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2025 (4) TMI 377 - AT - IBCAdmission of Section 95 application filed by the Indian Bank - existence of relevant record or evidence of default or not - time limitation - HELD THAT - The law is well settled by the Hon ble Supreme Court in Dilip B. Jiwrajka Vs. Union of India Ors. 2024 (1) TMI 33 - SUPREME COURT that adjudicatory functions of the adjudicating Authority commences under Section 100 after the submission of the Report. It was further held that adjudicating authority has to conduct an independent assessment not solely relying on the RP s Report to decide the fate of application. In the present case adjudicating authority has not carried any assessment which is clear from the order of the adjudicating authority. The adjudicating authority has adverted to the issue of limitation in paragraph 14 and has observed in paragraph 15 that when default is committed by principal borrower surety are jointly and severally liable to creditor. In the present case it was admitted fact that under SARFAESI bank has already realised Rs.5, 92, 92, 750/- from the sale of the assets and by email on behalf of the personal guarantor it was communicated that one property which is in possession of the bank is sufficient to liquidate the entire debt. The above relevant issue which was raised on behalf of the personal guarantors was neither adverted by the RP in its report nor adverted by the adjudicating authority in the impugned order. There is a difference between the scheme and under Section 7 of the IBC and Section 100. In view of the law laid down by the Hon ble Supreme Court in Dilip B. Jiwrajka adjudicating authority has to apply its mind and not to mechanically follow the Report of the IRP. Observation of the Hon ble Supreme Court are in essence the adjudicating authority conducts an independent assessment not solely relying on the RP s report to decide the fate of application under Section 94 95 of the IBC . Present is a case where adjudicating authority has not adverted to any adjudicatory issue has not adjudicated on any of the issues which was raised before the RP and as reflected in the Report of the RP itself. It was submitted on behalf of the personal guarantor that amount of Rs.6 Crore has already been realised and the assets of the corporate debtor are already with the bank amounting to Rs.1.66 Crore which are sufficient to meet out the bank dues. These factors are required to be adverted to by the adjudicating authority before admitting the application. A fresh opportunity be given to the personal guarantors to file an objection to the Report within 30 days from today and the adjudicating authority after considering all relevant material including the Report and the objection pass a fresh order under Section 100. Conclusion - The adjudicating authority s order admitting the Section 95 application is unsustainable due to its failure to independently assess the evidence and facts particularly regarding the realization of assets under SARFAESI and the previous Section 7 application. The personal guarantors be given an opportunity to file objections to the RP s report and the adjudicating authority must consider all relevant materials before passing a fresh order under Section 100. Applications under Section 95(1) are revived before the adjudicating authority for afresh consideration in accordance with law - appeal allowed.
ISSUES PRESENTED and CONSIDERED
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS 1. Completeness of the Section 95 Application The appellant argued that the application under Section 95 filed by the Indian Bank was incomplete as it lacked the necessary record or evidence of default as required by Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The appellant contended that this regulation should apply due to the absence of specific provisions in the 2019 Regulations for personal guarantors. The court, however, noted that the 2019 Rules specifically govern applications under Section 95 and provide for the necessary documents through 'Form-C'. The court disagreed with the appellant's reliance on Regulation 2A of the 2016 Regulations, affirming that the 2019 Rules adequately cover the filing requirements for applications against personal guarantors. 2. Assessment of Evidence and Facts by the Adjudicating Authority The appellant claimed that the adjudicating authority did not properly adjudicate the issue of debt and relied mechanically on the Resolution Professional's (RP) report without independent assessment. The court emphasized the need for the adjudicating authority to conduct an independent assessment, as mandated by the Supreme Court in 'Dilip B. Jiwrajka v. Union of India & Ors.', where it was held that the authority must not merely rely on the RP's report but actively engage in a fair process. The court found that the adjudicating authority failed to independently assess the evidence and facts, particularly regarding the realization of assets under SARFAESI and the sufficiency of these realizations to cover the claimed debt. 3. Impact of Previous Section 7 Application The appellant highlighted that the Indian Bank's Section 7 application against the corporate debtor was withdrawn due to the inability to substantiate the debt amount. The court noted that the adjudicating authority did not adequately address this issue, which was crucial for determining the validity of proceeding against the personal guarantors. 4. Consideration of Asset Realization under SARFAESI The appellant argued that the bank had already realized a significant amount from the sale of mortgaged assets under SARFAESI, which was sufficient to cover the debt. The court found that neither the RP nor the adjudicating authority properly considered this realization in their assessments. The adjudicating authority's failure to address this point was a significant oversight. 5. Fulfillment of Adjudicatory Role The court reiterated the Supreme Court's guidance that the adjudicating authority's role begins in earnest after the RP's report is submitted. The authority must independently assess the application, considering all relevant materials and arguments. The court concluded that the adjudicating authority did not fulfill this role, as it did not engage in the necessary independent assessment. SIGNIFICANT HOLDINGS The court held that the adjudicating authority's order admitting the Section 95 application was unsustainable due to its failure to independently assess the evidence and facts, particularly regarding the realization of assets under SARFAESI and the previous Section 7 application. Key principles established include:
Final determinations on each issue led to the setting aside of the adjudicating authority's order and the revival of the Section 95 applications for fresh consideration. The court directed that personal guarantors be given an opportunity to file objections to the RP's report, and the adjudicating authority must consider all relevant materials before passing a fresh order under Section 100.
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