2021 (6) TMI 533 - Tri - Insolvency and Bankruptcy

Requirement on the side of Adjudicating Authority to issue notice to the Personal Guarantor at the time of appointing RP - Section 95 of IBC, 2016 - HELD THAT - The day the Application under Section 94 or 95 is filed, the interim moratorium gets triggered by virtue of Section 96(1)(a) of IBC, 2016 from the very date of such application. There is no separate provision available in the Code for this Adjudicating Authority to either impose or suspend the interim-moratorium, till the time the Application is actually admitted or rejected. From perusal of the contents of Section 96(1)(b) of IBC 2016, it is observed that the interim-moratorium only restrains any ongoing or fresh legal action or proceeding in respect of any debt pertaining to the Personal Guarantor. However, unlike the provision of final moratorium as stipulated under Section 101 (2)(c) of IBC 2016, which is initiated after the admission of the Application, there is no provision under interim-moratorium, which restrains Personal Guarantor from transfer, alienation, encumbering or disposing of any of the assets or his legal right or beneficial interest therein - thus, it it is clear that initiation of the interim-moratorium under Section 96 causes no prejudice to the Personal Guarantor. As it is evident from the provisions in Section 94 to 97 of IBC, 2016, the intention of legislature is not to make this Adjudicating Authority-a trial court at the time of appointing RP under Section 97. Rather, it is the RP, who once appointed, has been vested with the power to examine the documents provided by the Creditor or debtor, as the case may be, on merits - the provisions under Section 99 of IBC, 2016, are intended to protect the interest of Personal Guarantor by affording him an opportunity. By virtue of Section 99(2) of IBC, 2016, the Personal Guarantor is given an opportunity to prove before RP if the debt has already been discharged and the Personal Guarantor can furnish proof(s) or evidence to the RP regarding such payment of debt. Further, by virtue of the provision under Section 99(3), the Personal Guarantor is entitled to dispute the validity of such a debt except when the debt is registered with the information utility. Non-issuance of notice at the time of appointment of RP cannot be held to be a violation of the Principles of Natural Justice, since these cannot be rigid and their applicability depends on the demand of the law and situation. Further, there is no straight jacket formula applicable to the principles of natural justice, which can be followed in each and every case - thus, in the light of the material available on record and the admission made by the Ld. Counsel during hearing regarding receipt of the Demand Notice by E-mail, there is no mistake apparent on the face of record in the order dated 22.03.2021 passed by this Adjudicating Authority. Application dismissed.

Summary

Issues Involved:
1. Validity of ex parte order dated 22.03.2021.
2. Service of Demand Notice.
3. Principles of Natural Justice.
4. Requirement of issuing notice to the Personal Guarantor at the time of appointing Resolution Professional (RP).

Detailed Analysis:

1. Validity of Ex Parte Order Dated 22.03.2021:
The Personal Guarantor contended that the order dated 22.03.2021 was passed ex parte without issuing notice to him. The Tribunal noted that the Personal Guarantor admitted to receiving the Demand Notice and the petition via email. Consequently, the Tribunal found no mistake apparent on the face of the record regarding the service of the Demand Notice and thus upheld the order dated 22.03.2021.

2. Service of Demand Notice:
The Applicant argued that the Demand Notice was not served at his correct address, which is mandatory under Section 95(4) of IBC 2016 and Rule 7(1) of the Insolvency & Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtor) Rules, 2019. The Tribunal, however, noted that the Demand Notice was served via email, and the Applicant's counsel confirmed receipt of the same. Therefore, the Tribunal dismissed the contention of improper service.

3. Principles of Natural Justice:
The Applicant emphasized the need for adherence to the principles of natural justice, citing Section 424(1) of the Companies Act, 2013, and relevant rules under the NCLT Rules, 2016. The Tribunal acknowledged that while the principles of natural justice are crucial, they are not rigid and must adapt to the demands of the law and situation. The Tribunal referenced the Supreme Court judgment in Ajit Kumar Nag Vs. G.M. (P.J.) India Oil Corporation Ltd., which highlighted the flexibility of natural justice principles.

4. Requirement of Issuing Notice to the Personal Guarantor at the Time of Appointing RP:
The Tribunal examined the statutory provisions under Chapter III of IBC 2016 and relevant rules, concluding that there is no requirement to issue notice to the Personal Guarantor at the initial stage of appointing an RP. The Tribunal noted that the interim moratorium under Section 96 of IBC 2016 does not prejudice the Personal Guarantor and that the RP is responsible for examining the application and making recommendations. The Tribunal cited the judgment in Volkswagen Finance Private Ltd. Vs. Smt. Pavan Kapoor, which supported the view that notice is not required at the stage of appointing an RP.

Conclusion:
The Tribunal dismissed the application IA-1774/ND/2021, upholding the ex parte order dated 22.03.2021, validating the service of the Demand Notice, and concluding that the principles of natural justice were not violated by not issuing notice at the stage of appointing the RP. The Tribunal emphasized that the issuance of notice is required only when the RP recommends initiating the Insolvency Resolution Process against the Personal Guarantor.