ADJUDICATION OF CASES FILED UNDER SECTION 94 AND 95 OF THE IBC.

Chapter III of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for the insolvency resolution process of individuals, personal guarantors. The Financial creditor used to initiate corporate insolvency resolution process against the corporate debtor who got aid from the financial creditor in the form of loan. There may be a personal guarantor guaranteeing the financial creditor for the corporate entity. The Code provides for initiation of insolvency resolution process against the personal guarantor under section 95 of the Code. The Financial creditor may simultaneously initiate corporate insolvency resolution process against the corporate debtor and also initiate insolvency resolution process against the personal guarantor under the Code. The personal guarantor may initiate insolvency resolution 1process for the outstanding amount payable by corporate debtor for which the personal guarantor gave guarantee under Section 94(1) of the Code, whether corporate insolvency resolution process is initiated by the financial creditor against the corporate debtor or not.

 The provisions relating insolvency resolution process came into effect from 15.11.2019. Section 94(1) of the Code provides that a debtor who commits a default may apply, either personally or through a resolution professional, to the Adjudicating Authority for initiating the insolvency resolution process, by submitting an application in the prescribed form before the Adjudicating Authority. section 95(1) of the Code provides that A creditor may apply either by himself, or jointly with other creditors, or through a resolution professional to the Adjudicating Authority for initiating an insolvency resolution process under this section by submitting an application.

 The adjudication of cases filed under Section 94 and 95 of the Code involves the National Company Law Tribunal, as the Adjudicating Authority. The Adjudicating Authority admits the application if it is found correct in all aspects. The Adjudicating Authority appoints Resolution Professional directing to examine the application filed by the personal guarantor and other related documents to be obtained from personal guarantors, creditors or corporate debtor. Interim moratorium will take effect from the date of application in relation to all the debts and shall cease to have effect on the date of admission of such application. Then the Resolution Professional will submit a report to the Adjudicating Authority. In the report the Resolution Professional will recommended either for the acceptance of the application filed by the personal guarantor or reject the application by the Adjudicating Authority. The Adjudicating Authority reviews the report to admit or reject the application, with no judicial adjudication happening before the Resolution Professional’s report is filed.

 In ‘Dilip B Jiwarjka v. Union of India and others’- 2024 (1) TMI 33 - Supreme Court the Supreme Court gave a detailed procedure in respect of adjudication of cases filed under Section 94 and 95 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short). The observations of the Supreme Court, in this regard, as below-

• No judicial adjudication is involved at the stages envisaged in sections 95 to section 99 of the Code.
• The resolution professional appointed under section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or section 95.
• The report to be submitted by the resolution professional is recommendatory in nature on whether to accept or reject the application.
• A hearing should be conducted by the Adjudicating Authority for the purposes of determining jurisdictional facts at the stage when it appoints a resolution professional under Section 97(5) of the Act is not required.
• No such adjudicatory function is contemplated at that stage.
• Such a requirement would be to rewrite the statute which is impermissible in the exercise of judicial review.
• The resolution professional may exercise the powers vested under Section 99(4) of the Code for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommend in the acceptance or rejection of the application.
• There is no violation of natural justice under section 95 to Section 100 of the Code as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional.
• No judicial determination takes place until the adjudicating authority decides under Section 100 of the Code whether to accept or reject the application.
• The report of the resolution processional is only recommendatory in nature and hence does not bind the adjudicating authority when its exercises its jurisdiction under Section 100 of the Code.
• The Adjudicating Authority must observe the principles of Natural Justice when it exercises jurisdiction under Section 100 of the Code for the purpose of determining whether to accept or reject the application.
• The purpose of the interim moratorium under Section 96 is to protect the debtor from further legal proceedings.