NCLT must comply with Rule 28 timelines for IBC Sections 94-95 applications against personal guarantors

The Bombay HC addressed delays in NCLT's compliance with Rule 28 of NCLT Rules, 2016 regarding applications under Sections 94 and 95 of IBC, 2016. Section 94 applications were declined after 339 days and Section 95 applications after 181 days of e-filing, causing unreasonably prolonged interim moratoriums against personal guarantors. The court held that parties must comply with registry objections within seven days as per Rule 28. Applications previously dismissed and refiled without following proper appeal procedures under Rule 63 shall not be considered valid for Section 96 purposes and must be ignored. The petition was disposed of.

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Issues Involved:
1. Compliance with Rule 28 of the National Company Law Tribunal (NCLT) Rules, 2016.
2. Delay in registration, numbering, and disposal of applications filed under Section 94 and Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Impact of interim moratorium under Section 96 of the IBC on enforcement actions by financial institutions.
4. Alleged misuse of Section 94 and Section 95 provisions by borrowers and personal guarantors.
5. Steps taken by Respondent No. 2 to address compliance issues.

Detailed Analysis:

Compliance with Rule 28 of the NCLT Rules, 2016:
The Petitioner sought orders to compel Respondent No. 2 to comply with Rule 28 of the NCLT Rules, which mandates the timely registration, numbering, and disposal of applications filed under Section 94 and Section 95 of the IBC. Rule 28 stipulates that objections to filings must be addressed within seven days, and failure to comply should result in the Registrar declining to register the document. The court noted that the Respondent No. 2 had not been adhering to these timelines, causing significant delays.

Delay in Registration, Numbering, and Disposal of Applications:
The Petitioner highlighted several instances where applications under Section 94 and Section 95 were pending at the lodging number stage for an unreasonable amount of time, resulting in an extended interim moratorium. This delay hindered the Petitioner from enforcing its rights under the SARFAESI Act. The court acknowledged this issue and laid down specific timelines for Respondent No. 2 to follow, ensuring that objections are notified within seven days and compliance is monitored and enforced promptly.

Impact of Interim Moratorium under Section 96 of the IBC:
The Petitioner argued that the interim moratorium, which commences upon filing an application under Section 94 or Section 95, was being extended indefinitely due to delays in the registration process. This moratorium prevented creditors from initiating or continuing any legal action against the debtor, thereby hampering recovery proceedings. The court recognized this issue and emphasized that the interim moratorium should be for a limited duration, aligning with the legislative intent.

Alleged Misuse of Section 94 and Section 95 Provisions:
The Petitioner contended that borrowers and personal guarantors were misusing the provisions of Section 94 and Section 95 by filing applications and then not complying with objections, thereby enjoying an indefinite interim moratorium. The court acknowledged this concern and noted that such misuse defeats the purpose of the IBC provisions. The court's order aimed to prevent such misuse by ensuring strict compliance with Rule 28 and timely registration and disposal of applications.

Steps Taken by Respondent No. 2 to Address Compliance Issues:
During the pendency of the petition, Respondent No. 2 took several steps to address the compliance issues under Rule 28. Notices were issued to notify parties of objections and deadlines for compliance. The court noted these efforts and provided a detailed timeline for future compliance to ensure that the scheme of the IBC provisions is not defeated by extended interim moratoriums.

Conclusion:
The court laid down a comprehensive process and timeline for Respondent No. 2 to follow to ensure timely registration, numbering, and disposal of applications filed under Section 94 and Section 95 of the IBC. This includes notifying objections within seven days, issuing monthly notices for pending objections, and declining to register non-compliant applications within specified timeframes. The court also emphasized that any refiled applications without following due process should not be considered valid for the purposes of Section 96 of the IBC. The petition was disposed of with these directions, ensuring no order as to costs.

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