2022 (6) TMI 362 - 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 - HELD THAT - It is evident from a reading of the Section along with the Rule, that what the Creditor has to serve is the copy of the application made under sub-section (1) to the Debtor, 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 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 sewed 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 a copy of the application made under sub-section (1) , to the Debtor. Thus, serving advance copy is not contemplated. The arguments 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 - 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. The constitutional vires of Section 95, 96, 97, 99 100 of the Code has been challenged before the Supreme Court, on the ground that no opportunity of being heard has been provided in favour of the affected party before the initiation of the insolvency process and that the impugned provisions denude the personal guarantors of the opportunity to raise objections on jurisdictional issues such as double dipping, period of limitation, inconsistent, illegal false claims, quantum, suppression of facts, etc, at the very threshold. 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 - Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Maintainability of the Petition
2. Right of Audience for the Respondent
3. Appointment of Interim Resolution Professional (IRP)
4. Compliance with Principles of Natural Justice

Detailed Analysis:

1. Maintainability of the Petition:
The petition was filed by the Bank of Baroda (Financial Creditor) against the Personal Guarantor (Respondent No. 1) and Corporate Debtor (Respondent No. 2) under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016. The application was deemed to be filed only against Respondent No. 1, with Respondent No. 2 formally added. The Corporate Debtor had availed various credit facilities and defaulted on repayments, leading the Financial Creditor to issue a demand notice, which was not honored by the Respondents. The Financial Creditor had previously initiated the Corporate Insolvency Resolution Process (CIRP) against Respondent No. 2, which was admitted on 13.03.2018. The Respondent No. 1 objected to the petition's maintainability, arguing that the personal guarantee was in favor of a consortium of lenders, not individually in favor of the Financial Creditor. However, the Tribunal found no hurdle to entertain the application under Section 95 of IBC, 2016, as the application was complete.

2. Right of Audience for the Respondent:
The Respondent argued that they should be heard on the issue of the petition's maintainability. The Tribunal referred to the binding law, which does not provide a right of audience to the Respondent under Sections 95 or 97 of IBC before appointing the IRP. The Tribunal cited the judgment of the Bombay High Court in Surendra B. Jiwrajka vs Omkara Assets Reconstruction and the NCLAT judgment in Mr. Ravi Ajit Kulkarni's case, which held that no notice is required to be given to the Personal Guarantor at the stage of appointment of IRP. The Tribunal concluded that no notice is required for the Respondent at this stage, and hence, the question of hearing the Respondent on the maintainability of the petition does not arise.

3. Appointment of Interim Resolution Professional (IRP):
The Tribunal appointed Mr. Chillale Rajesh as the IRP, as suggested by the Petitioner. The IRP was directed to file his written consent in Form No. 2 forthwith and to submit his report within 10 days of the date of the order, recommending the approval or rejection of the application.

4. Compliance with Principles of Natural Justice:
The Tribunal addressed the concern regarding the principles of natural justice, noting that the legislature has enacted unambiguous provisions regarding the issuance of notice and the right of audience to the Debtor at the stage of appointment of IRP. The Tribunal emphasized that the Debtor is provided with ample opportunity to be heard before the Resolution Professional submits a report, as outlined in Section 99 of IBC. The Tribunal found no violation of the principles of natural justice by not giving an opportunity to the Debtor for making submissions before the appointment of IRP. The Tribunal also noted that the constitutional vires of Sections 95, 96, 97, 99, and 100 of IBC have been challenged before the Supreme Court, but as of now, the law is settled, and no notice is required for the Respondent at the stage of appointment of IRP.

Order:
A. Mr. Chillale Rajesh is appointed as the Interim Resolution Professional.
B. The IRP is directed to submit his report within 10 days.
C. The Registry shall communicate the order to the Petitioner and the Financial Creditor forthwith.
D. The Petitioner and the Registry shall send a copy of this order to the IRP for necessary compliance.