2025 (6) TMI 1098 - AT - IBC

Violation of principles of natural justice - Impugned Order is arbitrary and suffers from erroneous application of law - non speaking order - non-submission of Repayment Plan results in a deemed rejection of the Repayment Plan under Section 114 read with Section 115(2) of the I B Code - HELD THAT - If the provisions contained under Section 121 are taken into consideration they stipulate the circumstances under which filing of an Application for Bankruptcy of a Debtor by a Creditor individually or jointly can be permitted subject to the exceptions that had been carved out therein. The circumstances detailed therein is inclusive of an Order passed by Ld. Adjudicating Authority under the provisions contained under Section 115 (2) of I B Code 2016. In the instant case the Ld. Adjudicating Authority has taken the position that in the absence of submission of the Repayment Plan by the Personal Guarantor there will be a deemed rejection of the Repayment Plan under Section 114 r/w Section 115 (2) of the I B Code 2016 and if that be so the pleading by the Appellant that the Impugned Order is violative of Section 121 (1) will not be maintainable. The process contemplated under Sub-Clause (b) of Sub-Section 1 of Section 121 contemplates that rejection of a Repayment Plan under Section 114 would attract Section 115 (2) of the I B Code 2016 which will entitle the Creditors to file an Application for Bankruptcy under Chapter IV which is the case at hand. Non-filing of Repayment Plan will clearly imply rejection under Section 114 (1) of I B Code as nothing has been put up before Ld. Adjudicating Authority to consider for approval and accordingly the Creditors will be entitled to file an Application for Bankruptcy under Chapter IV in the light of Sub-Clause (b) of Sub-Section (1) of Section 121 to be read with Sub-Section (2) of Section 115 of I B Code 2016. The Impugned Order has been passed without a cogent reason and the appreciation of the facts and circumstances of the instant case is not acceptable because the Personal Guarantor cannot take an advantage of his own inaction arising because of non-submission of the Repayment Plan and then taking advantage of the same by claiming that no order to proceed with the Bankruptcy process could be resorted to because non-submission of Repayment Plan has not been specifically included in Section 114 of the Code is an absolute misnomer and contrary to the spirit of law. Once the Personal Guarantor has failed to submit his / her Repayment Plan within the time frame stipulated therein in the light of the provisions contained under Section 114 of the I B Code 2016 it would automatically stand rejected and the consequential decision taken under Section 115 (2) by Ld. Adjudicating Authority to permit the Creditors to file an Application for Bankruptcy by invoking the provisions contained under Chapter IV would not call for any interference because the provisions contained under Section 121 (1) (a) as it has been sought to be attracted by the Appellant will have no bearing in the present circumstances since being an independent provision isolated in its applicability to the provisions contained under Section 115 (2) of the I B Code 2016. Conclusion - i) Deemed rejection of Repayment Plan occurs upon non-submission by Personal Guarantor triggering bankruptcy proceedings. ii) Section 115(2) read with Section 121(1)(b) governs initiation of bankruptcy after rejection of Repayment Plan. iii) Appeals under Section 61 of the I B Code do not require separate leave applications. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in re-filing the Appeal should be condoned.

- Whether an independent application for leave to file an Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) is required.

- Whether the non-submission of a Repayment Plan by the Personal Guarantor during the Personal Insolvency Resolution Process (PIRP) results in a deemed rejection of the Repayment Plan under Section 114 read with Section 115(2) of the I&B Code.

- Whether the Adjudicating Authority was correct in allowing the Financial Creditors to file an Application for Bankruptcy under Chapter IV of the I&B Code against the Personal Guarantor after the deemed rejection of the Repayment Plan.

- Whether the Impugned Order permitting initiation of Bankruptcy proceedings against the Personal Guarantor is arbitrary, non-speaking, or legally unsustainable for failure to specifically include non-submission of the Repayment Plan as a ground under Section 121 of the I&B Code.

- Whether the provisions of Section 121(1) of the I&B Code, which prescribe circumstances under which an application for bankruptcy may be filed, apply to the facts of the case.

