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2025 (5) TMI 857 - AT - IBCAppointment of a Resolution Professional (RP) under Section 97 of the Insolvency and Bankruptcy Code 2016 (I B Code) in proceedings initiated against personal guarantors under Section 95 of the Code - HELD THAT - Apparently the ground as pleaded and argued seem to be very logical enough because of the alleged defects which have been claimed to have chanced in the appointment of the Resolution Professional allegedly to be in violation of Sub-Section (4) of Section 97 to be read with Sub-Section (3) of Section 97 of I B Code. But the fact remains that the Appellant admits the fact that there had been a credit facility extended to the Corporate Debtor of which the Appellant was a personal guarantor and that the account was declared as a Non-Performing Asset on 29.08.2022 the Financial Creditor initiated proceeding under Section 95 of I B Code. This and the ground behind Section 95 proceedings have not been challenged by the Appellants. The stages of the proceedings from Section 95 to Section 100 do not have any adjudicatory effect and since it would be inclusive of Section 97 in itself the entire cause agitated by the Appellant in the Company Petition as well as in the Company Appeal cannot be subjected to a judicial scrutiny either by the NCLT or this Appellate Tribunal as against the order passed by the NCLT. It is exclusively on the aforesaid ground that the Learned Tribunal has observed that since the entire exercise of powers of appointment of a Resolution Professional is being exclusively vested with the Learned Adjudicating Authority and particularly the personal guarantor has got no role to play till the stage under Section 100 is achieved and accordingly hold that the proceedings drawn by the Appellant by way of the aforesaid Company Petition is not tenable. Since as per the Impugned Order under challenge and even as per Sub-Section (6) of Section 97 all rights of the Appellant are safeguarded by filing an objection against the report to be submitted they cannot be said to be aggrieved persons by any of the actions taken up to the stage of Section 97 of I B Code. Conclusion - The appointment of the Resolution Professional under Section 97 of the I B Code in proceedings initiated under Section 95 against personal guarantors is a procedural step exclusively vested in the Adjudicating Authority. Personal guarantors do not have a right to challenge this appointment prior to the adjudicatory stage under Section 100. The impugned order appointing the RP was valid and in accordance with the statutory provisions. Appeal dismissed.
The core legal questions considered by the Tribunal in these connected appeals revolve around the procedural validity and legality of the appointment of a Resolution Professional (RP) under Section 97 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) in proceedings initiated against personal guarantors under Section 95 of the Code. Specifically, the issues include:
Issue-wise Detailed Analysis: 1. Appointment of Resolution Professional under Section 97 vis-`a-vis Personal Guarantors' Rights The relevant legal framework comprises Sections 95 and 97 of the I&B Code. Section 95 empowers a creditor to initiate insolvency resolution proceedings against a personal guarantor by filing an application before the Adjudicating Authority. Section 97 governs the appointment of a Resolution Professional in such proceedings. The provisions clearly vest the power of appointment exclusively with the Adjudicating Authority, who either confirms the appointment of a resolution professional recommended by the Insolvency and Bankruptcy Board of India (IBBI) or nominates one if the application is filed by the creditor or debtor directly. The Appellants contended that the appointment of the RP was flawed and violated the procedural safeguards under Section 97, particularly Sub-Sections (3) and (4), arguing that the Adjudicating Authority must not consult or be influenced by the creditors initiating the proceedings. They asserted that any such influence would vitiate the appointment process and render the entire proceeding illegal. They further submitted that this procedural defect entitled them to challenge the appointment by filing a Company Petition under Section 95. The Court interpreted the statutory scheme to mean that the appointment of the RP is a prerogative of the Adjudicating Authority and that the personal guarantors have no role or say in this appointment process. The Court emphasized that Sections 95 and 97 do not carve out any exception or procedural right for personal guarantors to influence or challenge the appointment of the RP at this stage. The Court found that the Appellants admitted the existence of the debt and the default, which formed the basis for initiation of proceedings under Section 95. The challenge was confined solely to the appointment process of the RP, which the Court held was not justiciable at this preliminary stage. 