2024 (4) TMI 1146 - AT - Insolvency and Bankruptcy

NCLAT upholds Section 95 application against personal guarantor despite jurisdictional challenges by co-creditor

The NCLAT dismissed an appeal challenging admission of a Section 95 application against a personal guarantor. The tribunal held that when CIRP proceedings ... Maintainability of Section 95 application - Territorial jurisdiction of Adjudicating Authority under Section 60(1) and (2) - Interim moratorium under Section 96 - Effect of an application filed before a non jurisdictional Adjudicating Authority - Limitation for initiation of insolvency proceedings against a personal guarantor - Admission under Section 100Maintainability of Section 95 application - Territorial jurisdiction of Adjudicating Authority under Section 60(1) and (2) - Interim moratorium under Section 96 - Effect of an application filed before a non jurisdictional Adjudicating Authority - Whether the Section 95 application filed by State Bank of India before NCLT, New Delhi was maintainable despite an earlier Section 95 filing by L&T Finance Ltd. at NCLT, New Delhi. - HELD THAT: - The Adjudicating Authority for an application under Section 95 must be the tribunal having territorial jurisdiction as mandated by Section 60(1) and, where a CIRP against the corporate debtor is pending, Section 60(2) requires that an application relating to the insolvency resolution of the personal guarantor be filed before the same Tribunal where the corporate debtor's proceeding is pending. Since a Section 7 CIRP against Castex Technologies Pvt. Ltd. was pending before NCLT, Chandigarh, the application by L&T Finance Ltd. filed at NCLT, New Delhi was not before the competent Adjudicating Authority and therefore not maintainable. An application filed before a non jurisdictional Adjudicating Authority cannot rightly trigger the statutory consequences of a valid filing (including interim moratorium under Section 96). The subsequent dismissal/withdrawal of L&T's application reinforces that it could not proceed before NCLT, New Delhi. Accordingly, the State Bank of India's Section 95 application before NCLT, New Delhi was not invalidated by the earlier L&T filing, and the Adjudicating Authority correctly proceeded to admit the SBI application and appoint a Resolution Professional. [Paras 11, 12, 13]The Section 95 application filed by State Bank of India before NCLT, New Delhi was maintainable because the earlier application by L&T Finance Ltd. at New Delhi was not filed before the jurisdictional Adjudicating Authority and therefore did not validly trigger interim moratorium.Limitation for initiation of insolvency proceedings against a personal guarantor - Whether the Section 95 application filed by State Bank of India was barred by limitation. - HELD THAT: - The court examined the dates on which the guarantee was invoked and notices issued to the personal guarantor. A demand/notice invoking the guarantee was issued to the appellant on 24.09.2018 and a further demand notice was issued in August 2020. Counting limitation from the date of invocation/notice, the Section 95 application filed by State Bank of India in 2020 was within the permissible period. Therefore the plea that the application was time barred was rejected. [Paras 19]The Section 95 application by State Bank of India was not barred by limitation.Final Conclusion: The Tribunal upheld the Adjudicating Authority's admission of the State Bank of India's Section 95 application under Section 100: L&T Finance Ltd.'s earlier filing at NCLT, New Delhi was not before the jurisdictional Adjudicating Authority and did not commence an effective interim moratorium; and the SBI application was not time barred. The appeal is dismissed. Issues Involved:1. Jurisdiction of the NCLT, New Delhi in admitting the Section 95 application.2. Impact of interim moratorium under Section 96 of the I&B Code.3. Bar of limitation on the application filed by State Bank of India.Detailed Analysis:1. Jurisdiction of the NCLT, New Delhi:The Appellant challenged the jurisdiction of the NCLT, New Delhi, arguing that an application under Section 95 could not be filed there due to an existing application by L&T Finance Ltd. against the Appellant. The Tribunal clarified that the application by L&T Finance was filed without jurisdiction because the Corporate Insolvency Resolution Process (CIRP) against Castex Technologies Pvt. Ltd. was already pending before NCLT, Chandigarh. As per Section 60(2) of the I&B Code, any application relating to the insolvency resolution of a personal guarantor of such a corporate debtor must be filed before the same NCLT where the CIRP is pending. The application by L&T Finance at NCLT, New Delhi, was thus not maintainable, and interim moratorium under Section 96 did not apply.2. Impact of Interim Moratorium under Section 96:The Appellant argued that the interim moratorium commenced with the filing of the L&T Finance application, prohibiting any other creditor from initiating proceedings. The Tribunal referred to the judgment in 'Bhavesh Gandhi vs. Central Bank of India,' which states that interim moratorium under Section 96 prevents other creditors from initiating any legal action in respect of any debt. However, since the application by L&T Finance was filed without jurisdiction, the interim moratorium did not apply. The Tribunal emphasized that an application filed before an adjudicating authority without jurisdiction does not trigger the interim moratorium, aligning with the statutory scheme under the I&B Code.3. Bar of Limitation on the Application Filed by State Bank of India:The Appellant contended that the application filed by State Bank of India was barred by limitation, as the default occurred on 29.12.2016, and the application was filed on 23.11.2020. The Tribunal noted that the limitation period should be considered from the date of the demand notice issued to the personal guarantor, which was on 24.09.2018. The application under Section 95 was filed within three years from this date, making it well within the limitation period. The Tribunal dismissed the argument that the application was time-barred.Conclusion:The Tribunal upheld the order of the NCLT, New Delhi, admitting the Section 95 application filed by State Bank of India. It found no merit in the Appellant's arguments regarding jurisdiction, the impact of interim moratorium, and the bar of limitation. The appeal was dismissed, affirming the validity of the proceedings initiated by the State Bank of India against the personal guarantor under the I&B Code.