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TMI Blog2021 (9) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... e which appears to be provided by the legislature appears to be that when application under Section 95 is filed by the Creditor/s by themselves or through Resolution Professional as per the prescribed format, the interim-moratorium kicks in when the application is filed - we are not accepting the fear expressed by the Appellant that how could the Resolution Professional appointed by the Creditor itself if appointed by the Adjudicating Authority deal with the application filed by himself for the Creditor and give Report. What the Resolution Professional under Section 99 would be doing was requiring the Debtor to furnish proof of repayment as per Section 99(2) and after doing the necessary spade work Resolution Professional has to recommend acceptance or rejection of the application with reasons. The decision making whether to admit or reject the application would be only by the Adjudicating Authority. The observations have been made by the Adjudicating Authority that the Corporate Guarantor (should have been only 'Guarantor') has not filed any submission and on date of hearing there was no representation. It appears that the Adjudicating Authority was of the view that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts as in Company Appeal (AT) (Insolvency) No. 316 of 2021 for the sake of convenience. The facts involved and arguments in both the Appeals are similar. The impugned orders are also similar. Company Appeal (AT) (Insolvency) No. 316 of 2021 4. The Appellant claims that the application filed by the Respondent was listed for hearing before the Adjudicating Authority on 15th January, 2021 but was adjourned for paucity of time to 4th February, 2021. On 4th February, 2021, the matter was taken up for hearing and reserved for orders. Subsequently, the impugned order came to be passed on 12th March, 2021, confirming appointment of Mr. Ram Ratan Kanoongo as the Resolution Professional in the Company Petition. According to the Appellant, no notice of hearing was issued by the Adjudicating Authority nor by the Advocate of Respondent giving intimation with regard to date of hearing of the matter. Thus, the issue raised is whether the Adjudicating Authority failed to issue notice to the Appellant and thus Principles of Natural Justice were not followed. According to the Appellant, the Adjudicating Authority could not proceed to hear and adjudicate the case on merit without issuing notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after such findings recorded, the Resolution Professional could not while giving report under Section 99 propose rejection when finding is already recorded. 7. It is argued by the Learned Counsel for the Appellant that when application was filed under Section 95 of IBC, the Respondent - Debtor did not get opportunity to seek replacement of the Resolution Professional. It is argued that the Resolution Professional has already given report under Section 99 and matter is at the stage of considering the report under Section 100 of IBC. 8. The Counsel for the Respondent submitted that in the scheme of IBC Part III as far as it relates to insolvency of Debtors - Personal Guarantors of the Corporate Debtor, the concerned merits of the matter are to be looked into at the stage of Section 100 and the earlier provisions show that when application filed, the step to be taken is the appointment of Resolution Professional. It is also stated that Insolvency and Bankruptcy Board of India ('IBBI' in short) has a procedure whereby database of IBBI is shared with the Adjudicating Authorities concerning Insolvency Professionals including information about disciplinary proceedings from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates to personal guarantors to corporate debtors: (1) Section 79 pertains to the definitional section for the purposes of insolvency resolution and bankruptcy for individuals before the Adjudicating Authority. (2) Section 94 to 187 outline the entire structure regarding initiation of the resolution process for individuals before the Adjudicating Authority. 95. The impugned notification authorises the Central Government and the Board to frame rules and regulations on how to allow the pending actions against a personal guarantor to a corporate debtor before the Adjudicating Authority. The intent of the notification, facially, is to allow for pending proceedings to be adjudicated in terms of the Code. Section 243, which provides for the repeal of the personal insolvency laws has not as yet been notified. Section 60(2) prescribes that in the event of an ongoing resolution process or liquidation process against a corporate debtor, an application for resolution process or bankruptcy of the personal guarantor to the corporate debtor shall be filed with the concerned NCLT seized of the resolution process or liquidation. Therefore, the Adjudicating Authority for personal guar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with the proceedings against corporate debtors. After providing for a common adjudicating forum, Section 60(4) vests the NCLT with all the powers of the DRT as contemplated under Part III of this Code for the purpose of sub-section (2) . Section 60(4) thus (a) vests all the powers of DRT with NCLT and (b) also vests NCLT with powers under Part III. Parliament therefore merged the provisions of Part III with the process undertaken against the corporate debtors under Part II, for the purpose of Section 60(2), i.e., proceedings against personal guarantors along with corporate debtors. Section 179 is the corresponding provision in Part III. It is subject to the provisions of Section 60 . Section 60(4) clearly incorporates the provisions of Part III in relation to proceedings before the NCLT against personal guarantors. 