2024 (7) TMI 15 - Tri - Insolvency and Bankruptcy

NCLT rejects personal insolvency application citing forum shopping and respondent's status as co-borrower not guarantor

NCLT New Delhi rejected an application for initiation of Personal Insolvency Resolution Process against a respondent. The tribunal found that the ... Personal Insolvency Resolution Process - Personal Guarantor - Co-borrower vs Personal Guarantor distinction - Joint and several liability - Maintainability of Section 95 petition - Report under Section 99 by Resolution Professional - Recommendation for initiation of personal insolvency resolution - Discharge of Resolution Professional - Interim moratorium under Section 96 - Forum shoppingPersonal Guarantor - Co-borrower vs Personal Guarantor distinction - Joint and several liability - Maintainability of Section 95 petition - Whether the petition under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 against the respondent is maintainable as she is a 'personal guarantor'. - HELD THAT: - The Tribunal examined the loan agreement, sanction letter, loan application form and related transactional documents. Clause 2.13 of the loan agreement records that where the loan is provided to more than one borrower/co-borrower their liability is joint and several. The record of default and application form describe the respondent as a co-borrower/co-obligant and there is no executed guarantee deed or express description of the respondent as a surety or personal guarantor. On that factual and contractual foundation the Court held the respondent is not a 'personal guarantor' as defined in Section 5(22) of the Code and therefore proceedings under Section 95 are not maintainable against her. [Paras 19]Application under Section 95(1) is dismissed for non-maintainability as the respondent is not a personal guarantor.Report under Section 99 by Resolution Professional - Recommendation for initiation of personal insolvency resolution - Discharge of Resolution Professional - Whether the Report and recommendation of the Resolution Professional under Section 99 warranted admission of the Section 95 petition and consequent initiation of personal insolvency resolution process. - HELD THAT: - The Resolution Professional prepared and circulated the Section 99 report and recommended admission after noting communications, registration with information utility and non-response by the debtor within specified timelines. However, the Tribunal found the core premise of the recommendation-namely that the respondent was a personal guarantor-was not borne out by the contractual documents. Consequently the RP's recommendation could not sustain admission of the petition. In view of the dismissal of the petition the RP appointed for the process was discharged from office and the interim moratorium ceased. [Paras 16, 17, 19, 20]The RP's recommendation did not justify admission; the RP stands discharged and the interim moratorium under Section 96 ends.Forum shopping - Clean hands doctrine - Whether the conduct of the applicant in pursuing multiple fora affected the propriety of the petition. - HELD THAT: - The Tribunal observed that the applicant had pursued arbitration, proceedings under the Negotiable Instruments Act and insolvency remedies in respect of the same dispute. That multiplicity of actions amounted to forum shopping and indicated that the applicant had not approached the Adjudicating Authority with clean hands. This factor was noted in the reasoning for dismissing the petition and terminating the moratorium. [Paras 19, 20]Applicant's resort to multiple fora amounted to forum shopping and was noted against it in dismissing the application.Final Conclusion: The Section 95 petition against the respondent is dismissed as she is not a 'personal guarantor'; the Resolution Professional's recommendation did not warrant admission, the interim moratorium under Section 96 ceases and the RP appointed for the process is discharged; the applicant's resort to multiple fora was noted as forum shopping. Issues Involved:1. Whether the Respondent is a Personal Guarantor or a Co-Borrower.2. Maintainability of the Petition under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016.3. Validity of the Arbitral Award and its impact on the insolvency proceedings.4. Allegations of forum shopping by the Applicant.Detailed Analysis:1. Whether the Respondent is a Personal Guarantor or a Co-Borrower:The primary contention revolves around the classification of the Respondent as a Personal Guarantor or a Co-Borrower. The Applicant, Intec Capital Limited, filed the application under Section 95(1) of the Insolvency and Bankruptcy Code, 2016, against the Respondent, alleging that she acted as a Personal Guarantor for the Corporate Debtor, M/s. IAP Company Private Limited. The Respondent argued that she was a Co-Borrower and not a Personal Guarantor, as evidenced by the loan agreement and other related documents. The tribunal noted that the loan agreement and the sanction letter referred to the Respondent as a Co-Borrower, and there was no mention of her being a Personal Guarantor. The tribunal concluded that the Respondent was not a Personal Guarantor based on the documents presented.2. Maintainability of the Petition under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016:The tribunal examined whether the petition under Section 95 of the IBC was maintainable against the Respondent. The Respondent contended that she had not signed any guarantee deed or agreed to act as a surety. The tribunal found that the Respondent was consistently referred to as a Co-Borrower in the loan agreement and other documents. Consequently, the tribunal held that the petition under Section 95 was not maintainable against the Respondent as she did not qualify as a Personal Guarantor under the IBC.3. Validity of the Arbitral Award and its impact on the insolvency proceedings:The Respondent challenged the validity of the arbitral award dated 28.12.2018, claiming it was obtained fraudulently without her knowledge and in violation of the moratorium imposed under Section 14 of the IBC. The tribunal acknowledged that the arbitral award had been challenged in the District Court, Saket, New Delhi, and noted the Respondent's contention that the award was obtained without proper notice. The tribunal did not delve into the merits of the arbitral award but recognized the ongoing legal challenge.4. Allegations of forum shopping by the Applicant:The Respondent accused the Applicant of forum shopping, citing multiple legal proceedings initiated by the Applicant, including arbitration, proceedings under Section 138 of the Negotiable Instruments Act, 1881, and the current insolvency petition. The tribunal observed that the Applicant had approached various legal forums and concluded that the Applicant was indulging in forum shopping. The tribunal emphasized that the Applicant had not approached the Adjudicating Authority with clean hands.Conclusion:The tribunal dismissed the application seeking the initiation of the Personal Insolvency Resolution Process against the Respondent. The interim moratorium period under Section 96 of the IBC ended with the pronouncement of the order. The Resolution Professional, Mr. Manoj Kumar Anand, was discharged from his duties. The tribunal directed the Registry to send a copy of the order to the Insolvency and Bankruptcy Board of India (IBBI) for their records. No order as to costs was made.