ADMISSION OF SECTION 95 OF THE ‘IBC’ PETITION FILED BY THE FINANCIAL CREDITOR AGAINST THE PERSONAL GUARANTOR PENDING ‘CIRP’ AGAINST THE ‘CORPORATE DEBTOR’

In Neeta Saha, Aniel Kuumar Saha and Aunirban Saha Versus Assets Care & Reconstruction Enterprise Ltd. - 2025 (12) TMI 1256 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI, the ECL Finance Limited, the financial creditor tendered loan to the Corporate Debtor Saha Infratech Private Limited to the tune of Rs.90 lakhs. The loan was granted in two instalments. The interest is 18.75% per annum on the loan amount. Three guarantors gave guarantee for the said loan. The borrower did not pay the dues in time. Therefore, the Financial Creditor declared the said loans as Non-Performing Asset on 02.04.2019 and 26.09.2019. The Corporate Insolvency Resolution Process was initiated against the corporate debtor by home buyers under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short). The said application was admitted by the Adjudicating Authority on 28.02.2020. The corporate insolvency resolution process was commenced with effect from 28.02.2020.

A loan recall notice dated 23.03.2020 was issued by financial creditor. The ECL Finance Limited by Assignment Agreement dated 27.03.2020 assigned the debt along with all underlying securities guarantees etc., in favour of the respondent, Asset Care & Reconstruction Enterprise Limited. The Financial creditor filed a claim with the Resolution Professional for a sum of Rs.143.87. The Resolution Professional admitted Rs.55.06 crores against the claim of the financial creditor. The Financial Creditor filed an interim application against the decision of the Financial Creditor with the Adjudicating Authority, which is pending before the Adjudicating Authority.

The Financial Creditor invoked the personal guarantees of the appellants on 14.03.2022. The Financial Creditor issued a notice to the personal guarantors to pay the outstanding amount of Rs.189.44 crores payable as on 28.02.2022 with directions to pay the said amount within 7 days from the date of receipt of the notice. The same was not paid by the personal guarantor. The respondent issued a demand notice in Form B on 17.11.2022 claiming Rs.229.61 crores as on 03.09.2022. Since no amount has been paid by the Personal Guarantors, the financial creditor filed an application under Section 95. The Adjudicating Authority appointed an Interim Resolution Professional for the conduct of insolvency resolution process against the personal guarantor.  

The appellants filed three appeals before NCLAT against the order of appointment of Interim Resolution Professional by the Adjudicating Authority. The NCLAT disposed the appeal with directions to the appellant to file objections before the Adjudicating Authority and the Adjudicating Authority, after considering the objections proceed further. The NCLAT directed the Interim Resolution Professional not to submit any report in the meantime.

The appellant filed its objections before the Adjudicating Authority on 13.06.2023. The Interim Resolution Professional filed an application before the Adjudicating Authority seeking clarification. The Adjudicating Authority clarified the issue and permitted the Interim Resolution Professional to file is report to the Adjudicating Authority under Section 99 of the Code. The Interim Resolution Professional submitted his report recommending to recommend to admit the application. The Adjudicating Authority, vide their order dated 07.01.2025 admitting the application. The appellants filed these three appeals before NCLAT. The NCLAT considered the said three appeals. Since the facts of the case is similar in all three appeals, the NCLAT has considered the case ‘Neeta Saha, Aniel Kuumar Saha and Aunirban Saha Versus Assets Care & Reconstruction Enterprise Limited.’

The appellant submitted the following before NCLAT-

• The Application under Section 95 of the Code is not maintainable as it is founded on the loan recall notice 23.03.2020 when corporate insolvency resolution process in respect of the principal borrower had already commenced on 28.02.2020 and moratorium under Section 14 of the Code was enforced.
• The alleged default occurred only upon expiry of 7 days of the recall notice i.e., on 31.03.2020 which default was during 10A period, hence application under Section 95 is hit by bar under Section 10A and proceeding under Section 95 are not sustainable.
• The financial creditor mis declared the loan amount as claiming Rs.291.61 crore whereas only Rs.55.06 was admitted by the Resolution Professional during corporate insolvency resolution process. The amount of debt and claim are wholly incorrect.
•  The report submitted by Interim Resolution Professional under Section 99 of the code has not been made after considering the objections raised by the personal guarantor.
• The report merely reproduced the creditor’s narrative, whereas, duty was cast on the Interim Resolution Professional to examine the application as well as personal guarantor’s objections.
• The guarantee recall notice issued by financial creditor and his void claim is in excess of the admitted liability of Rs. 55,06,46,056/-.