100. It is clear from the above analysis that Parliamentary intent was to treat personal guarantors differently from other categories of individuals. The intimate connection between such individuals and corporate entities to whom they stood guarantee, as well as the possibility of two separate processes being carried on in different forums, with its attendant unc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ability. As to the nature and extent of the liability, much would depend on the terms of the guarantee itself. However, this court has indicated, time and again, that an involuntary act of the principal debtor leading to loss of security, would not absolve a guarantor of its liability. In Maharashtra State Electricity Board (supra) the liability of the guarantor (in a case where liability of the principal debtor was discharged under the insolvency law or the company law), was considered. It was held that in view of the unequivocal guarantee, such liability of the guarantor continues and the creditor can realize the same from the guarantor in view of the language of Section 128 of the Contract Act as there is no discharge under Section 134 of that Act. This court observed as follows: 7. Under the bank guarantee in question the Bank has undertaken to pay the Electricity Board any sum up to ₹ 50,000 and in order to realise it all that the Electricity Board has to do is to make a demand. Within forty-eight hours of such demand the Bank has to pay the amount to the Electricity Board which is not under any obligation to prove any default on the part of the Company in liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from judgment in the matter of 'Lalit Kumar Jain' (supra) are only with regard to Personal Guarantors to the Corporate Debtors under Section 2(e) of IBC. Chapter III of the Part III deals with Insolvency Resolution Process which we are concerned in the present matter. Section 94 deals with application by Debtor to initiate Insolvency Resolution Process. Debtor has been defined under Section 79(12) as under: (12) debtor includes a judgment-debtor; Debtor includes a judgment debtor. Thus, it is an inclusive definition. 16. Debt has been defined under Section 3(11) as under: debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; [Emphasis supplied] 17. We are not concerned in the present matter with application by Debtor to initiate Insolvency Resolution Process against himself/itself. Here Section 95 is relevant. Section 95 to 100 may be reproduced for reference and to examine the same: 95. Application by creditor to initiate insolvency resolution process.- (1) A creditor may apply either by himself, or jointly with other creditors, or through a resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 97. Appointment of resolution professional.- (1) If the application under section 94 or 95 is filed through a resolution professional, the Adjudicating Authority shall direct the Board within seven days of the date of the application to confirm that there are no disciplinary proceedings pending against resolution professional. (2) The Board shall within seven days of receipt of directions under sub-section (1) communicate to the Adjudicating Authority in writing either- (a) confirming the appointment of the resolution professional; or (b) rejecting the appointment of the resolution professional and nominating another resolution professional for the insolvency resolution process. (3) Where an application under section 94 or 95 is filed by the debtor or the creditor himself, as the case may be, and not through the resolution professional, the Adjudicating Authority shall direct the Board, within seven days of the filing of such application, to nominate a resolution professional for the insolvency resolution process. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give directions to the resolution professional replaced under sub-section (7)- (a) to share all information with the new resolution professional in respect of the insolvency resolution process; and (b) to co-operate with the new resolution professional in such matters as may be required. 99. Submission of report by resolution professional.- (1) The resolution professional shall examine the application referred to in section 94 or section 95, as the case may be, within ten days of his appointment, and submit a report to the Adjudicating Authority recommending for approval or rejection of the application. (2) Where the application has been filed under section 95, the resolution professional may require the debtor to prove repayment of the debt claimed as unpaid by the creditor by furnishing- (a) evidence of electronic transfer of the unpaid amount from the bank account of the debtor; (b) evidence of encashment of a cheque issued by the debtor; or (c) a signed acknowledgment by the creditor accepting receipt of dues. (3) Where the debt for which an application has been filed by a creditor is registered with the information utility, the debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, to the creditors within seven days from the date of the said order. (4) If the application referred to in section 94 or 95, as the case may be, is rejected by the Adjudicating Authority on the basis of report submitted by the resolution professional or that the application was made with the intention to defraud his creditors or the resolution professional, the order under sub-section (1) shall record that the creditor is entitled to file for a bankruptcy order under Chapter IV. [Emphasis supplied] 18. Creditor referred in Section 95 has not been defined in Part III. As such definition of Creditor at Section 3(10) may be referred, which is as under: creditor means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder; 19. Thus, a Creditor includes Financial Creditor, Operational Creditor, Secured Creditor, Unsecured Creditor and also Decree-holder. The Creditor under Section 95 can apply (i) by himself or (ii) jointly with other creditors or (iii) through Resolution Professional to the Adjudicating Authority for initiating Insolvency Resolution Process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including registered post, speed post, courier or electronic means, which is capable of producing or generating an acknowledgement of receipt of such communication: Provided that where a document cannot be served in any of the modes, it shall be affixed at the outer door or some other conspicuous part of the house or building in which the addressee ordinarily resides or carries on business or personally works for gain. 23. Reverting again to Section 95(4), the application under sub-section (1) should be accompanied with details and documents disclosing relevant evidence of the default or non-repayment of debt . 