- Whether the Appellant's failure to cooperate and non-submission of the Repayment Plan can be used against him to permit initiation of Bankruptcy proceedings.

- Whether the delay in submission of the Resolution Professional's report in related appeals should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay in Re-filing the Appeal

Relevant Legal Framework and Precedents: The Tribunal considered the reasons for delay under procedural rules governing appeals before it and took a pragmatic view recognizing that the delay was exclusively between the Appellant and the Tribunal.

Court's Interpretation and Reasoning: The Tribunal was satisfied with the reasons for the 26-day delay in re-filing and allowed the condonation application (IA No. 666/2025).

Application of Law to Facts: Delay was condoned as it did not prejudice the other party and was caused by procedural aspects exclusive to the Tribunal's process.

Conclusion: Delay condoned and appeal re-filing accepted.

Issue 2: Requirement of Independent Application for Leave to File Appeal under Section 61

Relevant Legal Framework and Precedents: Section 61 of the I&B Code allows any "aggrieved person" to prefer an appeal against orders of the Adjudicating Authority. The Principal Bench's judgment dated 14.07.2023 clarified that no separate leave application is required.

Court's Interpretation and Reasoning: The Tribunal closed interlocutory applications seeking leave to file appeal (IA Nos. 668/2025, 671/2025, 674/2025) as unnecessary.

Application of Law to Facts: Since the appellants were aggrieved persons, appeals were maintainable without a separate leave application.

Conclusion: No independent leave application required; appeals admitted on merits.

Issue 3: Effect of Non-submission of Repayment Plan by Personal Guarantor

Relevant Legal Framework and Precedents: Sections 105 to 115 of the I&B Code govern the Personal Insolvency Resolution Process, including submission, consideration, and approval/rejection of Repayment Plans. Section 114(1) empowers the Adjudicating Authority to approve or reject the Repayment Plan. Section 115(2) provides that if the Repayment Plan is rejected, creditors or debtors may file for Bankruptcy under Chapter IV. Section 121(1) specifies circumstances under which bankruptcy applications may be filed, including orders under Section 115(2).

Court's Interpretation and Reasoning: The Tribunal held that non-submission of the Repayment Plan by the Personal Guarantor is tantamount to rejection under Section 114(1) because no plan was placed before the Adjudicating Authority for approval. Consequently, Section 115(2) is triggered, permitting creditors to initiate bankruptcy proceedings.

Key Evidence and Findings: The Appellant failed to submit the Repayment Plan despite opportunities; the Resolution Professional reported non-cooperation and absence of any plan. The Committee of Creditors (CoC) noted non-submission and recommended filing for bankruptcy.

Application of Law to Facts: The procedural scheme mandates submission of a Repayment Plan to the Resolution Professional who then places it before the CoC and Adjudicating Authority. Failure to submit results in deemed rejection, enabling creditors to proceed under Chapter IV.

Treatment of Competing Arguments: The Appellant argued that non-submission is not explicitly included as a ground under Section 121 and that the Impugned Order was arbitrary and non-speaking. The Tribunal rejected this, stating that the statutory scheme implies rejection in absence of a plan, and the Personal Guarantor cannot benefit from his own inaction.

Conclusion: Non-submission of Repayment Plan results in deemed rejection under Section 114(1), triggering Section 115(2), and permitting creditors to file for bankruptcy.

Issue 4: Validity of Impugned Order Allowing Bankruptcy Proceedings

Relevant Legal Framework and Precedents: Sections 114, 115, and 121 of the I&B Code; prior decisions of the Principal Bench clarifying the process of PIRP and bankruptcy initiation.

Court's Interpretation and Reasoning: The Tribunal found the Impugned Order to be a reasoned and speaking order, correctly applying the law. It held that the Adjudicating Authority's decision to allow creditors to file bankruptcy applications after deemed rejection of the Repayment Plan was legally sound.

Application of Law to Facts: The facts showed repeated failure by the Personal Guarantor to cooperate or submit a plan, justifying the Adjudicating Authority's order.

