2024 (10) TMI 61 - AT - IBC

Compliance with the repayment plan and its implications under Section 118 of the I B Code - It is the contention of the Appellants that the insolvency resolution process was not conducted as per the provisions of the Code and due process has not been followed, that the bank account details were shared at a very belated stage - HELD THAT - The basis of the aforesaid orders of NCLT dated 07.02.2024 was that the Personal Guarantors / appellants of these Company Appeals have clearly failed to comply with the conditions of depositing the amount as per the repayment plan and that, since there was a breach of repayment plan as contemplated under Regulation 20 of IBBI (Insolvency Resolution Process for Personal Guarantors) 2019, the RP was fully within his rights to submit his report u/s 118(2) of the Code. Further in the Order passed on 07.02.2024, granting liberty to initiate Section 121, detailed reasoning has been given as to why the application preferred by the RP was considered and allowed. Part of the order of 07.02.2024 becomes relevant to be extracted to establish as to under what conditions the recall application as preferred by the appellants deserve rejection. Payment of the initial instalments cannot give a leverage or an excuse to commit subsequent default in the future repayment schedule given under the repayment plan. The initial payment which was made on 27.10.2023 and it can at the best be interpreted to express the bonafides of the Appellants towards acceptance and enforcement of the repayment plan, but it cannot be used as a foundation to grant liberty to the appellants to commit default in honouring the terms and conditions of the repayment plan. The reasons which have been assigned in the Impugned Orders for declining to recall the Orders passed on 07.02.2024, declaring the premature end of repayment plan and granting liberty to proceed u/s 121 of the Code, do not suffer from any apparent legal vices which could call for any interference by the tribunal in the exercise of the Appellate Jurisdiction, in the absence of there being any apparent factual or legal flaw. Appeal disposed off.

Issues Involved:
1. Validity of the common Impugned Order dated 19.07.2024.
2. Compliance with the repayment plan and its implications under Section 118 of the I&B Code.
3. Initiation of bankruptcy proceedings under Section 121 of the I&B Code.
4. Alleged procedural lapses and fairness in the insolvency resolution process.

Detailed Analysis:

1. Validity of the Common Impugned Order dated 19.07.2024:
The appellants challenged the common Impugned Order dated 19.07.2024, which rejected their Interlocutory Applications (IAs) seeking to recall an earlier order dated 07.02.2024. The order of 07.02.2024 had declared the premature end of the repayment plan and granted liberty to the Financial Creditor (FC) to initiate bankruptcy proceedings against the personal guarantors. The NCLT had observed that despite repeated opportunities, the appellants failed to implement the repayment plan, thereby justifying the rejection of the recall applications.

2. Compliance with the Repayment Plan and its Implications under Section 118 of the I&B Code:
The appellants had defaulted on the repayment plan approved by the NCLT on 13.09.2023. The repayment plan required strict adherence to the stipulated timeline, and any breach would lead to the plan's premature end under Section 118 of the I&B Code. The Resolution Professional (RP) submitted reports under Section 118(2) stating the non-compliance by the appellants, which led to the NCLT's order under Section 118(3) confirming the plan's failure. The Tribunal emphasized that the legal consequences of non-compliance were automatic, and the plan would be deemed to have ended if not fully implemented.

3. Initiation of Bankruptcy Proceedings under Section 121 of the I&B Code:
Following the failure of the repayment plan, the FC filed an application under Section 121 for initiating bankruptcy proceedings against the appellants. The NCLT's order on 07.02.2024 had granted liberty to the FC to pursue this course of action. The appellants contended that they had made partial payments and should be allowed to fulfill the repayment plan. However, the Tribunal held that initial payments could not excuse subsequent defaults, and the legal framework under Section 118 necessitated the initiation of bankruptcy proceedings upon non-compliance.

4. Alleged Procedural Lapses and Fairness in the Insolvency Resolution Process:
The appellants argued that the insolvency resolution process was flawed, citing delays in sharing bank account details, lack of notice under Rule 20(1), and insufficient opportunities to address procedural shortcomings. They also alleged discriminatory treatment compared to other personal guarantors who were allowed to make repayments beyond the stipulated period. The Tribunal rejected these contentions, stating that the appellants had consistently failed to adhere to the repayment plan despite multiple communications from the RP. The Tribunal found no contravention of Regulation 20 and upheld the NCLT's orders.

Conclusion:
The Tribunal dismissed the appeals, affirming the NCLT's orders dated 19.07.2024 and 07.02.2024. It concluded that the appellants had failed to comply with the repayment plan, leading to its premature end under Section 118 of the I&B Code. Consequently, the initiation of bankruptcy proceedings under Section 121 was justified. The Tribunal found no legal or factual flaws in the NCLT's decisions, and all pending applications were disposed of accordingly.

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