2022 (4) TMI 527 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - Personal Guarantor of the Corporate Debtor - existence of debt and dispute or not - right of audience - HELD THAT - Under Section 99 such Resolution Professional shall submit his report and based on that report, under Section 100, the Adjudicating Authority, shall pass an order either admitting or rejecting the Application. It is only under Section 100(3) that the Adjudicating Authority shall provide a copy of the order passed under Sub-section (1) to the Creditors. Hence, in terms of Section 97 100 of IBC, 2016 no right of audience can be given to the Respondents at a stage before appointing the IRP - though time-lines have been prescribed at each stage of the proceeding, leading to acceptance or rejection of the application under section 100, no such time-line has been prescribed for submission of report by the resolution professional though section 100 provides that the adjudicating authority shall take a decision either admitting or rejecting the application within 14 days from the date of submission of the report. That apart on a careful examination of section 100, before the adjudicating authority takes a decision to either admit or reject the application upon receipt of report from the resolution professional, the parties to the insolvency resolution process are required to be heard. Reading Rule 7(2) with Rule 3 shows that the application filed under sub-section (1) of Section 95 shall be submitted in Form-C and that the Creditor will serve forthwith a copy of the application to the Guarantor and the Corporate Debtor for whom the Guarantor is a Personal Guarantor. Thus, what has to be served is the copy of application which has been submitted . What is contemplated is that the application in Form C should be submitted and then the Creditor should serve forthwith a copy of the application to the Guarantor and the Corporate Debtor for whom the Guarantor is a Personal Guarantor. The procedure thus prescribed will give the Personal Guarantor notice of the application already filed before the Adjudicating Authority. Section 95(5) requires the Creditor to provide copy of the application made under sub-section (1) , to the Debtor. Thus, serving advance copy is not contemplated. The argument that Section 98 provides for replacement of the Resolution Professional and hence the Guarantor should have an opportunity to seek replacement of Resolution Professional and hence he should be heard before appointment of IRP was also considered and held that going through Section 98 of IBC, 2016, it is found that Section 98 is not stage specific. Section 98 itself shows that the section could be resorted to even at stages like implementation of repayment plan which would be a stage beyond Section 116, where implementation and supervision of repayment plan is provided for - Any amount of audience is provided to the debtor before the Resolution Professional submits a report. Section 99(2) of IBC gives an opportunity to the debtor to prove repayment of debt claimed as unpaid by the creditor. Section 99(4) of IBC, empowers the Resolution Professional to seek further information or explanation in connection with the application as may be required from the Debtor or the Creditor or any other person, who, in the opinion of the Resolution Professional, may provide such information. Hence it is not as if, the Debtor is not provided an audience before the submission of the report. Hence there are no violation of principles of natural justice by not giving an opportunity to the Debtor for making his submissions before the appointment of IRP. This Tribunal is of the considered opinion that there is no hurdle to entertain this application under Section 95 of IBC, 2016. Since the application is found to be complete - Application admitted - moratorium declared.

Summary

Issues:
- Application filed by the Central Bank of India against Personal Guarantor and Corporate Debtor seeking to initiate CIRP under Section 95 of IBC, 2016.
- Right of audience for Respondents before appointment of Interim Resolution Professional (IRP).
- Interpretation of Sections 95, 97, 98, 99, and 100 of IBC, 2016 regarding the appointment of IRP and principles of natural justice.
- Requirement of notice to the Respondent at the stage of appointment of IRP.
- Appointment of Insolvency Resolution Professional (IRP) by the Tribunal.

Analysis:

1. The application was filed by the Central Bank of India against the Personal Guarantor and Corporate Debtor to initiate Corporate Insolvency Resolution Process (CIRP) under Section 95 of IBC, 2016. The facts revealed that the Guarantor failed to adhere to repayment terms, leading to irregular loan accounts, prompting the application. The Tribunal clarified that the application was effectively against the Guarantor, with the Corporate Debtor being formally added.

2. The issue of right of audience for Respondents before the appointment of Interim Resolution Professional (IRP) was examined. The Tribunal highlighted the procedural aspects outlined in Sections 95, 97, 98, 99, and 100 of IBC, 2016. It referenced a judgment by the Bombay High Court and NCLAT regarding the timeline, principles of natural justice, and the role of Resolution Professional in the process.

3. The Tribunal analyzed the requirement of notice to the Respondent at the stage of the appointment of IRP. It discussed Section 95(5) of IBC, emphasizing the need for the Creditor to serve a copy of the application to the Debtor, ensuring notice of the filed application. The argument regarding Section 98 for replacement of IRP and the necessity of notice before the IRP's appointment were addressed.

4. The Tribunal concluded that the principles of natural justice were not violated by not providing a pre-appointment notice to the Debtor. It cited Section 99 provisions allowing the Debtor to prove repayment of debt and interact with the Resolution Professional before report submission. The judgment emphasized the unambiguous legislative provisions regarding notice and audience rights at the IRP appointment stage.

5. Finally, the Tribunal appointed an Insolvency Resolution Professional (IRP) as per the request of the Petitioner, ensuring compliance with Section 99 of IBC, 2016. The IRP was directed to submit a report within 10 days for the Tribunal's consideration, and the necessary communication of the order was to be facilitated by the Registry to all relevant parties involved.