INSOLVENCY PROCEEDINGS AGAINST INDIVIDUALS

The Proceedings against an Individual are governed by Section 249 of Insolvency and Bankruptcy code, 2016 as amended in 2019 and made operational by Central Government from 01.12.2019.And By Provincial towns insolvency Act 1909 and Provincial insolvency act 1920 and are enforced by the courts.Section 249 of IBC, 2016 Provides for Amendment of Act 51 (Recovery of debts due to banks and financial Institutions Act) of 1993. In cases of Individuals Section 249 provides it for minimum default of Rs. 1 thousand is necessary to trigger a suit against an Individual or It can be triggered by filing a suit in Debt Recovery Tribunals (DRTs) which would have circuit sittings in all district headquarters. Clause 1A of Section 8 of Recovery of debts due to banks and Financial institutions, Insolvency resolution and bankruptcy of individuals and partnership firms Act 1993 (as amended by section 249 of IBC 2019 amendment Bill) Provides for the power to the central government to establish Debt recovery appellate tribunals which would exercise powers and authority to entertain appeal under Part III of IBC, 2016 And Also to establish Debt recovery tribunals Under clause 1A of section 3 in the same act named above.

OBJECTS AND REASONS OF IBC 2016 There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debt Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual bankruptcy and insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the Courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects.JURISDICTION OF PROVINCIAL INSOLVENCY ACT 1920The 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. The liability of a guarantor arises as soon as the principal debtor defaults in paying back the loan. It is to be noted that a contract of guarantee focuses upon the breaking of a promise, whereas the IBC focuses upon the existence of a default. Contrary to the proceedings under the IBC which can only be conducted in NCLT, a breach of guarantee contract can be brought into DRT, that too when ‘public money’ is involved. The rights available to a creditor to proceed against the personal guarantor of a corporate debtor are many-fold, i.e. he can either go to DRT solely for the purpose of debt recovery, or he can file insolvency proceedings against the personal debtor. Para 19 in the case of state bank of India Versus Ramakrishna provide:“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 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, 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.”ATTACHMENT OF DEBTOR’S PROPERTY“Under Section 56 of the Provincial Insolvency Act, 1920, the estate of the insolvent vests in the receiver only for the purpose of its administration and to pay off the debts to the creditors. The receiver acquired no personal interest of his own in the property. The receiver appointed by the court takes possession of the properties in the suit on behalf of the court and administers the property on behalf of the ultimate successful party as an officer of the court and he has no personal interest in the property vested there under.Section 56 of the Provincial Insolvency Act (5 of 1920) empowers the Court at the time of the making of the order of adjudication or thereafter to appoint a receiver for the property of the insolvent and to further provide that “such property shall thereupon vest in such receiver”. The word “vest” employed therein is only for the purpose of the receiver to administer the estate of insolvent for payment of the debts after realizing, and the property of the insolvent vests in the receiver not for all purposes but only for the purpose of the Insolvency Act and the receiver has no interest of his own in the property.