
(Civil Appeal No. 3595 of 2018)
AUGUST 14, 2018
[R. F. NARIMAN AND INDU MALHOTRA, JJ.]
Insolvency and Bankruptcy Code, 2016: s.14 - Applicability
of, in case of personal guarantor - Whether s.14 of the Code which
provides for a moratorium for the limited period mentioned in the
Code, on admission of an insolvency petition, would apply to a
personal guarantor of a corporate debtor - Held: s.14 is applicable
only in case of corporate debtor - Said section does not mention
about the personal guarantor - So far as personal guarantors are
concerned, Part III has not been brought into force, and neither
has s.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
shall continue to be proceeded against under the aforesaid two
Insolvency Acts and not under the Code - The scheme of s.60(2)
and (3) of the Code is clear - 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 -
Presidency-Towns Insolvency Act, 1909 - Provincial Insolvency Act,
1920 - Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 - Banks/Banking.
Allowing the appeals, the Court
HELD: 1.1 Under Part II of the Code, which deals with
"Insolvency Resolution and Liquidation for Corporate Persons",
a financial creditor or a corporate debtor may make an application
974
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to initiate this process. Once initiated, the Adjudicating Authority,
after admission of such an application, shall by order, declare a
moratorium for the purposes referred to in Section 14. [Para 16]
[989-E-F]
M/s. Sicom Investments and Finance Ltd. v. Rajesh
Kumar Drolia and Anr. (2017) SCC Online Bom 9725;
Sanjeev Shriya v. State Bank of India and Ors. (2018)
2 All LJ 769 (decided on 06.09.2017) - referred to
1.2 Section 14 refers to four matters that may be prohibited
once the moratorium comes into effect. In each of the matters
referred to, be it institution or continuation of proceedings, the
transferring, encumbering or alienating of assets, action to
recover security interest, or recovery of property by an owner
which is in possession of the corporate debtor, what is
conspicuous by its absence is any mention of the personal
guarantor. Indeed, the corporate debtor and the corporate debtor
alone is referred to in the said Section. A plain reading of the said
Section, therefore, leads to the conclusion that the moratorium
referred to in Section 14 does not apply to personal guarantors
of a corporate debtor. [Para 17] [989-F-H]
2.1 Section 60 of the Code, in sub-section (1) thereof, refers
to insolvency resolution and liquidation for both corporate debtors
and personal guarantors, the Adjudicating Authority for which
shall be the National Company Law Tribunal, having territorial
jurisdiction over the place where the registered office of the
corporate person is located. This sub-section is only important
in that it locates the Tribunal which has territorial jurisdiction in
insolvency resolution processes against corporate debtors. So
far as personal guarantors are concerned, 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. Indeed, by a Press Release dated
28.08.2017, the Government of India, through the Ministry of
Finance, cautioned that Section 243 of the Code, which provides
for the repeal of said enactments, has not been notified till date,
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
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and further, that the provisions relating to insolvency resolution
and bankruptcy for individuals and partnerships as contained in
Part III of the Code are yet to be notified. Hence, it was advised
that stakeholders who intend to pursue their insolvency cases
may approach the appropriate authority/court under the existing
enactments, instead of approaching the Debt Recovery Tribunals.
It is for this reason that sub-section (2) of Section 60 speaks of
an application relating to the "bankruptcy" of a personal guarantor
of a corporate debtor and states that any such bankruptcy
proceedings shall be filed only before the National Company Law
Tribunal. [Paras 19, 20] [990-B-G]
2.2 The scheme of Section 60(2) and (3) is clear - 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. It is clear that subsection (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. Also, Section 249, dealing with the
consequential amendment of the Recovery of Debts Act to
empower Debt Recovery Tribunals to try such proceedings, has
also not been brought into force. [Para 21] [991-B-E]
3. 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 interimmoratorium 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
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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 co-extensive 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. It is open 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. [Para 23] [992-C-G]
State of Kerala and Ors. v. Mar Appraem Kuri Co. Ltd.
and Anr. (2012) 7 SCC 106:[2012] 4 SCR 448; Madras
Petrochem Ltd. and Anr. v. Board for Industrial and
Financial Reconstruction and Ors. (2016) 4 SCC
1: [2016] 11 SCR 419; CIT v. Shelly Products (2003) 5
SCC 461 : [2003] 1 Suppl. SCR 79; CIT v. Vatika
Township (2015) 1 SCC 1 : [2014] 12 SCR 1037 -
relied on.
