Personal guarantor insolvency application under Section 95(1) IBC maintainable despite no prior judicial adjudication required

The Tribunal held that an application under Section 95(1) of the IBC for initiating insolvency proceedings against a personal guarantor was maintainable, as statutory requirements including debt particulars and demand notice service were satisfied. Following SC precedent in Dilip B Jiwrajka, the Tribunal clarified that no judicial adjudication occurs at this stage - only appointment of a Resolution Professional to examine the application. The Tribunal appointed an Interim Resolution Professional to submit a recommendatory report within 10 days, with the personal guarantor retaining opportunity to respond thereafter, ensuring natural justice compliance.

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The core legal questions considered by the Tribunal in this matter are:

1. Whether the application filed under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating the Insolvency Resolution Process against the Personal Guarantor of a Corporate Debtor is maintainable and complies with the statutory requirements.

2. The scope of judicial adjudication and the role of the Adjudicating Authority and Resolution Professional at the stages envisaged under Sections 95 to 100 of the IBC.

3. Whether the procedural safeguards under the IBC, including the opportunity for the Personal Guarantor to participate and respond, have been complied with and whether there is any violation of natural justice.

4. The appointment and role of the Interim Resolution Professional in examining the application and submitting a report recommending acceptance or rejection of the application.

Issue-wise Detailed Analysis

Issue 1: Maintainability of the Application under Section 95(1) of the IBC

The application was filed by the Applicant bank under Section 95(1) of the IBC for initiating the Insolvency Resolution Process against the Personal Guarantor of a Corporate Debtor who had defaulted on loan repayments. The Applicant provided particulars of the debt, default amount, and date of default, supported by documentary evidence including the Deed of Guarantee, Statement of Accounts, Recovery Certificate, and the Demand Notice issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Rules, 2019.

The Tribunal noted that Section 95(1) permits a creditor to apply for initiation of insolvency proceedings against a Personal Guarantor, provided the debt and default particulars are furnished, and a Demand Notice has been duly served. The Applicant complied with these statutory requirements, including serving the Demand Notice dated 20.07.2023 on the Personal Guarantor. The Tribunal found the application to be in proper form and maintainable.

Issue 2: Scope of Judicial Adjudication and Role of the Adjudicating Authority and Resolution Professional under Sections 95 to 100 of the IBC

The Tribunal extensively relied on the Supreme Court's authoritative interpretation in the matter of Dilip B Jiwrajka v. Union of India, which clarified the procedural framework and jurisdictional scope under Sections 95 to 100 of the IBC. The Court summarized that no judicial adjudication occurs at the stages envisaged under these sections. Instead, the Resolution Professional plays a facilitative and investigatory role by collating facts and examining the application for insolvency resolution.

The Tribunal emphasized the following key points from the Supreme Court ruling:

• The Resolution Professional's report is recommendatory and does not bind the Adjudicating Authority.
• No adjudicatory function or determination of 'jurisdictional facts' is required at the stage of appointing the Resolution Professional.
• The Adjudicating Authority must observe principles of natural justice only when deciding to accept or reject the application under Section 100.
• The debtor (Personal Guarantor) is not deprived of the opportunity to participate during the Resolution Professional's examination.
• The interim moratorium protects the debtor from further legal proceedings during the process.

Accordingly, the Tribunal held that the present stage involves no judicial determination but only the appointment of a Resolution Professional to examine the application and recommend acceptance or rejection.

Issue 3: Compliance with Procedural Safeguards and Natural Justice

The Tribunal observed that the Personal Guarantor had been served with the Demand Notice as mandated under Rule 7(1) of the relevant Rules. The Supreme Court's ruling was cited to affirm that there is no violation of natural justice at this stage as the debtor is entitled to participate in the process and file a reply once the Resolution Professional submits the report under Section 99.

The Tribunal assured that the Personal Guarantor would be given an opportunity to respond after the Resolution Professional's report, thereby safeguarding procedural fairness.

Issue 4: Appointment and Role of the Interim Resolution Professional (IRP)

The Applicant proposed the name of a Resolution Professional, whose credentials and disciplinary status were verified with the Insolvency and Bankruptcy Board of India (IBBI) portal. The Tribunal appointed the proposed Resolution Professional as the Interim Resolution Professional for the Personal Guarantor.

The IRP was directed to examine the application in accordance with Section 97(6) of the IBC and submit a report recommending acceptance or rejection within 10 days as per Section 99(1). The Applicant was also directed to serve a copy of the application and order on the IRP.

The Tribunal scheduled the matter for further hearing upon receipt of the IRP's report.

Significant Holdings

"No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC."

"The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process."

"No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application."

"There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional."

"The adjudicating authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application."

The Tribunal's final determinations were:

• The application under Section 95(1) of the IBC filed by the Applicant for initiation of Insolvency Resolution Process against the Personal Guarantor is maintainable and in compliance with statutory requirements.
• The Resolution Professional is appointed as Interim Resolution Professional to examine the application and submit a recommendatory report within the prescribed time frame.
• The Personal Guarantor will be afforded an opportunity to respond after the IRP's report is filed, ensuring adherence to natural justice.
• The matter is adjourned for further hearing on receipt of the IRP's report.

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