2024 (2) TMI 1215 - Tri - Insolvency and Bankruptcy

Personal guarantor's insolvency resolution process initiated under Section 95(1) after admitting joint liability with principal borrower

State Bank of India Versus Mr. Pankaj Narayanbhai Patel

NCLT admitted application under Section 95(1) of IBC, 2016 for initiation of CIRP against personal guarantor. Court held that under Section 128 of Indian ... Maintainability of application filed under Section 95 (1) of the IBC, 2016 - initiation of CIRP against the Respondent/Personal Guarantor - invocation of personal guarantee - issuance of demand notice - HELD THAT:- It is noted under section 128 of Indian Contract Act, 1872 that when a default is committed the Principal Borrower and Surety are jointly and severally liable to Creditor and Creditor has the right to recover its dues from either of them or from both of them simultaneously. From the report of IRP, it is clear to us that: i. IRP has recommended to accept the application for the reason as stated in the report dated 11.12.2021. ii. The Respondent has admitted to have executed the Guarantee Agreement. iii. The Applicant has demanded the amount outstanding from the Respondent vide Demand Notice dated 22.09.2021. iv. Resolution Professional report states that no evidence was placed before him by the Respondent having paid the amount demanded by the Applicant and as such in overview entire amount demanded is un-serviced as on the date of order. v. The application is not hit by Limitation. It is directed to initiate Insolvency Resolution Process against the Respondent/Personal Guarantor and moratorium in relation to all the debts is declared, from today i.e. date of admission of the application and shall cease to have effect at the end of the period of 180 days, or this Tribunal passes order on the repayment plan under Section 114 whichever is earlier as provided under Sec 101 of IBC, 2016 - application filed under Section 95 (1) of the IBC, 2016 is admitted and the Insolvency Resolution Process stands initiated against the Respondent/Personal Guarantor. Application allowed. Issues Involved:1. Initiation of Insolvency Resolution Process against Personal Guarantor.2. Objections raised by the Personal Guarantor.3. Constitutional validity of Sections 94 to 100 of IBC.4. Tribunal's decision and orders.Summary:1. Initiation of Insolvency Resolution Process against Personal Guarantor:The application was filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 by the State Bank of India to initiate insolvency proceedings against the Personal Guarantor for a default amount of Rs. 37,15,26,865.29. The Tribunal appointed an Interim Resolution Professional (IRP) and directed him to file a report. The IRP recommended the admission of the application, stating that the Personal Guarantor had not provided any documentary evidence of repayment.2. Objections Raised by the Personal Guarantor:The Personal Guarantor raised several objections, including:- The petition was barred by the law of limitation.- Request to change the IRP due to location differences.- Dispute over the ownership and sale of certain properties.- Claim that the IRP did not verify records properly.- Stating that the State Bank of India had already filed its claim in the CIRP of the Corporate Debtor.3. Constitutional Validity of Sections 94 to 100 of IBC:The proceedings were put on hold pending the Supreme Court's decision on the constitutional validity of Sections 94 to 100 of the IBC. The Supreme Court upheld the validity of these sections, stating that:- No judicial adjudication is involved at the stages envisaged in Sections 95 to 99.- The resolution professional serves a facilitative role and the report is recommendatory.- The adjudicatory authority must observe natural justice principles when deciding under Section 100.- The interim moratorium protects the debtor from further legal proceedings.- Sections 95 to 100 do not violate Articles 14 and 21 of the Constitution.4. Tribunal's Decision and Orders:The Tribunal, after considering the IRP's report and the objections, found the application to be within the limitation period and noted that the Personal Guarantor had admitted to executing the Guarantee Agreement. The Tribunal ordered the initiation of the Insolvency Resolution Process against the Personal Guarantor, declaring a moratorium, and directed the Resolution Professional to carry out specific tasks, including publishing a public notice, preparing a list of creditors, and submitting a repayment plan.The Tribunal concluded by admitting the application under Section 95 (1) of the IBC, 2016 and initiating the Insolvency Resolution Process against the Personal Guarantor.