Case Law Reference
[2012] 4 SCR 448
relied on
Para 23
[2016] 11 SCR 419
relied on
Para 25
[2003] 1 Suppl. SCR 79
relied on
Para 29
[2014] 12 SCR 1037
relied on
Para 29
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3595
of 2018
From the Judgment and Order dated 28.02.2018 of the National
Company Law Appellate Tribunal at New Delhi in Company Appeal
(AT) (Insolvency) No. 213 of 2017
WITH
C.A. No. 4553 of 2018
K. V. Vishwanathan, (A.C.), C. U. Singh, Sr. Advs., Abhishek
Kaushik, Ms. Vrinda Bhandari, Dhananjay B. Ray, Ravi R. Raghunath,
Sanjay Kapur, Ms. Megha Karnwwal, Ms. Sheena Taqui, Ms. Shubhra
Kapur, P. S. Sudheer, Ms. Anne Mathew, Bharat Sood, Ms. Shruti Jose,
Ayush Anand, Shubhendu Anand, Arvind Kumar Gupta, Ms. Henna
George, G. Balaji, Dilpreet Singh, Rajesh Bohra, Dhaval S. Deshpande,
Amir Arsiwala, Arvind Gupta, Rahul Chitnish, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. The present appeals revolve around
whether Section 14 of the Insolvency and Bankruptcy Code, 2016, which
provides for a moratorium for the limited period mentioned in the Code,
on admission of an insolvency petition, would apply to a personal guarantor
of a corporate debtor.
2. The factual backdrop of the present appeals is that the
Respondent No.1 is the Managing Director of the corporate debtor,
namely, the Respondent No.2 Company, and also the personal guarantor
in respect of credit facilities that had been availed from the Appellant.
The Guarantee Agreement entered into between the Appellant and the
Respondent No.1 is dated 22.02.2014.
3. As the Respondent No.2 Company did not pay its debts in time,
the account of Respondent No.2 was classified as a non-performing
asset on 26.07.2015. Consequent thereto, the Appellant issued a notice
dated 04.08.2015 under Section 13(2) of the SARFAESI Act demanding
an outstanding amount of Rs.61,13,28,785.48 from the Respondents within
the statutory period of 60 days. As no payment was forthcoming, a
possession notice under Section 13(4) of the SARFAESI Act was issued
on 18.11.2016.
4.
As matters stood thus, an application was filed by Respondent
No.2, the corporate debtor, under Section 10 of the Code on 20.05.2017
to initiate the corporate insolvency resolution process against itself. On
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19.06.2017, this petition filed under Section 10 was admitted, followed
by the moratorium that is imposed statutorily by Section 14 of the Code.
While the said proceedings were pending, an interim application was
filed by Respondent No.1 as personal guarantor to the corporate debtor,
in which Respondent No.1 took up the plea that Section 14 of the Code
would apply to the personal guarantor as well, as a result of which
proceedings against the personal guarantor and his property would have
to be stayed. The National Company Law Tribunal, by its order dated
18.09.2017, held that since under Section 31 of the Code, a Resolution
Plan made thereunder would bind the personal guarantor as well, and
since, after the creditor is proceeded against, the guarantor stands in the
shoes of the creditor, Section 14 would apply in favour of the personal
guarantor as well. The interim application filed by Respondent No.1
was thus allowed, and the Appellant was restrained from moving against
Respondent No.1.
5.
An appeal filed to the National Company Law Appellate
Tribunal resulted in the appeal being dismissed. By the impugned judgment
dated 28.02.2018, the Appellate Tribunal relied upon Section 60(2) and
(3) of the Code as well as Section 31 of the Code to find that the
moratorium imposed under Section 14 would apply also to the personal
guarantor. The reasoning was that since the personal guarantor can also
be proceeded against, and forms part of a Resolution Plan which is
binding on him, he is very much part of the insolvency process against
the corporate debtor, and that, therefore, the moratorium imposed under
Section 14 should apply to the personal guarantor as well.