The respondent submitted the following before the NCLAT-

• The default was committed by borrower which was communicated vide default notice dated 02.04.2019 and 26.09.2019. 
• By enforcement of moratorium under Section 14 after admission of corporate insolvency resolution process against the principal borrower, loan recall notice could not have been issued which was hit by Section 14.
• The submission of the appellant that amount claim can only be Rs. 55,06,46,056/- is not correct. 
• The submission of the appellant that amount claim can only be Rs. 55,06,46,056/- is not correct. In the corporate insolvency resolution process of the corporate debtor, the financial creditor has filed a claim of more than Rs. 143 crores and the Resolution Professional admitted only the claim of Rs. 55,06,46,056/-.
• The Financial creditor has already filed an I.A. before the adjudicating authority objecting to rejection of its majority of claim being I.A. No.2275/2021 which application is pending adjudication, thus it cannot be said that claim of the financial creditor is only Rs. 55,06,46,056/-.
• What is the actual amount due on the personal guarantor is the issue which has to be examined at the time of submission of repayment of plan and that cannot be a ground for not admitting Section 95 application.
• There is no error in the order admitting Section 95 application warranting any interference by this Appellate Tribunal.

The NCLAT considered the submissions of the appellant and the respondent. The NCLAT analysed the entire case and considered the documents on record.

The NCLAT considered the first submission of the appellant that corporate insolvency resolution process having already commenced against the corporate debtor on 28.02.2020, loan recall notice dated 23.03.2020 was hit by Section 14 of the Code. There cannot be any dispute that after initiation of corporate insolvency resolution process any recovery of amount from corporate debtor is prohibited. But the present is the case, where notice of default was issued to the corporate debtor in the year 2019 and initiation of corporate insolvency resolution process against the corporate debtor and the moratorium under Section 14 of the Code does not preclude the financial creditor to initiate action under Section 95 against the personal guarantor. Thus, invocation against the personal guarantor have taken place on 14.03.2022, the same was well within jurisdiction of the financial creditor and cannot be said to hit by moratorium under Section 14.

The NCLAT, in regard to another submission of the appellant, observed that Section 10A prohibits filing of application under Sections 7, 9 & 10 of the Cpde and provisions of Section 10A does not in any manner bar proceedings against the personal guarantor under Part III of the Code. The NCLAT did notaccept the submission of the appellant that suspension of corporate insolvency resolution process shall also to be accepted for personal guarantor as was provided for the corporate debtor. The statutory scheme does not contain any indication that corporate insolvency resolution process shall also remain suspended for personal guarantor for any default between March 25, 2020 to March 24, 2021 therefore, submission of the appellant cannot be accepted.

The appellants contended that the outstanding amount is only Rs.55 crore as admitted by the Resolution Professional in the corporate insolvency resolution process.Therefore, the amount claimed in the application is more than the actual. The appellant further contended that other co-guarantors paid Rs.40 crores, which have not been considered.The NCLAT held that the appellants have failed to prove by any cogent evidence that entire debt has been paid. 

The NCLAT observed that adjudicating authority in the impugned order has noted the objections of personal guarantor. The Interim Resolution Professional’s report in detail has been noticed by the adjudicating authority. Adjudicating authority has after noticing the facts noticed by Interim Resolution Professional who had recommended for admission of Section 95 application has returned a finding that it is not the case of the personal guarantor that they have repaid the amount of debt. Insofar as difference of quantum amount of debt is claimed by personal guarantor, adjudicating authority has rightly observed that the said exact calculation of the amount can be given at the time of repayment of plan. Adjudicating authority has further held that amount due is admittedly more than Rs. 1 crore, hence there is no reason to not accept the recommendation of the Interim Resolution Professional.

The NCLAT held that the appellants failed to make out a case to interfere with the impugned orders. The NCLAT dismissed the appeal filed by the Appellants.