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TMI Blog2024 (10) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... itions 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 bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt appellant being aggrieved against the common Impugned Order dated 19.07.2024, as it was rendered in IA(IBC)137/2024 in IA No.1782/2023, in IA(IBC)138/2024 in IA No.1782/2023 and in IA/695/2024 (all in IA No.588/2023 in CP(IB) No.111/95/HDB/2022). Facts of the cases as involved are given below:- Each Appellant had preferred 3 Interlocutory Applications each before NCLT, Hyderabad on which a common impugned order has been passed on 19.07.2024 rejecting those Applications. Out of the three applications thus preferred, two sought to recall an earlier order passed by the NCLT on 07.02.2024 under section 118(3) of I B Code confirming that the repayment plans have not been completely implemented. The third application prayed for issue of directions from the Tribunal to the Resolution Professional and the Financial Creditor to accept the money which was due and payable under the repayment plan, which was submitted by the appellant herein and as it stood approved by the Hon ble NCLT, vide its order dated 13.09.2023, as rendered in IA No.587, 588, 589,590 591 of 2023 in the respective Company Petitions. The appellants happen to be the personal guarantors as per the Guarantee Agreement and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aims by 28.07.2022. Further, by an email communication of 26.07.2022, the RP asked the appellants herein, to prepare the repayment plan. The Appellants submitted individual repayment plans on 15.08.2022, and accordingly, the 2nd respondent placed the repayment plan along with his report before NCLT, Hyderabad on 19.08.2022 for grant of its approval. However, after holding joint consultation with the creditor and personal guarantors and after detailed deliberations, a revised repayment plan was prepared and the same was put up in the respective company petitions before the Hon ble NCLT on 26.12.2022 for approval with an application praying for condonation of delay. Some time was consumed in reconciling the differences in the application numbers, in dealing with the application seeking to withdraw the repayment plan and in dealing with the statement by FC to the effect that its abstention will mean a vote of rejection. Ultimately, on 13.09.2023 the NCLT, Hyderabad Bench approved the repayment plans submitted before it, of the respective personal guarantors / appellants herein in IAs 589, 590, 591, 587 588 of 2023 and copy of such orders was made available on 27.09.2023. The repayment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions of the repayment plan and to direct the Respondent / Bank to accept it. Further, the Appellants also filed 2 Recall Applications each before the NCLT on 29.04.2024, being IA 1288 1289, 1285 1286, 1291 1292, 1294 1295 and 137 138 of 2024, seeking to recall the order passed by it on 07.02.2024 which granted liberty to the Respondent-1 / Bank to initiate bankruptcy proceedings. In a set of common orders dated 19.07.2024 passed against each individual personal guarantor / Appellant herein, NCLT rejected the IAs filed before it as described above. It is these orders which are being challenged in the instant Appeals. 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, that notice under Rule 20(1) was not served on them prior to filing of the report of RP u/s 118(2) of the Code, that 2 sets of reports u/s 118(2) of the Code were filed at two different dates before NCLT, that they were not given sufficient opportunities to demonstrate these shortcomings in the process followed leading to issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 121 for initiation of the process of bankruptcy . Section 118 and its implication in the instant appeals, becomes an important issue which needs to be considered. The provisions of section 118 of the Code is extracted hereunder : - 118. Repayment plan coming to end prematurely (1) A repayment plan shall be deemed to have come to an end prematurely if it has not been fully implemented in respect of all persons bound by it within the period as mentioned in the repayment plan. (2) Where a repayment plan comes to an end prematurely under this section, the resolution professional shall submit a report to the Adjudicating Authority which shall state (a) the receipt and payments made in pursuance of the repayment plan; (b) the reasons for premature end of the repayment plan; and (c) the details of the creditors whose claims have not been fully satisfied. (3) The Adjudicating Authority shall pass an order on the basis of the report submitted under sub-section (2) by the resolution professional that the repayment plan has not been completely implemented. (4) The debtor or the creditor, whose claims under repayment plan have not been fully satisfied, shall be entitled to apply for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the deeming clause of Section 118 of the I B Code. 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. What has come on record and apparent from the documents too, including the order sheet of the proceedings of NCLT on 02.01.2024, 08.01.2024 07.02.2024 that despite consistent requests made to the personal guarantors/the appellants herein, they have failed to implement the repayment plan and this fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mandatory condition of implementation of the repayment plan within the time period mentioned in the repayment plan itself. The Appellants submit that, in furtherance of the repayment plan of 13.09.2023, though admittedly there had been a default in adhering to the repayment schedule, they had remitted 25% of the amount as on 27.10.2023 and this should be taken as a proof of their sincerity and adherence to the repayment plan. However this cannot be taken as basis for granting the liberty and latitude to escape from the implication of Section 118 and the consequential action under Section 121 of the I B Code, for the purpose of initiation of the bankruptcy process. 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. Consequentially, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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