6.
Shri Sanjay Kapur, learned counsel appearing on behalf of the
Appellant in C.A. No. 3595 of 2018, and Shri C.U. Singh, learned Senior
Advocate appearing on behalf of Appellant in C.A. No. 4553 of 2018,
both argued that the corporate debtor and personal guarantor are separate
entities and that a corporate debtor undergoing insolvency proceedings
under the Code would not mean that a personal guarantor is also
undergoing the same process. As the guarantor's liability is distinct and
separate from that of the corporate debtor, a suit can be maintained
against the surety, though the principal debtor has not been sued. For
this purpose, they relied upon Section 128 of the Indian Contract Act,
1872. They also relied heavily upon the reasoning contained in a judgment
by a Single Judge of the Bombay High Court in M/s. Sicom
Investments and Finance Ltd. v. Rajesh Kumar Drolia and Anr.1
1 (2017) SCC Online Bom 9725 (decided on 28.11.2017).
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
[R. F. NARIMAN, J.]
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They then referred to Part III of the Code, and in particular, to Sections
96 and 101. Although Part III of the Code has not been brought into
force, it is clear that if an insolvency resolution process is to be carried
out against a personal guarantor, it can be done only under Part III,
which contains a separate moratorium provision, namely, Sections 96
and 101, both of which would attach only if a separate insolvency process
were carried out as against the personal guarantor. Shri Singh, in particular,
relied heavily upon the difference in language between Section 14 and
Section 101. According to the learned senior counsel, Section 14, in all
its sub-sections, speaks only of the corporate debtor. When contrasted
with Section 101, it becomes clear that Section 14 cannot possibly attach
to a personal guarantor as well, as Section 101 does not speak of a
'debtor' but speaks 'in relation to the debt' and is not only wider than
Section 14, but would attach only if Part III proceedings were to be
instituted against the personal guarantor. They also relied heavily upon
the Amendment Ordinance dated 06.06.2018, by which Section 14(3) of
the Code was substituted, including a surety in a contract of guarantee
to a corporate debtor. They relied upon the Insolvency Law Committee
proceedings, which led to the aforesaid amendment, stating that it had
been recommended to clarify, by way of an explanation, that all assets
of such guarantors to the corporate debtor shall be outside the scope of
the moratorium imposed under the Code. The very impugned judgment
in the present proceedings was referred to by the Insolvency Law
Committee stating that such a broad interpretation of Section 14 would
curtail significant rights of the creditor. They relied upon judgments which
made it clear that clarificatory statutes, like this amendment, would have
retrospective operation and that, therefore, in any case, the impugned
judgment would have to be set aside.
7.
Learned counsel appearing on behalf of the Respondents first
took shelter under Section 60(2) of the Code, as according to the learned
counsel, the said Section precludes the bank from proceeding against
the personal guarantor under SARFAESI or any other Act outside the
Code. He relied upon the reasoning of the Tribunal and took shelter
under Section 31, as did the Tribunal. He also relied upon a judgment of
the Allahabad High Court in Sanjeev Shriya v. State Bank of India
and Ors.,2 which stated that as a proceeding relatable to the corporate
debtor is pending adjudication in two forums, it is not permissible to
2 (2018) 2 All LJ 769 (decided on 06.09.2017).
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proceed against the personal guarantor. A financial creditor cannot
operate in a manner that imperils the value of the property of the personal
debtor. He also relied strongly upon the Insolvency and Bankruptcy Code
(Amendment) Act, 2018 which came into effect on 23.11.2017, by which,
clause (e) of Section 2 was substituted so as to include within the sweep
of the Code, personal guarantors to corporate debtors. He then relied
upon the Statement of Objects of the Amendment Act, 2018, which
was, interalia, to extend the provisions of the Code to personal guarantors
of corporate debtors, to further strengthen the corporate insolvency
resolution process. He then relied upon certain statutory forms which
are contained in the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 and in particular, to Annexure VI(e)
to Form 6. Regulation 36(2) of the Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons) Regulations,
2016 also provides, as did Annexure VI(e), that information as to personal
guarantees have to be given in relation to the debts of the corporate
debtor when an insolvency process is initiated against the corporate debtor.
