NCLT Kochi Admits Insolvency Pleas, Holds Only Borrower Can Invoke Statutory Protections

NCLT Kochi Admits Insolvency Pleas, Holds Only Borrower Can Invoke Statutory Protections

Introduction

The National Company Law Tribunal (NCLT Kochi) has held that protections under the MSMED Act, 2006 and the RBI MSME restructuring framework must be specifically invoked by the corporate debtor, and that personal guarantors have no independent right to claim such benefits. Judicial Member Vinay Goel admitted insolvency petitions filed by Tata Capital Limited against personal guarantors and declared a moratorium in their respect.

Factual Background

Tata Capital Limited filed insolvency petitions against personal guarantors Jinu Varghese and Geeba Kolliyelil Jenny, who had executed personal guarantees in respect of a term loan facility availed by Immaculate Agro Spices Private Limited.

The corporate debtor had availed a term loan of ₹4 crore, secured inter alia by personal guarantees. Upon default in repayment, the loan account was classified as a Non-Performing Asset (NPA) in May 2025. Recall and demand notices were issued; however, outstanding dues of ₹3.57 crore remained unpaid.

The personal guarantors opposed the petitions on the ground that the company was an MSME and therefore entitled to protection under the MSME rehabilitation framework.

Procedural Background

The petitions were filed under the Insolvency and Bankruptcy Code, 2016 seeking initiation of insolvency proceedings against the personal guarantors. The Tribunal considered the objections raised by the guarantors regarding applicability of the MSMED Act, 2006 and RBI MSME restructuring notifications, as well as the response of Tata Capital Limited, which contended that such frameworks were inapplicable. After hearing the parties and examining the record, the Tribunal proceeded to determine whether the guarantors could independently claim MSME-related protections to resist insolvency proceedings.

Issues

1. Whether personal guarantors can independently invoke protections under the MSMED Act, 2006 and RBI MSME restructuring framework.

2. Whether the corporate debtor had validly and specifically invoked MSME benefits.

3. Whether the RBI MSME restructuring framework applied to NBFCs such as Tata Capital Limited.

Contentions of the Parties

The personal guarantors contended that the corporate debtor was an MSME and therefore entitled to benefits under the MSMED Act and the RBI MSME restructuring framework. They relied on a letter addressed to the MSME-Development & Facilitation Office, Thrissur, and asserted that Kanjiravelil Traders Private Limited was the parent company of the corporate debtor.

Tata Capital Limited argued that MSME restructuring frameworks relied upon by the guarantors applied only to Scheduled Commercial Banks and not to Non-Banking Financial Companies (NBFCs) such as itself. It further contended that no formal or specific invocation of MSME benefits had been made by the borrower in accordance with statutory requirements.

Reasoning and Analysis

The Tribunal observed that for claiming benefits under the MSMED Act, 2006 or RBI notifications, there must be a specific, clear, and unambiguous invocation by the borrower. Such invocation must identify the creditor, corporate debtor, loan account details, and the precise benefit sought, and must be communicated directly to the creditor.

It held that it is for the borrower to claim such privilege and benefit under the MSMED Act and RBI circulars. Personal guarantors have no independent right to invoke such rehabilitation or restructuring benefits.

The Tribunal found that no communication had been placed on record showing that the corporate debtor had formally sought MSME benefits from Tata Capital Limited. The alleged relationship with Kanjiravelil Traders Private Limited was unsubstantiated, and the letter addressed to the MSME office did not amount to a formal invocation of the RBI MSME Framework. Further, the Tribunal noted that the RBI notification relied upon by the guarantors applied only to Scheduled Commercial Banks and not to NBFCs such as Tata Capital Limited.

In view of the above, the Tribunal rejected the defence raised by the personal guarantors.

Decision

The NCLT Kochi admitted the insolvency petitions filed by Tata Capital Limited against the personal guarantors and declared a moratorium in respect of them under the Insolvency and Bankruptcy Code, 2016.

In this case the petitioner was represented by Issac Thomas, Advocate. Meanwhile the respondent was represented by Senior Advocate Mathews J Nedumpara.