Treatment of Competing Arguments: The Appellant's challenge on grounds of arbitrariness and absence of explicit statutory provision for non-submission was dismissed as contrary to the spirit and scheme of the Code.

Conclusion: The Impugned Order is legally sustainable and not liable to interference.

Issue 5: Applicability of Section 121(1) of the I&B Code

Relevant Legal Framework: Section 121(1) enumerates circumstances under which bankruptcy applications may be filed, including orders under Section 115(2).

Court's Interpretation and Reasoning: The Tribunal held that Section 121(1)(b) applies in the present case since the Adjudicating Authority passed an order under Section 115(2) after deemed rejection of the Repayment Plan.

Application of Law to Facts: The Appellant's reliance on Section 121(1)(a) was misplaced as it did not consider the effect of Section 115(2). The Tribunal emphasized that Section 121(1) must be read in conjunction with Section 115(2).

Conclusion: Section 121(1)(b) governs the filing of bankruptcy applications post rejection of the Repayment Plan under Section 115(2).

Issue 6: Effect of Non-cooperation and Non-submission of Repayment Plan by Personal Guarantor

Relevant Legal Framework: Sections 105 to 115 of the I&B Code; duties of Personal Guarantor to cooperate and submit Repayment Plan.

Court's Interpretation and Reasoning: The Tribunal emphasized that the Personal Guarantor's failure to cooperate and submit the Repayment Plan cannot be condoned or allowed to prejudice creditors' rights. The Personal Guarantor cannot take advantage of his own default.

Application of Law to Facts: The Appellant was given opportunities but did not comply; the Resolution Professional and CoC reported non-cooperation.

Conclusion: Non-cooperation and non-submission justify proceeding with bankruptcy under the Code.

Issue 7: Condonation of Delay in Submission of Resolution Professional's Report in Related Appeals

Relevant Legal Framework: Procedural rules governing timelines and condonation of delay before the Tribunal.

Court's Interpretation and Reasoning: The Tribunal consistently condoned delays in submission of reports by the Resolution Professional in related appeals, recognizing the procedural complexities and lack of prejudice.

Application of Law to Facts: Similar facts and reasons applied across related appeals.

Conclusion: Delays condoned; appeals dismissed on merits.

3. SIGNIFICANT HOLDINGS

"Non-submission of the Repayment Plan by the Personal Guarantor will clearly imply rejection under Section 114(1) of the I & B Code, as nothing has been put up before Ld. Adjudicating Authority to consider for approval and accordingly the Creditors will be entitled to file an Application for Bankruptcy under Chapter IV in the light of Sub-Clause (b) of Sub-Section (1) of Section 121 to be read with Sub-Section (2) of Section 115 of I & B Code, 2016."

"The Personal Guarantor cannot take an advantage of his own inaction arising because of non-submission of the Repayment Plan and then taking advantage of the same by claiming that no order to proceed with the Bankruptcy process could be resorted to because, non-submission of Repayment Plan has not been specifically included in Section 114 of the Code is an absolute misnomer, and contrary to the spirit of law."

"No independent Application for leave to file an Appeal is required to be filed under Section 61 of the I & B Code, 2016, as any aggrieved person can prefer an Appeal."

"Delay in re-filing the Appeal is condoned on a pragmatic view, especially when the delay is exclusive between the Appellant and the Tribunal."

Core principles established include:

• Deemed rejection of Repayment Plan occurs upon non-submission by Personal Guarantor, triggering bankruptcy proceedings.
• Section 115(2) read with Section 121(1)(b) governs initiation of bankruptcy after rejection of Repayment Plan.
• Personal Guarantors must cooperate and submit Repayment Plans; failure to do so justifies creditor actions.
• Procedural delays may be condoned where justified.
• Appeals under Section 61 of the I&B Code do not require separate leave applications.

Final determinations on each issue resulted in dismissal of all three Company Appeals for lack of merit, affirming the Adjudicating Authority's orders permitting creditors to initiate bankruptcy proceedings against the Personal Guarantors following deemed rejection of their Repayment Plans due to non-submission and non-cooperation.