2. Maintainability of Challenge to Appointment of Resolution Professional Prior to Section 100 Adjudication The Court relied heavily on the authoritative precedent set by the Supreme Court in a writ petition concerning Section 95 proceedings, which held that the stages of the insolvency resolution process from Sections 95 to 100 are not judicial adjudications of rights but procedural steps. The Court observed that no party can claim to be aggrieved or challenge the process until an order under Section 100 is passed admitting or rejecting the insolvency application. Applying this principle, the Court concluded that the personal guarantors could not maintain a petition challenging the appointment of the RP at the Section 97 stage, as the process up to Section 100 does not confer any adjudicatory rights or cause of action. The appointment of the RP is a preliminary procedural step, and the personal guarantors' rights remain protected by the opportunity to raise objections after the RP submits the report under Section 99. 3. Compliance with Statutory Provisions and Protection of Personal Guarantors' Rights The Court examined the impugned order and noted that the Adjudicating Authority had complied with the statutory mandate by appointing the RP and directing him to examine the application and relevant documents. The RP was tasked with submitting a report under Section 99, after which the Adjudicating Authority would decide on acceptance or rejection of the insolvency application. The Court highlighted that the impugned order expressly preserved the personal guarantors' rights to raise objections to the RP's report and contest the proceedings at the appropriate stage. Thus, no prejudice or violation of rights had occurred at the RP appointment stage. The Court rejected the argument that the appointment process was illegal or vitiated, emphasizing that the statutory scheme deliberately excludes any role for personal guarantors in the appointment of the RP to avoid undue influence or delay in the insolvency resolution process. 4. Treatment of Competing Arguments The Appellants' argument that consultation with creditors during RP appointment would violate Section 97 was considered but ultimately rejected. The Court reasoned that the Adjudicating Authority's discretion in appointment is unfettered and insulated from creditor influence, including that of the initiating financial creditor. The Court also considered the logical appeal of the Appellants' argument but held that the admitted facts of debt and default and the binding Supreme Court precedent precluded judicial interference at this stage. The Court further noted that the Appellants had not challenged the initiation of proceedings or the underlying debt but only the procedural step of RP appointment, which was insufficient to sustain the petition or appeal. Conclusions The Court concluded that the appointment of the Resolution Professional under Section 97 of the I&B Code in proceedings initiated under Section 95 against personal guarantors is a procedural step exclusively vested in the Adjudicating Authority. Personal guarantors do not have a right to challenge this appointment prior to the adjudicatory stage under Section 100. The impugned order appointing the RP was valid and in accordance with the statutory provisions. The personal guarantors' rights are preserved through the opportunity to raise objections after the RP submits the report under Section 99. Consequently, the petitions and appeals challenging the RP appointment were not maintainable and were dismissed. Significant Holdings: "At up to the stage of Section 100 since none of the steps contemplated between Section 95 to 100 have any element of a judicial adjudication of any right of the party against whom the proceedings are expected to be drawn under Section 95 of the Code, no person can have a cause to file a petition until or unless there is an admission of Section 95 proceedings by passing of an order under Section 100." "The entire exercise of powers of appointment of a Resolution Professional is being exclusively vested with the Learned Adjudicating Authority and particularly, the personal guarantor has got no role to play till the stage under Section 100 is achieved." "All objections at the hands of the Appellant have been left open to be agitated, once the Resolution Professional submits the report under Section 99 of I & B Code." "Since the Resolution Professional thus appointed under Section 97 is vehement for the purposes of collating the records, to enable the Learned Adjudicating Authority to pass an order under Section 95 of I & B Code, it does not materially affect any personal right of the Appellant to enable him to file Company Petition and the consequential Company Appeal too, as all his rights are safeguarded by raising an objection to the report of Resolution Professional to be submitted." "The appointment of the Resolution Professional since being a violation of Sub-Section (4) of Section 97 to be read with Sub-Section (3) of Section 97, that itself would be sufficient grounds for the Appellant to file a Company Petition as against the proceedings initiated against him under Section 95 of I & B Code" is rejected as the statutory scheme does not envisage any such challenge at this stage.
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