24. Section 95(5) requires the Creditor to provide copy of the application under sub-section (1) to the Debtor. This section needs to be read with Rule 3(1)(g) reproduced above. It is evident from reading the Section along with the Rule that what Creditor has to serve is 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 that the Creditor will serve forthwith a copy of the application to the Guarantor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insolvency professionals, who may be appointed as resolution professionals, with the Adjudicating Authority. 28. It is argued by the Learned Counsel for the Respondent that the IBBI from time to time puts on its database particulars regarding the Insolvency Professionals including information regarding disciplinary proceedings against them and that the panel of the insolvency professionals is shared with the Adjudicating Authorities and such procedure helps the Adjudicating Authorities take timely action in the proceedings and the Adjudicating Authority in the present matters could appoint the Resolution Professional through whom the application under Section 95 had been filed. 29. Under Section 97(3), where an application under Section 95 is filed by the Credit or himself, and not through the Resolution Professional, the Adjudicating Authority is required to direct the Board, within 7 days, to nominate a Resolution Professional and the Board needs to nominate the same within 10 days and then the Adjudicating Authority shall, by order, appoint the Resolution Professional recommended under Sub-section (2) or as nominated by the Board under sub-section (4). Here again, the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dispute regarding validity of the debt. Thus, where the debt is registered as mentioned, dispute of validity of debt cannot be raised and thus Adjudicating Authority need not adjudicate on it. Section 99(4) shows that purpose of examining the application, is that Resolution Professional may seek such 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. Thus, Resolution Professional has option to call for information from different sources. Sub-section (5) of 99 makes provision that the person from whom information or explanation is sought shall furnish the same within seven days of receipt of request. Here again, the procedure for Resolution Professional is of collecting necessary material or evidence. 33. Like Section 99(1) and Section 99(4), sub-section (6) of Section 99 also refers to the Resolution Professional examining the application and ascertaining if the applicant satisfies the requirements set out in Section 95 and that the applicant has provided the necessary information and given explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019] [Date] To The Adjudicating Authority [Address] From [Name and address of the creditor] In the matter of [name of the guarantor] Subject: Application to initiate insolvency resolution process in respect of [name of the guarantor] under the Code. Madam/Sir, [Name of the creditor], hereby submits this application to initiate an insolvency resolution process in the case of [name of guarantor]. The details for the purpose of this application are set out below: Part - I PARTICULARS OF APPLICANT Part - II PARTICULARS OF THE GUARANTOR Part-III PARTICULARS OF DEBT Part-IV PARTICULARS OF DECLARATION BY INSOLVENCY PROFESSIONAL (IF APPLICATION FILED THROUGH INSOLVENCY PROFESSIONAL) [Name of the creditor] has paid the requisite fee for this application through [state means of payment] on [date]. Yours sincerely, List of documents to be attached to the application: 1. All documents mentioned in serial number. 15 of Part III of this form. 2. Copy of the demand notice served on the guarantor in Form B. 3. Copy of the income tax returns with detailed computation of the income of the guaranto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication under section 94 or 95on behalf of a guarantor or a creditor, as the case may be, shall provide a written consent in Form A to the Adjudicating Authority before his appointment as resolution professional in are solution process. 37. Form A referred in Regulation 4(2) is part of the Forms under the Regulations and provides for particulars required to be given by the Resolution Professional while giving written consent to act as Resolution Professional. These are protective measures. The procedures are time bound and legislature has expressed faith in the Resolution Professionals empanelled. Section 97(2)(a) does not bar the same Resolution Professional from being appointed who may have filed the application for Creditor under Section 95(1). 