Personal guarantor's insolvency resolution terminated after failing to submit repayment plan under Sections 105-106

The NCLAT dismissed an appeal challenging termination of an insolvency resolution process for a personal guarantor. The appellant argued violation of natural justice principles, claiming lack of hearing opportunity. The tribunal held that under Sections 105-106, the debtor must prepare a repayment plan in consultation with the resolution professional within specified timelines. The appellant failed to submit any repayment plan despite requests and remained silent for years after the August 2022 deadline. When no plan was submitted, Section 115 mandated automatic rejection consequences. The tribunal found the appellant consistently challenged proceedings without substantial grounds while failing to fulfill statutory obligations. The appeal was dismissed as the adjudicating authority's order was justified under the statutory scheme.

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Issues Involved:

1. Whether the order terminating the Insolvency Resolution Process of the Personal Guarantor was in violation of the principles of natural justice.
2. Whether the Adjudicating Authority erred in allowing creditors to initiate the bankruptcy process against the Personal Guarantor.
3. Whether the Resolution Professional complied with the procedural requirements under the Insolvency and Bankruptcy Code and associated regulations.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:

The appellant contended that the order by the Adjudicating Authority was passed without serving I.A. No. 449/2024 on the appellant or providing a hearing, thus violating the principles of natural justice. The appellant argued that the Regulation 19 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtor), Regulations 2019, obligated the RP to provide copies of all documents filed before the Adjudicating Authority, including I.A. 449/2024. However, the tribunal observed that the appellant had ample opportunity to submit a repayment plan but failed to do so. The appellant also did not raise any grievances or file proceedings before the Adjudicating Authority regarding the inability to submit a repayment plan. The tribunal concluded that the appellant's claim of not being heard was unfounded, as the appellant had been silent for a significant period and only raised the issue after the consequential order under Section 115 was passed.

2. Allowing Creditors to Initiate Bankruptcy Process:

The tribunal examined the statutory scheme under the Insolvency and Bankruptcy Code, particularly Sections 114 and 115. It noted that when no repayment plan is proposed by the debtor, the provisions of Section 115(2) entitle creditors to file an application for bankruptcy under Chapter IV. The tribunal found that the Adjudicating Authority correctly applied these provisions, as no repayment plan was submitted by the appellant, thereby leading to the natural consequence of allowing creditors to initiate the bankruptcy process. The tribunal emphasized that the entitlement of creditors to file a bankruptcy application is a statutory consequence under Section 115(2), and the Adjudicating Authority's order was in line with this provision.

3. Compliance with Procedural Requirements:

The appellant argued that the RP failed to provide necessary documents and details for finalizing the repayment plan, which allegedly led to non-cooperation from the appellant. However, the tribunal noted that the RP had repeatedly requested the appellant to provide relevant documents and submit a repayment plan, which the appellant failed to do. The tribunal highlighted that the RP had complied with the procedural requirements by issuing public notices, preparing a list of creditors, and communicating with the appellant regarding the claims. The tribunal found no procedural irregularities on the part of the RP and concluded that the RP's actions were in accordance with the statutory and regulatory framework.

Conclusion:

The tribunal dismissed the appeal, finding no merit in the appellant's arguments. It upheld the Adjudicating Authority's order, stating that the order was neither in violation of natural justice nor contrary to the statutory provisions of the Insolvency and Bankruptcy Code. The tribunal affirmed that the creditors were rightly granted liberty to initiate the bankruptcy process, and the RP was correctly discharged following the completion of the insolvency resolution process.

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