2024 (9) TMI 1763 - Tri - IBC

Maintainability of application u/s 95(1) of the Insolvency and Bankruptcy Code 2016 - initiation of CIRP against the Personal Guarantor - HELD THAT - Section 95 of IBC provides that a creditor may apply either by himself or jointly with other creditors or through a Resolution Professional to the Adjudicating Authority for initiating an Insolvency Resolution Process under the Section by submitting an application. The application shall be accompanied with details and documents relating to the debts or by the debtor to the creditor as on the date of application failure by the debtor to pay the debt within a period of 14 days of the service of the Notice of Demand and the relevant evidence of such default or non-payment of debt.It also provides that the creditor shall provide a copy of the application to the debtor and the application shall be in such form and manner. Hon ble Supreme Court in the matter of Dilip B Jiwrajka Vs- Union of India Ors 2024 (1) TMI 33 - SUPREME COURT while dealing with the jurisdiction of NCLT in relation to adjudication of cases filed under Section 94 and 95 of IBC 2016 has held that no judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC and also there is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional. The Respondent / Personal Guarantor will be given an opportunity to file a reply once the RP has filed his Report under Section 99 of IBC 2016. Considering the facts Resolution Professional is appointed who will collate all the facts relevant to the examination of the application for the commencement of the Insolvency Resolution Process in respect of the Personal Guarantor - The Resolution Professional is directed to examine the application as set out in Section 97(6) of IBC 2016 who after examining may recommend for the acceptance / rejection of the application as provided under Section 97(6) of IBC 2016 within a period of 10 days as contemplated under Section 99(1) of IBC 2016. List this application for report / hearing on 28.10.2024.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

(a) Whether the application filed under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating Insolvency Resolution Process (IRP) against the Personal Guarantor of a Corporate Debtor is maintainable.

(b) Whether the procedural requirements under Section 95 of the IBC, including issuance of demand notice and submission of requisite documents, have been complied with by the Applicant.

(c) The scope of judicial adjudication at the stage of examination of the application under Sections 95 to 99 of the IBC, including the role and powers of the Resolution Professional (RP) and the Adjudicating Authority.

(d) Whether principles of natural justice are complied with during the process of examination of the application under Sections 95 to 100 of the IBC.

(e) The appointment and role of the Interim Resolution Professional in the insolvency resolution process of the Personal Guarantor.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Maintainability of Application under Section 95(1) of IBC

The legal framework under Section 95(1) of the IBC permits a creditor to apply for initiation of Insolvency Resolution Process against a Personal Guarantor of a Corporate Debtor upon default in repayment of debt. The Applicant, Indian Bank, filed the application against the Personal Guarantor of M/s Indalloys & Extrusion Pvt Ltd., alleging default in repayment of loan facilities extended to the Corporate Debtor.

The Applicant submitted particulars of debt amounting to Rs. 32.62 crores and default amounting to Rs. 15.69 crores, with default dated 30.04.2009. The application was supported by documentary evidence including the Deed of Guarantee, Recovery Certificate issued by Debt Recovery Tribunal (DRT), and Final Order passed by DRT. The Demand Notice under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019 was also issued to the Personal Guarantor.

The Tribunal found that the Applicant had complied with the statutory prerequisites under Section 95(1), including furnishing details of debt, default, and issuance of demand notice, thus rendering the application maintainable.

Issue (b): Compliance with Procedural Requirements under Section 95

Section 95 mandates that the creditor must serve a demand notice to the Personal Guarantor and attach relevant documents evidencing the debt and default. The Applicant produced the Demand Notice dated 20.07.2023 and copies of Recovery Certificate and Deed of Guarantee. The Tribunal verified these documents and found that the Applicant fulfilled the procedural requirements necessary for initiation of the Insolvency Resolution Process.

Issue (c): Scope of Judicial Adjudication and Role of Resolution Professional under Sections 95 to 99

The Tribunal extensively relied on the Supreme Court's authoritative pronouncement in the matter of Dilip B Jiwrajka v. Union of India, which clarified the nature of proceedings under Sections 95 to 99 of the IBC. The Court observed that:

• No judicial adjudication is involved at the stages envisaged in Sections 95 to 99;
• The Resolution Professional's role is facilitative and recommendatory, collating facts relevant to the application;
• The Adjudicating Authority does not conduct a hearing to determine jurisdictional facts at this stage;
• The Resolution Professional may exercise powers under Section 99(4) to seek information and examine the application;
• The Adjudicating Authority must observe principles of natural justice only at the stage of deciding acceptance or rejection under Section 100;
• The interim moratorium under Section 96 protects the debtor from further legal proceedings;
• The provisions do not violate Articles 14 and 21 of the Constitution.

Applying this framework, the Tribunal held that the current stage involves no judicial determination but a procedural examination by the Resolution Professional. The Personal Guarantor is not deprived of opportunity to participate as he can file a reply after the RP submits the report under Section 99.

Issue (d): Compliance with Principles of Natural Justice

The Tribunal underscored that the procedural scheme under Sections 95 to 100 ensures that the Personal Guarantor is not denied natural justice. The RP's examination is not a judicial adjudication but a fact-finding and recommendatory process. The Personal Guarantor will be afforded an opportunity to respond after the RP's report, and the Adjudicating Authority will apply natural justice principles before accepting or rejecting the application under Section 100.

Issue (e): Appointment and Role of Interim Resolution Professional

The Applicant proposed the name of the Resolution Professional, Mr. Madhu Desikan, whose credentials and disciplinary status were verified by the Tribunal. The Tribunal appointed him as Interim Resolution Professional (IRP) to examine the application as per Section 97(6) of the IBC and to submit a report recommending acceptance or rejection within 10 days as mandated by Section 99(1).

The IRP was directed to collate all relevant facts, ensure procedural compliance, and facilitate the process without conducting judicial adjudication. The Applicant was further directed to serve copies of the application and order on the IRP to enable proper examination.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal determinations include the following:

"No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC."

"The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process."

"No violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional."

"The adjudicating authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application."

The Tribunal conclusively held that the application filed by the Applicant under Section 95(1) of the IBC was maintainable, procedural requirements were satisfied, and the appointment of the Interim Resolution Professional was warranted to facilitate examination and submission of a recommendatory report. The Personal Guarantor will be given an opportunity to respond after the RP's report, ensuring compliance with natural justice before any final adjudication.