38. Going through the above Sections, Rules and Regulations, the scheme which appears to be provided by the legislature appears to be that when application under Section 95 is filed by the Creditor/s by themselves or through Resolution Professional as per the prescribed format, the interim-moratorium kicks in when the application is filed. Filing of the application has been dealt with under Rules as per Rule 10, which reads as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atement required to be made in 'Form C' provided in the Rules. The Rules show that the IBBI follows a procedure of maintaining a panel of Insolvency Professionals with information about disciplinary proceedings against them from time to time. Under the Regulations relating to Resolution Professionals various safeguards have been provided and the Resolution Professionals are creatures of IBC read with Rules and Regulations and subject to discipline through IBBI. As mentioned the legislature has confidence in the Resolution Professionals under the system that they will act as Professionals in terms of IBC, its Rules and Regulations. IBC provides that the Creditor may, himself or through Resolution Professional file application under Section 95. Section 97 of IBC does not bar the same Resolution Professional from being appointed as Resolution Professional by the Adjudicating Authority. The safeguard for the Debtor is in Section 98 where the Debtor may seek replacement of the Resolution Professional. Thus, we are not accepting the fear expressed by the Appellant that how could the Resolution Professional appointed by the Creditor itself if appointed by the Adjudicating Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es shall be in Form No. NCLT 4. (3) Every petition or application or reference shall be filed in form as provided in Form No. NCLT 1 with attachments thereto accompanied by Form No. NCLT 2 and in case of an interlocutory application, the same shall be filed in Form No. NCLT 1 accompanied by such attachments thereto along with Form No. NCLT 3. (4) Every petition or application including interlocutory application shall be verified by an affidavit in Form No. NCLT 6. Notice to be issued by the Tribunal to the opposite party shall be in Form NCLT 5. x x x x 37. Notice to Opposite Party.--(1) The Tribunal shall issue notice to the respondent to show cause against the application or petition on a date of hearing to be specified in the notice. Such notice in Form No. NCLT 5 shall be accompanied by a copy of the application with supporting documents. (2) If the respondent does not appear on the date specified in the notice in Form No. NCLT 5, the Tribunal, after according reasonable opportunity to the respondent, shall forthwith proceed ex parte to dispose of the application. (3) If the respondent contests to the notice received under sub-rule (1), it may, eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contemplated and before appointment of the Resolution Professional the Debtor cannot be allowed to raise disputes for which the stage would be Section 100. Under NCLT Rule 11, Adjudicating Authority is duty bound to pass orders to prevent abuse of process. As such, limited notice to appear may be given to the Personal Guarantors so that when Resolution Professional is appointed, he may provide material as per Section 99(2) of IBC. Till the stage of Section 100, the process is of collecting necessary evidence. 43. The Appellant is himself criticizing the impugned order claiming that the Adjudicating Authority has already recorded finding that the Personal Guarantor has committed a default and thus the Resolution Professional cannot while examining the application under Section 99 give a contrary opinion. At the same time, the Learned Senior Counsel for the Appellant has tried to submit that before appointment of Resolution Professional the Personal Guarantor should be able to show that the debt is not due or that it is not payable. This is contradiction. In our view, the stage for examining merits of the Application would be Section 100 of IBC. To prevent abuse of process of do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bankruptcy Code, 2016 read with Rule 7 of the IBC Rules 2019 against Mr. Ravi Ajit Kulkarni, the Personal Guarantor of the Corporate Debtor, M/s. Pratibha Industries Limited in CP No. 1192/2020. The Interim Moratorium as per Section 96(1) of the Code has commenced from the date of filing of Application by the Financial Creditor, i.e., 25.01.2021. 12. The Bench makes it clear that from the date of filing this Application i.e. 25.01.2021 by the Petitioner, Interim Moratorium commences as stipulated under Section 96(1) of the Code in relation to all the debts of the Personal Guarantor. During the Interim Moratorium period: (i) any pending legal action or proceedings in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. As per Section 96(3) of the Code, the provisions of sub-section 96(1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 13. The Bench notes that the appointment of Resolution Professional under Section 97 of the Code is critical and essential not only for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 99 could not be in the negative. Again the Adjudicating Authority mentioned in Para 11 of the impugned order that it was allowing the application under Section 95. At the stage of Section 95 Adjudicating Authority is to act upon the application to take further steps. The stage for allowing Application to admit or reject the application would be under Section 100. At the stage of appointment of Resolution Professional, such allowing is not contemplated. In Section 97 no adjudication as such is involved. 48. The Personal Guarantor of Corporate Debtor can express opinion that Resolution Professional appointed under Section 97 is required to be replaced under Section 98 only after Resolution Professional has been appointed. No concurrence of such Personal Guarantor is required to be taken before appointment. Apparently, the opinion contemplated is limited to say X Resolution Professional should be replaced. Reading Section 98(1) with Section 98(3) what appears relevant is whether there is disciplinary proceeding pending against the X Resolution Professional appointed. 49. For reasons mentioned above, Company Appeal (AT) (Insolvency) No. 316 of 2021 req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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