2022 (7) TMI 143 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Personal Guarantors to Corporate Debtors - Jurisdiction to entertain insolvency matters of partnership firms and individuals - existence of debt and dispute or not - HELD THAT - The provisions relating to the insolvency and bankruptcy process of personal guarantors to CDs came into force on 1st December 2019 vide a Central Government notification. Section 179, subject to provisions of section 60, vests the jurisdiction in Debt Recovery Tribunals (DRTs) to entertain insolvency matters of partnership firms and individuals. Section 60 of the Code clearly states that in relation to insolvency resolution and liquidation of corporate persons, including personal guarantors to CDs, NCLT shall be the Adjudicating Authority ('AA). Therefore, when provisions of Section 60 are attracted, section 179 is rendered inapplicable. From the report submitted by the Resolution Professional, there does not appear any request of the RP for issuance of the instructions for the purpose of conducting negotiations between the debtor and creditor for arriving at the repayment plan. Therefore, based on the reasons recorded in the report submitted by the Resolution Professional, the petitions, filed under the provisions of Section 95 of IBC, 2016 is hereby ADMITTED under Section 100 of the IBC, 2016. Petition admitted - moratorium declared.

Issues Involved:
1. Validity of the demand notice under Rule 7 of the Insolvency & Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.
2. Compliance with Section 95(4) of the Insolvency and Bankruptcy Code, 2016.
3. Jurisdiction of NCLT versus DRT.
4. Multiple remedies before different forums.
5. Admission of the petition for initiating Corporate Insolvency Resolution Process against personal guarantors.

Issue-wise Detailed Analysis:

1. Validity of the Demand Notice:
The respondents argued that the demand notice dated 08.11.2021 was not valid as it did not meet the requirements under Rule 7 of the Insolvency & Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. They contended that the notice should be in Form B and accurately reflect the exact amount of default. The discrepancy in the amounts mentioned in the demand notice and the covering letter was highlighted as a critical issue.

2. Compliance with Section 95(4) of the Insolvency and Bankruptcy Code, 2016:
The respondents argued that the Applicant Bank failed to meet the requirements under Section 95(4)(b) and (c), which necessitate a claim from the Corporate Debtor and proof of default. They pointed out that the bank did not provide evidence along with the demand notice to show that the amount was claimed from the Corporate Debtor and that the Corporate Debtor failed to pay. The respondents also emphasized that the right of the Applicant Bank would crystallize only if a default was committed by the borrower, as per Section 126 of the Indian Contract Act, 1872.

3. Jurisdiction of NCLT versus DRT:
The respondents contended that the jurisdiction to entertain insolvency matters of partnership firms and individuals lies with the Debt Recovery Tribunals (DRTs) as per Section 179 of the Code, except when provisions of Section 60 are attracted, which vest jurisdiction in the NCLT. The tribunal clarified that Section 60 applies to insolvency resolution and liquidation of corporate persons, including personal guarantors, thereby rendering Section 179 inapplicable in this case.

4. Multiple Remedies Before Different Forums:
The respondents alleged that the petitioner bank sought the same remedy before multiple forums, which is not permitted under the law. However, the tribunal did not find this contention sufficient to dismiss the petitions.

5. Admission of the Petition for Initiating Corporate Insolvency Resolution Process Against Personal Guarantors:
The tribunal considered the report submitted by the Resolution Professional, which recommended the admission of the application filed under Section 95 of the Insolvency and Bankruptcy Code, 2016. The report confirmed the debt owed by the personal guarantors to the applicant creditor, the failure to pay the debt within fourteen days of the demand notice, and the evidence of such default. The tribunal found that the requirements under Section 95(4) were satisfied and admitted the petitions, initiating the Corporate Insolvency Resolution Process against the personal guarantors.

Conclusion:
The tribunal admitted the petitions under Section 95 of the Insolvency and Bankruptcy Code, 2016, initiating the Corporate Insolvency Resolution Process against the personal guarantors. A moratorium was declared, and the Resolution Professional was directed to proceed with the necessary steps, including publishing a public notice, inviting claims from creditors, and preparing a repayment plan in consultation with the debtor. The tribunal emphasized the compliance with the Code of Conduct and periodic reporting by the Resolution Professional.

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