In a significant ruling, the Appellate Tribunal has clarified the applicability of interim moratoriums under Section 96 of the Insolvency and Bankruptcy Code (IBC). The Tribunal determined that the interim moratorium applies solely to personal guarantees and not to the assets of partnership firms, allowing creditors to proceed with the auction of partnership properties despite the personal moratorium on the guarantor. This decision delineates the boundaries of personal and partnership liabilities, providing crucial guidance for creditors and debtors in insolvency proceedings.

 

In a recent decision, the Appellate Tribunal addressed a case involving Mr. Ramesh Kumar Chugh (RKC), who stood as a personal guarantor for the debt owed by M/s. Sahil Home Loomtex Pvt. Ltd. A Company Petition under Section 95 of the Insolvency and Bankruptcy Code (IBC) was filed against him by White Line Enterprises, leading to an interim moratorium under Section 96 of the IBC. RKC was also a partner in M/s. Sheena Exports and a guarantor for loans taken by M/s. Sheena Textile Ltd. (STL). The Respondent, Assets Care & Construction Enterprises Ltd. (ACRE), initiated auction proceedings for properties of Sheena Exports and STL due to non-repayment of debts. Meanwhile, a Company Petition under Section 95 of the IBC was filed by White Line Enterprises against Mr. Ramesh Kumar Chugh, who stood as a Personal Guarantor for repayment of the operational debt owed by M/s Sahil Home Loomtex Pvt. Ltd. With the filing of Section 95 petition, interim moratorium under Section 96 of IBC commenced.

 

RKC contended that the auction notices issued by ACRE conflicted with the interim moratorium under Section 96 of the IBC. He argued that the moratorium should apply to the partnership firm’s properties, as the partnership had been dissolved, shifting liabilities to the partners. However, the Respondent maintained that the properties belonged to the partnership firm and not to RKC personally, thus allowing them to proceed with the auction under the SARFAESI Act.

 

The Tribunal concluded that the interim moratorium under Section 96 of the IBC applies only to the personal guarantee given by RKC and not to the partnership firm’s properties. It emphasized that the moratorium is intended to operate in respect of a debt and not the debtor. The Tribunal also highlighted that assets held in the name of the partnership firm are not the personal property of the partners and cannot be subjected to the interim moratorium.

 

Furthermore, the Tribunal noted that the dissolution of the partnership firm does not transfer the liabilities arising from RKC’s personal guarantee to the partnership firm. The Tribunal found no merit in RKC’s application to withdraw the auction notices and restrain ACRE from proceeding with the auction.

 

In our opinion, the decision clarifies the scope of the interim moratorium under Section 96 of the IBC, emphasizing that it applies only to the personal guarantees and not to the assets of partnership firms. For creditors, this ruling reinforces their right to proceed with the recovery of debts from partnership firm assets, even if a partner is under an interim moratorium. For personal guarantors, it underscores the distinction between personal and partnership liabilities, ensuring that their personal moratorium does not shield partnership assets from creditor actions. This decision provides a clearer framework for handling insolvency proceedings involving personal guarantors and partnership firms, benefiting both creditors and debtors by delineating their rights and obligations.

Authors & Contributors

Partner:

Abhishek Swaroop

 

 

Associates:

Bhawana Sharma

Shreya Chandhok

Kirti Talreja

Rounak Doshi

Bharath Krishna