2024 (11) TMI 553 - AT - IBC

Bank wins appeal against personal guarantor after dismissal of Section 95 application was overturned

The NCLAT set aside the Adjudicating Authority's order dismissing a Section 95 application filed by a bank against a personal guarantor. The AA erred by ... Dismissal of Section 95 application filed by the Appellant without appointing a Resolution Professional and without following the statutory process as per the Insolvency and Bankruptcy Code - principle of waiver - HELD THAT:- The Adjudicating Authority has not appointed even the RP as contemplated under Section 97 in the IBC and proceeded to hear the objections raised by Personal Guarantor and dismissed Section 95 application. The judgment of the Hon’ble Supreme Court in Dilip B. Jiwrajka’s case [2024 (1) TMI 33 - SUPREME COURT] delivered on 09.11.2023, i.e. much before filing of IA No.5501 of 2023, need to be noticed. The law declared by the Hon’ble Supreme Court in Dilip B. Jiwrajka’s deals with entire statutory process and the nature of jurisdiction of the Adjudicating Authority to be exercised in proceedings of personal insolvency. The judgment in Dilip B. Jiwrajka was delivered by the Hon’ble Supreme Court in a batch of writ petitions, in which writ petitions, various provisions of the IBC from Sections 95 to 100 were challenged. In the above context, the Hon’ble Supreme Court had occasion to deal with scheme of the IBC; the submissions made on behalf of the parties and analysis of IBC and principles of natural justice. Principle of waiver - HELD THAT:- Hira Lal Patni vs. Sri Kali Nath [1961 (5) TMI 58 - SUPREME COURT], was a case where there was an issue raised regarding the lack of jurisdiction by the Court granting the decree. The present is not a case where either of the parties are raising any issue regarding lack of jurisdiction of the Adjudicating Authority in deciding Section 95 application. The Adjudicating Authority has jurisdiction to decide Section 95 application as per the scheme of the IBC. The question of waiver with regard to jurisdiction of Adjudicating Authority to decide the application cannot be pressed into service in the present case. Waiver is always related to some consideration on the basis of which a party consciously abandons the existing legal right. In the present case, neither any consideration is proved, nor there is any conscious abandonment of any of its rights by the Appellant. Hence, the submission of learned Senior Counsel for the Respondent that Appellant is precluded to raise the ground to challenge the order of the Adjudicating Authority on the ground of waiver, is misconceived. The Adjudicating Authority committed error in considering the objections raised by the Respondent on the merits of the application under Section 95 filed by the Central Bank of India at the stage when RP was not even appointed. The Adjudicating Authority proceeded to enter into adjudicatory issues, which can be taken by the Adjudicating Authority only at the time of hearing of section 95 application under Section 100, as is now the law declared by the Hon’ble Supreme Court in Dilip B. Jiwrajka’s case. The order passed by Adjudicating Authority is set aside - appeal allowed. Issues Involved:1. Whether the Adjudicating Authority erred in dismissing the Section 95 application without appointing a Resolution Professional and without following the statutory process as per the Insolvency and Bankruptcy Code (IBC).2. Whether the principle of waiver precludes the Appellant from challenging the order of the Adjudicating Authority.3. Whether the objections raised by the Personal Guarantor regarding the effectiveness of the Deed of Guarantee and the issue of limitation were validly considered by the Adjudicating Authority.Detailed Analysis:1. Error in Dismissing Section 95 Application:The primary issue revolves around the procedural error committed by the Adjudicating Authority in dismissing the Section 95 application without appointing a Resolution Professional (RP) as mandated by the IBC. The statutory scheme under Sections 95 to 100 of the IBC requires that after an application is filed under Section 95, the Adjudicating Authority must appoint an RP to facilitate the process. The RP is tasked with examining the application and submitting a report recommending approval or rejection. The Hon'ble Supreme Court, in the case of Dilip B. Jiwrajka, clarified that the adjudicatory role of the Adjudicating Authority commences only after the submission of the RP's report under Section 100. Thus, the Adjudicating Authority prematurely adjudicated the merits of the application, which was contrary to the statutory process and the Supreme Court's ruling.2. Principle of Waiver:The Respondent argued that the Appellant waived its right to challenge the jurisdiction of the Adjudicating Authority by not raising objections at the appropriate time. However, the principle of waiver applies when a party knowingly relinquishes a known right, often for consideration. In this case, the Appellant did not abandon any rights through conduct or agreement. The Appellant's failure to cite the Supreme Court's judgment in Dilip B. Jiwrajka before the Adjudicating Authority does not constitute a waiver of rights. The law declared by the Supreme Court is binding and must be followed irrespective of whether it was cited in the proceedings. Therefore, the principle of waiver does not preclude the Appellant from challenging the procedural error in the present appeal.3. Objections by Personal Guarantor:The Personal Guarantor raised objections regarding the effectiveness of the Deed of Guarantee and the issue of limitation. The Adjudicating Authority found that the Guarantee was contingent upon the full implementation of the Corporate Debt Restructuring (CDR) package, which allegedly did not occur, rendering the Guarantee ineffective. Consequently, the Authority did not delve into the limitation issue. However, as per the procedural requirements of the IBC, such objections should be considered only after the RP's report is submitted and during the hearing under Section 100. The premature consideration of these objections by the Adjudicating Authority was inconsistent with the statutory process and the Supreme Court's guidance.Conclusion:The Appellate Tribunal concluded that the Adjudicating Authority erred in dismissing the Section 95 application without appointing an RP and without adhering to the statutory scheme outlined in the IBC. The appeal was allowed, and the order of the Adjudicating Authority was set aside. The Tribunal clarified that it did not express any opinion on the merits of the objections raised by the Personal Guarantor, which should be considered at the appropriate stage in accordance with the law.