Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that while considering a report submitted by the Resolution Professional under Section 99 of the Insolvency and Bankruptcy Code, 2016 (IBC), the Adjudicating Authority is required to independently assess whether the application under Section 95 of the Code meets all statutory requirements. It cannot accept the report in a mechanical manner. The ruling was delivered by a three-member bench comprising Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member), and Mr. Barun Mitra (Technical Member).

Background

Indian Bank had extended working capital facilities and FITL to M/s. Metrix Healthcare Private Limited. The appellant executed a personal guarantee in favour of the bank. Following a default, a demand notice in Form-B was issued on 16.03.2024. Subsequently, Company Petition (IB) No. 158/AHM/2024 was filed against Mrs. Rajini Ajay Gupta, the personal guarantor. Pursuant to the submission of the Resolution Professional’s (RP) report dated 23.05.2024, the Adjudicating Authority admitted the application under Section 95 of the Code by an order under Section 100. This order was challenged in the present appeal.

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Appellant’s Contentions

The appellant argued that the application filed by Indian Bank was incomplete as it failed to include the record of default, which is a mandatory requirement under Regulation 2A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. It was further submitted that, in the absence of any determination regarding the exact dues of the corporate debtor, it was premature to proceed against the personal guarantor. According to the appellant, a repayment plan from the guarantor would be unfeasible without first establishing the quantum of debt owed by the corporate debtor. The appellant also contended that the Adjudicating Authority had not exercised its judicial discretion properly, as it failed to engage with these critical issues before passing the admission order.

Respondent’s Stand

Indian Bank, on the other hand, maintained that its application met all statutory requirements. It submitted that the amount realised from the sale of mortgaged assets had been disclosed in the application, and the debt claimed was the balance remaining after such realisation. The bank contended that since default had been committed by the corporate debtor, the invocation of the personal guarantee was justified and proper under law.

Tribunal’s Observations

The Tribunal observed that the bank had duly issued the demand notice in Form-B and filed the application in Form-C along with supporting documents, as required under the IBC and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Therefore, it held that Regulation 2A of the CIRP Regulations, which applies to corporate debtors, was not relevant in the context of personal guarantors. Nevertheless, the Tribunal noted that although the Resolution Professional had acknowledged that certain amounts were realised by the bank, the report did not explicitly quantify those realisations or clearly indicate the net dues remaining against the corporate debtor. The NCLAT also referred to the Supreme Court’s decision in Dilip B. Jiwrajka v. Union of India & Ors. (2024), wherein it was held that the adjudicatory role of the Adjudicating Authority under Section 100 involves the application of judicial mind and cannot be reduced to a mechanical process.

Key Findings

The Tribunal concluded that the Adjudicating Authority had not discharged its duty as required under Section 100. It failed to examine essential facts and legal contentions, such as the realisation of Rs. 5.92 crore under SARFAESI proceedings and an email from the appellant asserting that the mortgaged properties were sufficient to cover the outstanding dues. These aspects were also not adequately addressed by the Resolution Professional. Importantly, the Tribunal drew a distinction between proceedings under Section 7 of the IBC and those under Section 100, noting that the latter involves an adjudicatory process that goes beyond checking the completeness of an application. It emphasized that admission of an application under Section 100 necessitates a judicial evaluation based on the report and material on record.

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Verdict

The NCLAT held that the Adjudicating Authority had failed to independently apply its mind while admitting the application under Section 100. As a result, the impugned order was set aside and the appeal was allowed.

Appearance

For Appellant: Mr. Manu Aggarwal, Ms. Ishita Pandey and Mr. Shubham Bhudiraja, Advocates.

For Respondent: Mr. Ritesh D. Patadia, Advocate. Mr. Rathin Majumdar, Advocate for RP.

Cause Title: Mrs. Rajani Ajay Gupta (Personal Guarantor to M/s. Metrix Healthcare Pvt. Ltd.) V. Indian Bank

Case No: Company Appeal (AT) (Insolvency) No. 2184 of 2024 & I.A. No. 8158 of 2024

Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member (Technical)], Arun Baroka [Member (Technical)]

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