FAILURE TO FILE REPORT BY RESOLTUION PROFESSIONAL UNDER SECTION 99 OF THE CODE

Insolvency Resolution Process

Chapter III of Part III of the Insolvency and Bankruptcy Code, 2016  (‘Code’ for short) provides for the insolvency resolution process of personal guarantors.  Section 94 provides that the personal guarantor may initiate insolvency resolution process before the adjudicating authority.  Likewise, Section 95 allows a financial creditor to initiate insolvency resolution process against the personal guarantor in addition to the initiation of the corporate insolvency resolution process against the corporate debtor for whom the personal guarantors gave guarantee to the financial creditor.

Application by Personal Guarantor

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 along with the payment of Rs.2000/-.

Application by Financial Creditor

Section 95(1) 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 applicationin the prescribed form along with the payment of Rs.2000/-

The Adjudicating Authority may appoint Resolution Professional if the application has not been filed through the Resolution Professional appointed for this purpose.  The said application shall be accompanied with details and documents relating to-

• the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application;
• the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and
• relevant evidence of such default or non-repayment of debt.

Interim moratorium

The interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application filed by either by the financial creditor under Section 95 or by the Personal Guarantor under Section 94.  During the interim-moratorium period any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.

Service of order

A copy of the order appointing a Resolution Professional may be forwarded to the Resolution Professional within 7 days from the date of the order.  It is common for the Adjudicating Authority directing the applicant to forward a copy of the order of the Adjudicating Authority to the Resolution Professional appointed to conducting the Insolvency Resolution Process.  The applicant is to comply with the order of Adjudicating Authority and shall forward the copy to the Resolution professional.

Report of Resolution Professional

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.  For the purposes of examining an application, the 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.   The person from whom information or explanation is sought shall furnish such information or explanation within seven days of receipt of the request.

The resolution professional shall examine the application and ascertain that –

• the application satisfies the requirements set out in section 94 or 95;
• the applicant has provided information and given explanation sought by the resolution professional.

After examination of the application under sub-section (6), he may recommend acceptance or rejection of the application in his report.

Admission or rejection of the petition

The Adjudicating Authority shall, within fourteen days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in section 94 or 95, as the case may be. 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 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.

Dismissal of petition – possible?

The petition, once admitted, shall be proceeded with by the Resolution Professional.  There is no provision in the Code for the dismissal of the petition once it is admitted.  The Adjudicating Authority can invoked Rule 11 of NCLT Rules and exercise its inherent powers to dismiss the petition if the petitioners did not obey the directions issued by the Adjudicating Authority or fail to comply with the provisions of the Code in respect of Insolvency Resolution Process. 

Case law

In Manish Mahendra Somani and Manoj Mahendra Somani Versus Bank of Baroda and Rajendra Jain - 2025 (12) TMI 1148 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI (LB), the appellants are personal guarantors of the corporate debtor.  Both the appellants filed their application under Section 94 of the Code before the Adjudicating Authority on 04.10.2023.  On 16.01.2024 the Adjudicating Authority appointed a resolution professional, since the appellants did not propose a name of insolvency professional to act as a resolution professional.  The Adjudicating Authority directed the appellants to serve a copy of the petition to the Resolution Professional.  Both the appellants failed to comply with the directions of the Adjudicating Authority.  They did not serve a copy of petition to the Resolution Professional.

Since the appellants failed to serve a copy of the petition, the Resolution Professional did not submit his report under Section 99 of the Code.  The Financial Creditor filed an application in both the petitions before the Adjudicating Authority with a prayer to direct the Resolution Professional to submit his report to the Adjudicating Authority. 

The date of hearing was posted on 04.04.2025.  The Resolution Professional did not attend the hearing on that day.  The date of next hearing was posted to 17.04.2025.  On that date also the Resolution Professional did not appear.  On that date, the Adjudicating Authority invoked its inherent powers under Rule 11 of NCLT Rules and dismissed the petitions of the appellants filed under Section 94 of the Code.  The said petitions were dismissed on the ground that-

• the appellants have not served the copies of their respective petitions on the Resolution Professional as directed by its order dated 16.01.2024; and
• The Resolution Professional has not filed his report in terms of Section 99 of the Code.