All this would show that since the personal guarantor is very much part
of the overall process, the moratorium contained in Section 14 of the
Code should apply to the personal guarantor as well.
8.
We appointed Shri K.V. Viswanathan, learned Senior
Advocate, to assist us as Amicus Curiae in this matter. We thank him
for the valuable assistance that he has rendered. He has pointed out that
the whole idea of the Insolvency Code was that the history of debt
recovery had shown that the earlier statutes were loaded heavily in favour
of corporate debtors and that, as a result, huge outstanding debts to
banks and financial institutions had not been repaid. In particular, he
pointed out Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985, and stated that as a result of the said Section
applying to guarantors as well, creditors could not proceed against
guarantors as well after the company had been declared sick under the
said Act, without permission from the Board for Industrial and Financial
Reconstruction. Now that the said Act has been repealed, and the fact
that several later enactments, including the Companies Act, 2013 had
omitted a provision akin to Section 22, would show that the enactment of
Section 14 of the Code was deliberate, and that the idea was that there
should be no stay of proceedings against the guarantor while the corporate
debtor is undergoing an insolvency proceeding. For this, he cited various
judgments. He also relied upon the Amendment Act, 2018 and stated
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
[R. F. NARIMAN, J.]
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that since the Act was to get over the appellate judgment in particular,
and since it was clarificatory, the position in law would be that it would
be retrospective, and would thus govern the case at hand.
9.
Before dealing with the arguments of learned counsel on both
sides, it is important at this stage to set out some of the provisions of the
Code. One difficulty that we faced when hearing the matter was that
different provisions of the Code were brought into force on different
dates, as Section 1(3) indicates. Also, certain important provisions of the
Code have not yet been brought into force. This we will advert to a little
later in our judgment.
10. Section 2(e) of the Code, as originally enacted, reads as under:
"2. Application.- The provisions of this Code shall apply toxxx xxx xxx
 (e) partnership firms and individuals;
xxx xxx xxx"
By the Amendment Act, 2018, this Section was substituted as follows:
"2. Application.- The provisions of this Code shall apply toxxx xxx xxx
 (e) personal guarantors to corporate debtors;
xxx xxx xxx"
Though the original Section 2(e) did not come into force at all, the
substituted Section 2(e) has come into force w.e.f. 23.11.2017.
11. Section 3(7), (8) and (11) of the Code read as under:
"3. Definitions.- In this Code, unless the context otherwise
requires,-
(7) "corporate person" means a company as defined in clause
(20) of Section 2 of the Companies Act, 2013 (18 of 2013), a
limited liability partnership, as defined in clause (n) of sub-section
(1) of Section 2 of the Limited Liability Partnership Act, 2008 (6
of 2009), or any other person incorporated with limited liability
under any law for the time being in force but shall not include
any financial service provider;
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(8) "corporate debtor" means a corporate person who owes a
debt to any person;"
xxx xxx xxx
"(11) "debt" means a liability or obligation in respect of a claim
which is due from any person and includes a financial debt and
operational debt;"
12. Section 5(8)(i) of the Code reads as follows:
"5. Definitions.- In this Part, unless the context otherwise
requires,-
xxx xxx xxx
(8) "financial debt" means a debt along with interest, if any, which
is disbursed against the consideration for the time value of money
and includesxxx xxx xxx
(i) the amount of any liability in respect of any of the guarantee
or indemnity for any of the items referred to in sub-clauses (a)
to (h) of this clause;
xxx xxx xxx"
13. Section 5(22) of the Code read as follows:
"5. Definitions.- In this Part, unless the context otherwise
requires,-
xxx xxx xxx
(22) "personal guarantor" means an individual who is the surety
in a contract of guarantee to a corporate debtor;"
14. Sections 14, 31, 60, 95, 101, 238, 243, and 249 of the Code
read as under:
"14. Moratorium.- (1) Subject to provisions of sub-sections
(2) and (3), on the insolvency commencement date, the
Adjudicating Authority shall by order declare moratorium for
prohibiting all of the following, namely-
(a) the institution of suits or continuation of pending suits or
proceedings against the corporate debtor including execution
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
[R. F. NARIMAN, J.]
