Personal Guarantors' Appeal Against Appointment of Resolution Professional Dismissed by NCLAT

JUDGEMENT

ASHOK BHUSHAN, J.

These two Appeals have been filed by the Personal Guarantors of Corporate Debtor challenging the order dated 25.01.2024 passed by National Company Law Tribunal, New Delhi Bench, Court – IV in an Application filed by the Bank of Maharashtra under Section 95, sub-section (1) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) appointing Resolution Professional (“RP”) in CP (IB) No. 282/ND/2023 and CP (IB) No.285/ND/2023.

Both the Appeals raising common questions of law and facts have been heard together and are decided by this common judgment.

Brief facts of the case necessary to be noticed for deciding the Appeal(s) are:

(i) Bank of Maharashtra (Respondent No.1) granted a loan in favor of Modern Instruments Private Limited in the year 2013. The debt was classified as a Non-Performing Asset (“NPS”) on 27.07.2016. Both the Appellant(s), Shri CL Sharma and Shri Deepak Sharma were Personal Guarantors to the loan.

(ii) On 26.07.2022, the Bank of Maharashtra issued a recall notice and invocation of guarantee addressing to both the Appellant(s) as Guarantors. Bank of Maharashtra thereafter issued a Notice under Rule 7 of the Insolvency and Bankruptcy (Application to Guarantors to Corporate Debtor) (“Personal Guarantors Rules”) and thereafter filed Applications under Section 95, sub-section (1), which were registered as CP (IB) No. 282/ND/2023 and CP (IB) No.285/ND/2023 against the Appellant(s) respectively in March 2023.

(iii) On the Application filed by the Bank of Maharashtra, the Adjudicating Authority by the impugned order appointed a RP and directed the RP to submit a Report and the matter was directed to be listed on 23.02.2024. Aggrieved by which order, these two Appeal(s) have been filed by the Appellant(s).

Arguments Presented by the Parties:

• Appellant(s):

  • Applications filed under Section 95 sub-section (1) were ex-facie barred by limitation.
  • Adjudicating Authority cannot be used as a Forum to recover a time-barred debt.
  • Adjudicating Authority failed to take into consideration the requirement for appointment of RP under Section 95 of the Code.
  • RP cannot be appointed due to non-filing of Authorization for Assignment (“AFA”) by the RP.
  • RP is not supposed to submit any Report regarding the question of limitation.

• Respondent Bank:

  • No error in the order of the Adjudicating Authority appointing the RP.
  • At the stage of appointment of RP, the Adjudicating Authority is not required to examine any issue or adjudicate on the Applications filed under Section 95.
  • The stage for adjudication of the issues arises only after the Report is submitted under Section 99 of the IBC.
  • No error in the appointment of RP.
  • Appellant(s) cannot raise the issue regarding maintainability of the Applications at the stage of appointment of RP.
  • All issues sought to be raised by the Appellant(s) have been decided by the Hon’ble Supreme Court in Writ Petition (Civil) No. 1281 of 2021 in Diliip B Jiwrjka vs. Union of India & Ors. decided on 09.11.2023.

Court's Analysis and Reasoning:

• The Court examined the provisions of Sections 95 to 100 of the IBC.
• The Court referred to the judgment of the Hon’ble Supreme Court in Diliip B Jiwrjka vs. Union of India & Ors., where it was held that no judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC.
• The Court held that the Adjudicating Authority should consider the issue pertaining to jurisdictional fact at the stage of Section 100 and there is no adjudication contemplated at the stage when RP is appointed under Section 97, sub-section (5).
• The Court also held that the RP is not precluded from giving any recommendation as to whether the debt is time-barred or not or whether any other jurisdictional fact is lacking in the Application or all jurisdictional facts have been fulfilled by the Applicant.
• The Court further held that the Personal Guarantor has been given the right to file an objection to the Report and can give all necessary information and objection to the Report.

Decision:

• The Court dismissed the Appeals filed by the Appellant(s).
• The Court upheld the order of the Adjudicating Authority appointing the RP.

Conclusion:

The Court's decision clarifies the role of the Adjudicating Authority and the RP at different stages of the insolvency resolution process under the IBC. The decision also provides guidance on the rights of Personal Guarantors in such proceedings.