2025 (1) TMI 264 - AT - IBC

Personal guarantor's insolvency appeal dismissed after failing to prove debt repayment under Section 99(2) of IBC

Hemant Bohra Versus State Bank of India & Anr.

The NCLAT dismissed an appeal challenging the initiation of insolvency proceedings against a personal guarantor under Section 95 of IBC. The appellant had ... Admissibility of application - initiation of the Insolvency Resolution Process (IRP) against the personal guarantor u/s 95 of IBC - HELD THAT:- There is no dispute that the Appellant stood as a guarantor for the loan availed by the CD. A supplementary deed of guarantee was executed on 05.09.2017. There is also no dispute that the CD has already been admitted into CIRP. The Respondent Bank has proceeded in accordance with law by filing the application under Section 95 through the RP appointed by it. The Respondent served a demand notice dated 25.08.2020 on the Appellant about the unpaid debts of the CD in terms of Rule 7(1) of the Rules and evidence has been led that the said notice was duly delivered to the Appellant on 19.09.2020 to which there is no response to deny its liability. The application under Section 95 was filed after the expiry of 14 days after the date of service of demand notice and was duly served upon the Appellant who did not file any response. The judgment relied upon by the Appellant in the case of Mr. Ravi Ajit Kulkarni [2021 (9) TMI 60 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] may be of some help to the Appellant had the RP not given independent finding in its report dated 23.07.2021 which is already reproduced in the earlier part of this order, for a quick reference, in which it has been categorically said that “in the virtual meeting organized on 19.06.2021, the Appellant acknowledged the existence of debt and stated that he has not made any payment in capacity of guarantor towards the debt due by the CD of the Respondent Bank” Section 99(2) provides that the debtor has to prove repayment of the debt claimed as unpaid by the creditor by furnishing evidence of electronic transfer of the unpaid amount from the bank account of the debtor, evidence of encashment of a cheque issued by the debtor or a signed acknowledgment by the creditor accepting receipt of dues whereas in the present case the Appellant categorically denied to have made payment which was sufficient to hold that there is a default. Conclusion - The procedural compliance with Section 95 and the independent verification by the RP are critical for admitting insolvency applications against personal guarantors. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the application for initiation of the Insolvency Resolution Process (IRP) against the personal guarantor was rightly admitted under Section 95 of the Insolvency and Bankruptcy Code, 2016.Whether the Tribunal erred in concluding that the personal guarantor defaulted on the debt owed to the Corporate Debtor (CD).Whether the observation of default in the Tribunal's order dated 16.07.2021 affected the impartiality of the Resolution Professional's (RP) report.Whether the Appellant's argument regarding partial repayment of the debt affects the validity of the application under Section 95.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Admission of Application under Section 95Legal Framework and Precedents: Section 95 of the Insolvency and Bankruptcy Code, 2016 allows creditors to initiate insolvency proceedings against personal guarantors. The process involves issuing a demand notice and filing an application if the demand is unmet.Court's Interpretation and Reasoning: The court found that the procedural requirements were met: the demand notice was issued and served, and the application was filed after the requisite period.Key Evidence and Findings: The demand notice was served on 19.09.2020, and the application was filed on 09.03.2021. The Appellant did not respond to the demand notice.Application of Law to Facts: The Tribunal confirmed the RP's appointment and directed him to make recommendations under Section 99, which was not challenged by the Appellant.Treatment of Competing Arguments: The Appellant argued that the Tribunal's earlier finding of default influenced the RP's report, but the court found the RP's report independently supported the default.Conclusions: The application under Section 95 was correctly admitted as the procedural and substantive requirements were satisfied.Issue 2: Tribunal's Finding of DefaultLegal Framework and Precedents: Default determination is crucial for insolvency proceedings and should be based on evidence and statutory criteria.Court's Interpretation and Reasoning: The Tribunal's observation of default was based on the Appellant's non-response to the demand notice and acknowledgment of debt.Key Evidence and Findings: The Appellant acknowledged the debt in a virtual meeting and did not provide evidence of repayment.Application of Law to Facts: The Tribunal's finding of default was supported by the Appellant's acknowledgment and lack of payment evidence.Treatment of Competing Arguments: The Appellant cited a precedent suggesting premature default determination, but the court found the RP's independent findings sufficient.Conclusions: The Tribunal's finding of default was upheld as it was based on unchallenged evidence and acknowledgment by the Appellant.Issue 3: Influence of Tribunal's Observation on RP's ReportLegal Framework and Precedents: The RP's role is to independently assess and report on the debtor's default status.Court's Interpretation and Reasoning: The RP's report independently confirmed the default, notwithstanding the Tribunal's earlier observation.Key Evidence and Findings: The RP's report detailed the Appellant's acknowledgment of debt and lack of repayment.Application of Law to Facts: The RP's findings were based on evidence beyond the Tribunal's initial observation.Treatment of Competing Arguments: The court dismissed the Appellant's argument of bias, emphasizing the RP's independent verification.Conclusions: The RP's report was not improperly influenced by the Tribunal's observation, as it was based on independent evidence.Issue 4: Partial Repayment ArgumentLegal Framework and Precedents: The Code requires the total debt to be considered, not just partial repayments, for insolvency proceedings.Court's Interpretation and Reasoning: The court noted that the remaining debt exceeded the statutory threshold, making the partial repayment argument irrelevant.Key Evidence and Findings: The Appellant argued that Rs. 25.21 Cr. had been repaid, but the remaining debt was still substantial.Application of Law to Facts: The remaining debt justified the continuation of insolvency proceedings.Treatment of Competing Arguments: The court found that the partial repayment did not negate the existence of a substantial unpaid debt.Conclusions: The partial repayment did not affect the validity of the application under Section 95, as the debt threshold was still met.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'Based on the submissions made by the Applicant and the documents produced and placed on record before this Bench, the Bench has no doubt in its mind that there is a 'default' on the part of the Personal Guarantor.'Core principles established: The procedural compliance with Section 95 and the independent verification by the RP are critical for admitting insolvency applications against personal guarantors.Final determinations on each issue: The appeal was dismissed, confirming the admission of the application under Section 95 and the finding of default by the personal guarantor.