NCLAT Chennai Rules, No Cause of Action Arises Unless the Section 95 IBC Petition Is Admitted Against the Personal Guarantors
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Jatindranath Swain (Technical Member), has held that personal guarantors cannot challenge the appointment of a Resolution Professional (RP) or other procedural steps under Sections 95 to 100 of the Insolvency and Bankruptcy Code, 2016 (IBC), unless and until an order under Section 100 is passed. The Tribunal emphasized that the proceedings up to Section 100 are non-adjudicatory in nature and therefore, do not give rise to a cause of action for filing a company petition or appeal.
The appeals were filed by Mr. Rajesh Bhatia and Mr. Ashwani Kumar Bhatia, who are personal guarantors and managing directors of the corporate debtor, M/s ARS Energy Pvt. Ltd. To secure a financial assistance of Rs. 397.64 crores obtained from a consortium of banks led by Canara Bank, they executed a Personal Guarantee Deed dated 29.06.2017. Following default in repayment, the corporate debtor’s account was declared a Non-Performing Asset (NPA) on 29.08.2022. Canara Bank issued a demand notice under Section 13(2) and a possession notice under Section 13(4) of the SARFAESI Act. In response, the corporate debtor initiated proceedings under Section 17 of the SARFAESI Act before the DRT, which remain pending.
Instead of initiating CIRP, Canara Bank proceeded under Section 95 of the IBC and issued a demand notice for Rs. 93.46 crores, invoking the Personal Guarantee. Subsequently, petitions were filed before the NCLT, Chennai, under Section 95(1), and by orders dated 19.03.2024 and 20.03.2024, the Adjudicating Authority appointed Mr. Ramachandran Subramanian as Resolution Professional and directed him to examine the application and relevant documents.
The appellants challenged the appointment of the RP, contending that the process violated Section 97 of the IBC, particularly subsections (3) and (4), arguing that the Adjudicating Authority should not consult the financial creditor while making such an appointment. They claimed that this procedural flaw invalidated the entire proceedings and warranted judicial interference.
The Tribunal, however, observed that the appellants had not challenged the initiation of proceedings under Section 95 and effectively admitted that the credit facility had been availed and the account declared NPA. The only grievance raised was with regard to the RP’s appointment, which the Tribunal held to be premature and unsustainable.
Referring to the Supreme Court’s judgment in Dilip B. Jiwrajka v. Union of India & Ors [Writ Petition (Civil) No.1281 of 2021], the Tribunal reiterated that proceedings under Sections 95 to 100 do not involve judicial adjudication of any rights until an order under Section 100 is passed. It held that “no person can have a cause to file a petition unless there is an admission of Section 95 proceedings by an order under Section 100.”
The Tribunal further clarified that even if the appointment of the RP is allegedly flawed, it does not prejudice the rights of the appellants since objections can be raised when the RP submits a report under Section 99. The RP’s role under Section 97(6) is merely to examine documents and collate information to assist the Adjudicating Authority, not to adjudicate.
Finding no violation of legal rights or adjudicatory action at the present stage, the Tribunal concluded that the appellants were not aggrieved persons and therefore could not maintain a challenge. The appeals were dismissed, and all connected interlocutory applications were closed.
Appearance
For Appellant: Mr. Anandavenu, Advocate
For Mr. P.S. Suman, Advocate
For Respondents: Mr. MS. Viswanathan, Advocate for R1
Cause Title: Mr. Rajesh Bhatia v. Canara Bank Asset Recovery Managment Branch & Anr.
Case No: Company Appeal (AT) (CH) (Ins) No.143/2024
Coram: Justice Sharad Kumar Sharma [Member (Judicial)], Jatindranath Swain [Member (Technical)]
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