FAQs: Insolvency and Bankruptcy Code, 2016

Dear Professional Members,

It is our constant endeavor to educate and develop Insolvency Professionals. In this context, we have developed these FAQs based on discussions and deliberations with professionals having domain expertise in the field of Insolvency and Bankruptcy law.

Please note that these FAQs and answers thereon are provided by the ICSI Institute of Insolvency Professionals (Formerly known as ICSI Insolvency Professionals Agency) with intent to provide general information on various issues arising under the Insolvency and Bankruptcy Code, 2016 and are not an exhaustive treatment of such issues. Accordingly, information contained in FAQs and answers thereon are not intended to constitute professional advice or services. Further, information contained herein is not intended to be relied upon as the sole basis for any decision which may affect you or your business/profession. Before making any decision or taking any action, you should consult a qualified professional legal adviser. ICSI Institute of Insolvency Professionals ("ICSI IIP") shall not be responsible for any loss or damage, resulting from any action taken on the basis of the contents of these FAQs.

Section 14(1) (b) of the Insolvency and Bankruptcy Code ("Code") prohibits, inter alia, encumbering any of the assets of the corporate debtor.

It appears that if personal guarantee is invoked during corporate insolvency resolution process ("CIRP"), then personal guarantor will have all rights of the creditors (Bankers) and in that way, a charge automatically gets created on property of Corporate Debtor, which is against the object of moratorium.

Above view has been affirmed by National Company Law Appellate Tribunal ("NCLAT") in SBI vs. V. Ramakrishnan and M/s. Veesons Energy Systems Pvt. Ltd (decided on 28th February, 2018) wherein NCLAT noted that in terms of Section 14 (1) (b) of the Code, transfer, encumbrance, alienation or disposal of any of its assets of the ‘Corporate Debtor’ and/ or any legal right or beneficial interest therein are prohibited. The NCLAT held that section 14 of the Code would bar proceedings or actions against personal Guarantors. NCLAT held that proceedings against guarantors would affect the CIRP and thus be barred by moratorium.So, at present, Creditors cannot invoke personal guarantee during CIRP.