2021 (9) TMI 60 - AT - Insolvency and Bankruptcy

Tribunal sets aside findings on Guarantor, upholds Resolution Professional appointment, and remits matters for fresh report.

The Tribunal partly allowed the appeals, setting aside the findings and observations made by the Adjudicating Authority regarding default by the Personal ... Seeking appointment of Resolution Professional and calling report under Section 99 of the IBC - HELD THAT:- The 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 uncertain outcomes, led to carving out personal guarantors as a separate species of individuals, for whom the Adjudicating authority was common with the corporate debtor to whom they had stood guarantee - The fact that the process of insolvency in Part III is to be applied to individuals, whereas the process in relation to corporate debtors, set out in Part II is to be applied to such corporate persons, does not lead to incongruity. What appears is that action against Personal Guarantor can be maintained during pendency of CIRP of Corporate Debtor or even later. 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 - 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 service of 'Form C on 29th August, 2020 and 'Amended Form C' on 28th January, 2021 was the notice. Having gone through the Form and Rules and Regulations, we do not find that anywhere it is provided that when the Form is submitted it would also contain notice of date as to when the matter is coming up before the Adjudicating Authority. In the absence of any such requirement, we find that there has to be limited notice for presence conveying the 'filing' of application and commencing of Interim Moratorium under Section 96 from date of filing (to be mentioned). The appointment of Mr. Ram Ratan Kanoongo as Resolution Professional is not disturbed. It is stated that he has already given report - Appeal allowed in part. Issues Involved:1. Whether the Adjudicating Authority failed to issue notice to the Appellant, thus violating the Principles of Natural Justice.2. Whether service of an advance copy of the petition can be deemed as service of notice of hearing.3. Whether the Adjudicating Authority followed the correct procedure under the Insolvency and Bankruptcy Code (IBC) and National Company Law Tribunal (NCLT) Rules.4. Whether the Adjudicating Authority made premature findings regarding the default by the Personal Guarantor.5. Whether the appointment of the Resolution Professional was correctly handled.6. Whether the Personal Guarantor was given an opportunity to seek the replacement of the Resolution Professional.Detailed Analysis:Issue 1: Principles of Natural Justice and Notice to AppellantThe Appellant argued that no notice of hearing was issued by the Adjudicating Authority or the Respondent's Advocate, thus violating the Principles of Natural Justice. The Tribunal noted that the application was listed for hearing but adjourned due to time constraints, and the impugned order was passed without the Appellant being given notice. The Tribunal emphasized that the Adjudicating Authority should have issued a limited notice to the Personal Guarantor to secure their presence, referring to the commencement of the Interim Moratorium.Issue 2: Service of Advance Copy as NoticeThe Appellant contended that the service of an advance copy of the application did not constitute proper notice. The Tribunal clarified that according to Section 95(5) of the IBC and Rule 3(1)(g) of the Rules, the Creditor must serve a copy of the application made under sub-section (1) to the Debtor. The Tribunal concluded that serving an advance copy is not contemplated and that the application should be served after it is submitted to the Adjudicating Authority.Issue 3: Procedure under IBC and NCLT RulesThe Tribunal examined the procedural requirements under Sections 95 to 100 of the IBC and the relevant Rules and Regulations. It was noted that the process involves filing the application, appointing a Resolution Professional, and the Resolution Professional examining the application and submitting a report. The Tribunal found that the Adjudicating Authority erred by not issuing a limited notice to the Personal Guarantor and by making premature findings on the default.Issue 4: Premature Findings on DefaultThe Tribunal observed that the Adjudicating Authority prematurely recorded a finding of default by the Personal Guarantor at the stage of acting on the application under Section 95. The Tribunal emphasized that the stage for considering default would arrive under Section 100, after the Resolution Professional submits their report. The premature finding was set aside.Issue 5: Appointment of Resolution ProfessionalThe Tribunal discussed the appointment procedure of the Resolution Professional under Section 97. It was argued that the same Resolution Professional who filed the application for the Creditor could not propose rejection of the application. The Tribunal noted that the IBBI maintains a panel of Insolvency Professionals and that the Resolution Professional's role is to collect evidence and recommend acceptance or rejection of the application. The Tribunal found no bar under Section 97 against appointing the same Resolution Professional who filed the application.Issue 6: Opportunity to Seek Replacement of Resolution ProfessionalThe Appellant argued that they should have been given an opportunity to seek the replacement of the Resolution Professional before the report was submitted. The Tribunal clarified that Section 98, which deals with the replacement of the Resolution Professional, is not stage-specific and can be resorted to at various stages, including the implementation of the repayment plan. The Tribunal concluded that the opportunity to seek replacement arises only after the Resolution Professional is appointed.Conclusion:The Tribunal partly allowed the appeals, setting aside the findings and observations made by the Adjudicating Authority in paragraphs 9 to 11 of the impugned orders. The appointment of the Resolution Professional was not disturbed. The Tribunal remitted the matters back to the Adjudicating Authority, directing the Resolution Professional to give the Appellant an opportunity to present their case and submit a fresh report. The Adjudicating Authority was instructed to proceed further as per law in light of the Tribunal's observations and findings.