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of any judgment, decree or order in any court of law, tribunal,
arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing of by the
corporate debtor any of its assets or any legal right or beneficial
interest therein;
(c) any action to foreclose, recover or enforce any security
interest created by the corporate debtor in respect of its property
including any action under the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002 (54 of 2002);
(d) the recovery of any property by an owner or lessor where
such property is occupied by or in the possession of the
corporate debtor.
(2) The supply of essential goods or services to the corporate
debtor as may be specified shall not be terminated or suspended
or interrupted during moratorium period.
(3) The provisions of sub-section (1) shall not apply to such
transactions as may be notified by the Central Government in
consultation with any financial sector regulator.
(4) The order of moratorium shall have effect from the date of
such order till the completion of the corporate insolvency
resolution process:
Provided that where at any time during the corporate insolvency
resolution process period, if the Adjudicating Authority approves
the resolution plan under sub-section (1) of Section 31 or passes
an order for liquidation of corporate debtor under Section 33, the
moratorium shall cease to have effect from the date of such
approval or liquidation order, as the case may be."
xxx xxx xxx
"31. Approval of resolution plan.- (1) If the Adjudicating
Authority is satisfied that the resolution plan as approved by the
committee of creditors under sub-section (4) of section 30 meets
the requirements as referred to in sub-section (2) of Section 30,
it shall by order approve the resolution plan which shall be binding
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on the corporate debtor and its employees, members, creditors,
guarantors and other stakeholders involved in the resolution plan.
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not confirm to the requirements referred
to in sub-section (1), it may, by an order, reject the resolution
plan.
(3) After the order of approval under sub-section (1),-
(a) the moratorium order passed by the Adjudicating
Authority under Section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records
relating to the conduct of the corporate insolvency resolution
process and the resolution plan to the Board to be recorded
on its database."
xxx xxx xxx
"60. Adjudicating Authority for corporate persons.- (1)
The Adjudicating Authority, in relation to insolvency resolution
and liquidation for corporate persons including corporate debtors
and personal guarantors thereof shall be the National Company
Law Tribunal having territorial jurisdiction over the place where
the registered office of the corporate person is located.
(2) Without prejudice to sub-section (1) and notwithstanding
anything to the contrary contained in this Code, where a corporate
insolvency resolution process or liquidation proceeding of a
corporate debtor is pending before a National Company Law
Tribunal, an application relating to the insolvency resolution or
bankruptcy of a personal guarantor of such corporate debtor
shall be filed before such National Company Law Tribunal.
(3) An insolvency resolution process or bankruptcy proceeding
of a personal guarantor of the corporate debtor pending in any
court or tribunal shall stand transferred to the Adjudicating
Authority dealing with insolvency resolution process or liquidation
proceeding of such corporate debtor.
(4) The National Company Law Tribunal shall be vested with all
the powers of the Debts Recovery Tribunal as contemplated
under Part III of this Code for the purpose of sub-section (2).
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
[R. F. NARIMAN, J.]
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(5) Notwithstanding anything to the contrary contained in any
other law for the time being in force, the National Company
Law Tribunal shall have jurisdiction to entertain or dispose of-
(a) any application or proceeding by or against the corporate
debtor or corporate person;
(b) any claim made by or against the corporate debtor or
corporate person, including claims by or against any of its
subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts,
arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor or corporate
person under this Code.
(6) Notwithstanding anything contained in the Limitation Act,
1963 (36 of 1963) or in any other law for the time being in force,
in computing the period of limitation specified for any suit or
application by or against a corporate debtor for which an order
of moratorium has been made under this Part, the period during
which such moratorium is in place shall be excluded."
xxx xxx xxx
"96. Interim-moratorium.- (1) When an application is filed
under Section 94 or Section 95-
(a) an interim-moratorium shall commence on the date of the
application in relation to all the debts and shall cease to have
effect on the date of admission of such application; and
(b) during the interim-moratorium period-
(i) any legal action or proceeding pending in respect of any
debt shall be deemed to have been stayed; and
(ii) the creditors of the debtor shall not initiate any legal
action or proceedings in respect of any debt.