Being aggrieved against the said order the appellants filed appeals before the National Company Law Appellate Tribunal (‘NCLAT’ for short).  The appellants submitted the following before the NCLAT-

• The Adjudicating Authority ought not to have dismissed the petitions filed under Sec. 94 of the Code without receiving the report of the Resolution Professional as mandated in Section 99 Code.
• Unless Resolution Professional submits his report, the Adjudicating Authority cannot take a decision under Sec. 100 of the Code. 
• The decision of the Adjudicating Authority  to dismiss the petitions under Sec.94 without the report of the Resolution Professional does not fit in with the scheme of the Code.
• For the failure of the Resolution Professional to file the report, the appellants should not be penalised.
• The Adjudicating Authority ought not have invoked its inherent powers under Rule 11 of the NCLT Rules to dismiss the petition under Section 94 of the Code for the failure of the Resolution Professional  to file the report.
• Since the Adjudicating Authority itself has appointed the Resolution Professional of its choice, the appellants were under a bona fide impression that the Registry of the NCLT would serve the Resolution Professional with the copies of the petitions which the appellants had filed, since this has been the practice which is ordinarily followed. 
• A bona fide error of the appellants should not be allowed to have its reflection on the maintainability of the very petitions that they had filed under Sec.94 of the Code.

The appellants relied on the following judgments-

1. BANK OF BARODA Versus FAROOQ ALI KHAN & ORS. - 2025 (2) TMI 1021 - Supreme Court
2. GLAS Trust Company LLC Versus BYJU Raveendran & Ors. - 2024 (10) TMI 1185 - Supreme Court (LB)
3. Dilip B Jiwrajka Versus Union of India & Ors. - 2024 (1) TMI 33 - Supreme Court
4. M/s. Tata Chemicals Ltd. Versus Commissioner of Customs (Preventive) Jamnagar - 2015 (5) TMI 557 - Supreme Court
5. Babu Verghese & Ors Versus Bar Council Of Kerala & Ors - 1999 (3) TMI 628 - Supreme Court
6. Central Bank of India Versus Deepen Arun Parekh - 2024 (11) TMI 553 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI - LB

The first respondent, the Financial Creditor submitted the following before the NCLAT-

• The failure of the appellants to supply the copies of their respective petitions on the RP is not just a procedural lapse.
• The appellants have secured to themselves a procedural advantage of moratorium for about 15 months.
• If the appellants are allowed to cure their failure now and allowed to continue their petitions, then it would confer an unmerited advantage on the appellants.

The NCLAT heard the submissions of both the parties.  The NCLAT observed that the impugned order of the Adjudicating Authority is of two-fold – the failure of the appellants to forward a copy of the order of the petition to the Resolution Professional by the appellants; and the failure of the Resolution Professional to submit a report under Section 99 of the Code.  The NCLAT observed that it is the duty of the Adjudicating Authority to either to ensure that the Resolution Professional files his report, or to replace the Resolution Professional.  The petitions filed  under Section 94 of the Code cannot be dismissed more so under Rule 11 of the NCLT Rules for the failure of Resolution Professional to file his report under Section 99 of the Code.  The NCLAT held that the order of the Adjudicating Authority cannot be sustained to that extent.

In respect of the failure of the appellants to submit a copy of the petition to the Resolution Professional is concerned, the NCLAT observed that the submissions of the appellants that they were in a bona fide belief that the Adjudicating Authority itself send copies of the petition to the Resolution Professional since the Resolution Professional was appointed by the Adjudicating Authority.  The NCLAT further observed that no such practice is prevailing.  The Adjudicating Authority issued positive directions to the appellant to serve a copy of their petition to the Resolution Professional.  Therefore, the belief of the appellants is contrary to the positive orders of the Tribunal.  By means of this procedural lapse the appellants enjoyed the moratorium for the period from 16.01.2024 to 17.04.2025.  Further the financial creditor, is disabled from enforcing the personal guarantee in the manner known to law. Had the appellants served the copy of the petitions to the Resolution Professional, then the Resolution Professional would file his report in time on the basis of which the Adjudicating Authority would pass the suitable order in accordance with the Code. 

The NCLAT considered the order passed by the Adjudicating Authority by invoking Rule 11 of the NCLT Rules is in order. The NCLAT upheld the order passed by the Adjudicating Authority and dismissed the appeal filed by the appellants.