2025 (4) TMI 634 - AT - IBC

NCLAT dismisses appeals against insolvency proceedings for personal guarantors under Section 95 of I&B Code

NCLAT Chennai dismissed appeals challenging initiation of insolvency resolution process against personal guarantors under Section 95 of I&B Code, ... Requirement of an elaborate hearing considered and recorded by the Ld. Adjudicating Authority, at the stage of considering the report submitted by the Resolution Professional under Section 99(7) of the I & B Code, 2016, before passing an order under Section 100 of the I & B Code, 2016, admitting an application preferred under Section 95 of the Code for initiation of the Insolvency Resolution Process (IRP) in respect of the personal guarantors - HELD THAT:- The Resolution Professional at the stage of submission of the report under Section 99 of the I & B Code, 2016, is only a facilitator to the proceedings, providing assistance to the Ld. Adjudicating Authority by way of imparting information in the shape of a report under section 99 of the I & B Code, 2016, after collating the relevant information from various sources including the personal guarantors to arrive at a conclusion as to whether, under the given set of circumstances the application under Section 95 of I & B Code, 2016, can be taken up for consideration. Thus, the said report to be presented under Section 99 of I & B Code, 2016, has to be considered only for the purposes of stepping into the stage of Section 100 of the I & B Code, 2016, and that the acceptance or rejection of the application is exclusively the prerogative of the Ld. Adjudicating Authority. The use of the expressions therein such as “examine the application”, “satisfies the requirements”, & “recommend” leave no doubt that the Resolution Professional’s report under Section 99 does not have any element of adjudicating a right of any of the parties, as against whom the process under Section 95 of the I & B Code, 2016, is contemplated to be initiated. Thus, when the report under Section 99 of the I & B Code, 2016, is being considered for the purposes of passing an order under Section 100 of the Code, admitting a proceeding under Section 95 of the I & B Code, it requires that a reasoned order is to be passed on the recommendations contained in the report of the Resolution Professional as it is likely to affect the concerned individual. Hence, in as much as the contention raised that, the principles of ratio propounded by Dilip B Jiwrajka [2024 (1) TMI 33 - SUPREME COURT] was violated, at the stage of the submission of the report under Section 99 of the I & B Code, 2016, which only facilitates the Ld. Adjudicating Authority to collate the necessary material in order to adjudicate on the need for initiation of the IRP proceeding under Section 95 of the I & B Code, 2016, no principle of natural justice has been violated, and that the Resolution Professional has given sufficient opportunities to present their cases. Further, as far as providing an opportunity to the Appellants to participate in the process of examination of the application/ report submitted by the Resolution Professional is concerned, the report has been given to them, and they have been given two months time to file their reply before right to file reply was forfeited. As I & B Code is a special statute, prescribing very strict timelines for the process thereunder, we hold that the opportunities given to the Appellants were sufficient. Conclusion - The Ld. Adjudicating Authority in the impugned order has followed principles of natural justice by giving sufficient opportunity to the Appellants herein and has protected all the rights of the Appellants by, directing thereof for a strict adherence to the provisions contained under Sections 108, 109, 110, and 111 of I & B Code, 2016. Thus, the impugned orders, which is subject matter of challenge in the instant appeals, do not call for any interference at this stage. The ‘appeals’, lack merit, and the same are ‘dismissed’. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment were:1. Whether an elaborate hearing is required at the stage of considering the report submitted by the Resolution Professional under Section 99(7) of the Insolvency and Bankruptcy Code, 2016 (I & B Code), before passing an order under Section 100 of the Code.2. The effect of the withdrawal of proceedings before the Debt Recovery Tribunal (DRT) based on a settlement agreement on the proceedings initiated under Section 95 of the I & B Code.3. The implications of the Resolution Professional's role and report under Section 99 of the I & B Code, particularly regarding the principles of natural justice.4. Whether the Appellants were given adequate opportunity to present their case before the Adjudicating Authority, as per the principles of natural justice.5. Additional objections raised by the Appellants, including jurisdictional issues, the necessity of a fresh demand notice, and discrepancies in the amounts claimed.ISSUE-WISE DETAILED ANALYSIS1. Hearing Requirement at the Stage of Section 99 ReportRelevant legal framework and precedents: The I & B Code Sections 95 to 100 outline the process for initiating insolvency proceedings against personal guarantors. The Appellants argued, based on the precedent set in Dilip B Jiwrajka Vs. Union of India & Others, that the principles of natural justice require a hearing before accepting a Resolution Professional's report.Court's interpretation and reasoning: The Tribunal referred to the Supreme Court's judgment in Dilip B Jiwrajka, which clarified that the Resolution Professional's role is recommendatory and not adjudicatory. The Tribunal emphasized that the Resolution Professional's report under Section 99 is not binding on the Adjudicating Authority.Key evidence and findings: The Tribunal found that the Resolution Professional had provided the Appellants with opportunities to present their case and that the Appellants failed to file a response despite multiple opportunities.Application of law to facts: The Tribunal concluded that the Appellants had been given sufficient opportunity to participate in the process and that the principles of natural justice were not violated.2. Effect of Withdrawal of Proceedings Before DRTLegal framework: The withdrawal of proceedings before the DRT was based on a settlement agreement, which was later terminated due to a default.Court's reasoning: The Tribunal held that the withdrawal of proceedings before the DRT did not affect the independent proceedings under Section 95 of the I & B Code, which are based on a separate statutory framework.3. Role of Resolution Professional and Natural JusticeRelevant legal framework: Section 99 of the I & B Code outlines the Resolution Professional's role in examining applications for insolvency resolution.Court's interpretation: The Tribunal reiterated that the Resolution Professional's function is facilitative, not adjudicatory, and that the principles of natural justice apply primarily at the stage when the Adjudicating Authority considers the report under Section 100.4. Adequate Opportunity to Present CaseKey evidence and findings: The Tribunal noted that the Appellants were given numerous opportunities to file their responses and participate in the proceedings but failed to do so.Court's conclusion: The Tribunal found no violation of natural justice, as the Appellants had ample opportunity to present their case.5. Additional Objections by AppellantsAppellants' contentions: The Appellants raised issues such as jurisdictional errors, the need for a fresh demand notice, and discrepancies in the claimed amounts.Court's reasoning: The Tribunal held that these objections should have been raised before the Adjudicating Authority or the Resolution Professional, and having failed to do so, they could not be raised at the appellate stage.SIGNIFICANT HOLDINGS- The Tribunal upheld the principle that the Resolution Professional's role is recommendatory and not adjudicatory, as established in Dilip B Jiwrajka Vs. Union of India & Others.- It was determined that the principles of natural justice were not violated, as the Appellants were given sufficient opportunity to present their case.- The Tribunal concluded that the withdrawal of proceedings before the DRT did not impact the independent proceedings under Section 95 of the I & B Code.- The appeals were dismissed on the grounds that the Appellants had not utilized the opportunities provided to them to present their case, and thus, the orders of the Adjudicating Authority were upheld.The Tribunal's decision emphasized adherence to statutory timelines and procedures under the I & B Code, reinforcing the non-adjudicatory role of the Resolution Professional and the importance of timely participation by parties in insolvency proceedings.