(2) Where the application has been made in relation to a firm,
the interim-moratorium under sub-section (1) shall operate against
all the partners of the firm as on the date of the application.
(3) The provisions of sub-section (1) shall not apply to such
transactions as may be notified by the Central Government in
consultation with any financial sector regulator."
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xxx xxx xxx
"101. Moratorium.- (1) When the application is admitted
under Section 100, a moratorium shall commence in relation to
all the debts and shall cease to have effect at the end of the
period of one hundred and eighty days beginning with the date of
admission of the application or on the date the Adjudicating
Authority passes an order on the repayment plan under Section
114, whichever is earlier.
(2) During the moratorium period-
(a) any pending legal action or proceeding in respect of any
debt shall be deemed to have been stayed;
(b) the creditors shall not initiate any legal action or legal
proceedings in respect of any debt; and
(c) the debtor shall not transfer, alienate, encumber or dispose
of any of his assets or his legal rights or beneficial interest
therein;
(3) Where an order admitting the application under Section 96
has been made in relation to a firm, the moratorium under subsection (1) shall operate against all the partners of the firm.
(4) The provisions of this section shall not apply to such
transactions as may be notified by the Central Government in
consultation with any financial sector regulator."
xxx xxx xxx
"238. Provisions of this Code to override other laws.-
The provisions of this Code shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue
of any such law."
xxx xxx xxx
 "243. Repeal of certain enactments and savings.- (1) The
Presidency-Towns Insolvency Act, 1909 (3 of 1909) and the
Provincial Insolvency Act, 1920 (5 of 1920) are hereby repealed.
(2) Notwithstanding the repeal under sub-sections (1),-
(i) all proceedings pending under and relating to the PresidencyTowns Insolvency Act, 1909, and the Provincial Insolvency
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
[R. F. NARIMAN, J.]
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Act, 1920 immediately before the commencement of this Code
shall continue to be governed under the aforementioned Acts
and be heard and disposed of by the concerned courts or
tribunals, as if the aforementioned Acts have not been repealed;
(ii) any order, rule, notification, regulation, appointment,
conveyance, mortgage, deed, document or agreement made,
fee directed, resolution passed, direction given, proceeding
taken, instrument executed or issued, or thing done under or in
pursuance of any repealed enactment shall, if in force at the
commencement of this Code, continue to be in force, and shall
have effect as if the aforementioned Acts have not been
repealed;
(iii) anything done or any action taken or purported to have
been done or taken, including any rule, notification, inspection,
order or notice made or issued or any appointment or declaration
made or any operation undertaken or any direction given or
any proceeding taken or any penalty, punishment, forfeiture or
fine imposed under the repealed enactments shall be deemed
valid;
(iv) any principle or rule of law, or established jurisdiction, form
or course of pleading, practice or procedure or existing usage,
custom, privilege, restriction or exemption shall not be affected,
notwithstanding that the same respectively may have been in
any manner affirmed or recognised or derived by, in, or from,
the repealed enactments;
(v) any prosecution instituted under the repealed enactments
and pending immediately before the commencement of this
Code before any court or tribunal shall, subject to the provisions
of this Code, continue to be heard and disposed of by the
concerned court or tribunal;
(vi) any person appointed to any office under or by virtue of
any repealed enactment shall continue to hold such office until
such time as may be prescribed; and
(vii) any jurisdiction, custom, liability, right, title, privilege,
restriction, exemption, usage, practice, procedure or other
matter or thing not in existence or in force shall not be revised
or restored.
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(3) The mention of particular matters in sub-section (2) shall not
be held to prejudice the general application of Section 6 of the
General Clauses Act, 1897 (10 of 1897) with regard to the effect
of repeal of the repealed enactments or provisions of the
enactments mentioned in the Schedule."
xxx xxx xxx
"249. Amendments of Act, 51 of 1993.- The Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 shall be
amended in the manner specified in the Fifth Schedule."
