2022 (8) TMI 1002 - AT - Insolvency and Bankruptcy

Suspension of initiation of CIRP - Personal Guarantors - whether the benefit of Section 10A can also be claimed by a Personal Guarantor and an application under Section 95 shall be barred for a default which has arisen on or after 25.03.2020 till 24.03.2021? - HELD THAT - When Section 10A was inserted in Chapter II of Part I no corresponding amendment was made in Chapter III of Part III of the Code. Had the legislature intended to prohibit filing of application under Section 95(1) by a creditor against the Personal Guarantor for any default committed on or after 25.03.2020, a provision akin to Section 10A could have very well be inserted in Chapter III Part III of the Code - The principles of statutory interpretations are well established. The basic principle of statutory interpretation is that when a word of statute is clear, plain and unambiguous the courts are bound to give effect to that meaning irrespective of consequences. On the basic principle of statutory interpretation, the provision of Section 10A is capable of only one meaning that is suspension of initiation of CIRP was only for a Corporate Debtor. Had the legislature intended suspension of initiation of CIRP against the Personal Guarantor also, similar amendment was also required to be made in Chapter III of Part III of the Code - Whether the suspension of insolvency resolution process has to be for Corporate Debtor and also for individuals including Personal Guarantor is the legislative policy which policy has to be looked into from the amendment brought in the Code by insertion of Section 10A. The statutory scheme does not contain any indication that CIRP shall also remain suspended for Personal Guarantor for any default between 25.03.2020 to 24.03.2021, therefore, submission of learned counsel for the Appellant cannot be accepted. Service of notice to the Appellant by the Adjudicating Authority - HELD THAT - Application under Section 95(1) was filed by serving advance notice to the Appellant in Form-B and the Adjudicating Authority issued notice by order dated 03.02.2022 to the Personal Guarantor. Interim moratorium under Section 96 - HELD THAT - The purpose of limited notice as has been laid down by this Tribunal in Ravi Ajit Kulkarni 2021 (9) TMI 60 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI is to give opportunity to the Personal Guarantor to participate in the proceedings under Section 95 to object the application filed under Section 95(1) including report of the Resolution Professional. Personal Guarantor is entitled to raise all his pleas for opposing admission of Section 95 application at the time the Adjudicating Authority passes order under Section 100. In the present case, stage of Section 100 has not yet arisen - The Appellant still have opportunity to file his reply opposing the Section 95 application as well as of filing objection to the report filed by the Resolution Professional, if not already filed. There are no ground to interfere with the order dated 03.02.2022 - The Appeal is dismissed.

Summary

Issues Involved:
1. Applicability of Section 10A of the Insolvency and Bankruptcy Code (I&B Code) to Personal Guarantors.
2. Procedure followed by the Adjudicating Authority in appointing the Resolution Professional and issuing notice.

Issue-wise Detailed Analysis:

1. Applicability of Section 10A of the I&B Code to Personal Guarantors:

The primary issue was whether the benefit of Section 10A, which suspends the initiation of Corporate Insolvency Resolution Process (CIRP) for defaults arising between 25.03.2020 and 24.03.2021, extends to Personal Guarantors. Section 10A explicitly prohibits the initiation of CIRP against Corporate Debtors for defaults during this period. The Appellant argued that this protection should also extend to Personal Guarantors to avoid discrimination and ensure consistent interpretation of the I&B Code.

However, the Tribunal observed that Section 10A, which is part of Chapter II of Part II of the I&B Code, specifically applies to Corporate Debtors and does not mention Personal Guarantors. The Tribunal emphasized the principles of statutory interpretation, stating that when the language of a statute is clear and unambiguous, courts must give effect to its plain meaning. The Tribunal cited several Supreme Court judgments reinforcing this principle, including "Commissioner of Agricultural Income Tax, West Bengal vs. Keshab Chandra Mandal" and "Lalu Prasad Yadav & Anr vs. State of Bihar & Anr."

The Tribunal concluded that the legislative intent was clear in restricting the suspension of CIRP to Corporate Debtors only. No corresponding amendment was made in Chapter III of Part III of the I&B Code, which deals with insolvency resolution for individuals and partnership firms, including Personal Guarantors. Therefore, the Tribunal rejected the Appellant's argument, holding that Section 10A does not apply to Personal Guarantors.

2. Procedure Followed by the Adjudicating Authority:

The second issue was whether the Adjudicating Authority followed due process in appointing the Resolution Professional and issuing notice to the Appellant. The Appellant contended that no notice was issued before appointing the Resolution Professional, violating the procedure established by law.

The Tribunal noted that the application under Section 95(1) was filed by serving advance notice to the Appellant in Form-B. Furthermore, the Adjudicating Authority issued notice to the Personal Guarantor by its order dated 03.02.2022. The Personal Guarantor appeared before the Adjudicating Authority on 29.03.2022 and requested time to file a reply, which was granted.

The Tribunal referred to its earlier judgment in "Ravi Ajit Kulkarni vs. State Bank of India," emphasizing that the purpose of limited notice is to allow the Personal Guarantor to participate in the proceedings under Section 95 and object to the application, including the report of the Resolution Professional. The Tribunal clarified that the interim moratorium under Section 96 automatically commences on the date of the application filed under Section 95. The Personal Guarantor can raise all objections at the time the Adjudicating Authority considers the application under Section 100.

The Tribunal concluded that the Appellant still had the opportunity to file a reply and object to the Section 95 application and the Resolution Professional's report. Therefore, the Tribunal found no procedural irregularity and upheld the Adjudicating Authority's order dated 03.02.2022.

Conclusion:

The Tribunal dismissed the appeal, holding that Section 10A of the I&B Code does not extend to Personal Guarantors and that the Adjudicating Authority followed due process in appointing the Resolution Professional and issuing notice. The Appellant retains the right to file objections during the proceedings under Section 100.