15. The first important thing that needs to be noticed is that, as
has been stated earlier in this judgment, Part III of the Code has not yet
been brought into force. This part is entitled "Insolvency Resolution and
Bankruptcy for Individuals and Partnership Firms". The repealing
provision, namely Section 243, which repeals the Presidency Towns
Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, has also
not been brought into force. Section 249, which amends the Recovery
of Debts Due to Banks and Financial Institutions Act, 1993, so that the
Debt Recovery Tribunals under that Act can exercise the jurisdiction of
the Adjudicating Authority conferred by the Code, has also not been
brought into force.
16. Under Part II of the Code, which deals with "Insolvency
Resolution and Liquidation for Corporate Persons", a financial creditor
or a corporate debtor may make an application to initiate this process.
Once initiated, the Adjudicating Authority, after admission of such an
application, shall by order, declare a moratorium for the purposes referred
to in Section 14 (See Section 13 of the Code).
17. Section 14 refers to four matters that may be prohibited once
the moratorium comes into effect. In each of the matters referred to, be
it institution or continuation of proceedings, the transferring, encumbering
or alienating of assets, action to recover security interest, or recovery of
property by an owner which is in possession of the corporate debtor,
what is conspicuous by its absence is any mention of the personal
guarantor. Indeed, the corporate debtor and the corporate debtor alone
is referred to in the said Section. A plain reading of the said Section,
therefore, leads to the conclusion that the moratorium referred to in
Section 14 can have no manner of application to personal guarantors of
a corporate debtor.
STATE BANK OF INDIA v. V. RAMAKRISHNAN & ANR.
[R. F. NARIMAN, J.]
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18. However, Sections 2(e) and Section 60 are strongly relied
upon by learned counsel for the Respondents as, according to them, the
Code will apply to personal guarantors of corporate debtors, and by
Section 60, proceedings against such personal guarantors will show that
such moratorium extends to the guarantor as well.
19. We are afraid that such arguments have to be turned down on
a careful reading of the Sections relied upon. Section 60 of the Code, in
sub-section (1) thereof, refers to insolvency resolution and liquidation
for both corporate debtors and personal guarantors, the Adjudicating
Authority for which shall be the National Company Law Tribunal, having
territorial jurisdiction over the place where the registered office of the
corporate person is located. This sub-section is only important in that it
locates the Tribunal which has territorial jurisdiction in insolvency
resolution processes against corporate debtors. 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 PresidencyTowns 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. Indeed, by a Press Release
dated 28.08.2017, the Government of India, through the Ministry of
Finance, cautioned that Section 243 of the Code, which provides for the
repeal of said enactments, has not been notified till date, and further, that
the provisions relating to insolvency resolution and bankruptcy for
individuals and partnerships as contained in Part III of the Code are yet
to be notified. Hence, it was advised that stakeholders who intend to
pursue their insolvency cases may approach the appropriate authority/
court under the existing enactments, instead of approaching the Debt
Recovery Tribunals.
20. It is for this reason that sub-section (2) of Section 60 speaks
of an application relating to the "bankruptcy" of a personal guarantor of
a corporate debtor and states that any such bankruptcy proceedings
shall be filed only before the National Company Law Tribunal. The
argument of the learned counsel on behalf of the Respondents that
"bankruptcy" would include SARFAESI proceedings must be turned
down as "bankruptcy" has reference only to the two Insolvency Acts
referred to above. Thus, SARFAESI proceedings against the guarantor
can continue under the SARFAESI Act. Similarly, sub-section (3) speaks
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of a bankruptcy proceeding of a personal guarantor of the corporate
debtor pending in any Court or Tribunal, which shall stand transferred to
the Adjudicating Authority dealing with the insolvency resolution process
or liquidation proceedings of such corporate debtor. An "Adjudicating
Authority", defined under Section 5(1) of the Code, means the National
Company Law Tribunal constituted under the Companies Act, 2013.
21. The scheme of Section 60(2) and (3) is thus clear - 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. It is clear that 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. Also, we have seen
that Section 249, dealing with the consequential amendment of the
Recovery of Debts Act to empower Debt Recovery Tribunals to try
such proceedings, has also not been brought into force. It is thus clear
that 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. This is what is meant by
strengthening the Corporate Insolvency Resolution Process in the
Statement of Objects of the Amendment Act, 2018.
22. Section 31 of the Act was also strongly relied upon by the
Respondents. 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.