2025 (9) TMI 136 - AT - IBC

Section 95 application admitted: Bank proved Rs.44 crore guarantee liability under personal guarantee and promissory note

Kiran Kumar Jain Versus Cosmos Co-Operative Bank Ltd. & Anr.

Kiran Kumar Jain Versus Cosmos Co-Operative Bank Ltd. & Anr. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicating authority rightly admitted an application under Section 95 of the IBC against a personal guarantor where a guarantee deed dated 02.03.2016 had been executed by the guarantor. 2. Whether the personal guarantor's contention that no disbursal was made after execution of the guarantee (and therefore no liability/crystallised debt exists) precludes admission under Section 95. 3. Whether invocation of the guarantee (and proof of demand/default) was established sufficiently for admission under Section 95. 4. Whether pendency of a recovery proceeding (and a counter-claim by the guarantor) before another forum (DRT) bars initiation or admission of Section 95 proceedings under the IBC. 5. Whether the creditor's choice to proceed against only one of several co-guarantors defeats the Section 95 application. 6. Whether a post-admission settlement between the creditor and the guarantor can lead to closure/withdrawal of the personal insolvency process and, if so, what procedure and statutory requirements govern such withdrawal (Rule 11 and related regulations). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of admission under Section 95 where guarantor executed guarantee deed dated 02.03.2016 Legal framework: Section 95 of the IBC permits initiation of insolvency resolution process against a personal guarantor where a default has occurred in respect of a liability guaranteed to a financial creditor by a corporate debtor. Admission requires proof of guarantee, debt and default; Rules and Regulations prescribe RP's report under Section 99 and verification of claims. Precedent treatment: No prior judicial authority was invoked or relied upon in the judgment; the Court decided on documentary and factual matrix. Interpretation and reasoning: The loan agreement dated 02.03.2016 expressly referred to credit facilities 'granted and/or continue to grant and/or granted' aggregating Rs. 44 crore and identified the guarantor by name. The repayment schedule (first instalment due 04.03.2016) and contemporaneous promissory note and continuing security were treated as contemporaneous, probative evidence that the facilities had been granted and that consideration existed at the time of the guarantee. Clauses of the guarantee (irrevocable, continuing, on demand) were construed to cover facilities already extended. Bank statements and account records produced by the financial creditor were accepted as proof of disbursal and outstanding amounts. The RP's report under Section 99 recommending admission was considered and parties heard by the adjudicating authority prior to admission. Ratio vs. Obiter: Ratio - Documentary matrix (loan agreement, repayment schedule, promissory note, bank records) demonstrating existing facilities and the guarantor's express undertaking sufficed to establish debt and default for admission under Section 95. Obiter - Observations on usual contractual readings of 'granted and/or continue to grant' as a drafting matter. Conclusion: Admission under Section 95 was rightly made because the guarantee and related documents evidenced an existing facility and a crystallised obligation capable of invocation. Issue 2 - Effect of claim that no disbursal occurred after execution of guarantee (i.e., no liability/default) Legal framework: Admission under Section 95 depends on existence of liability and default; factual inquiry on disbursal is permissible at admission stage when supported by documents. Precedent treatment: Not applicable; Court relied on contract terms and contemporaneous banking records. Interpretation and reasoning: The Court treated the repayment commencement date (04.03.2016), promissory note, and bank account statements as indicators that disbursal had occurred prior to/at the time of the guarantee. The guarantee's language ('granted and/or continue to grant and/or granted') was read to include facilities already granted. The submission that the guarantor's undertaking related only to a proposed future disbursement was rejected because documentary evidence showed existing facilities and repayment obligations. Ratio vs. Obiter: Ratio - A guarantor's assertion that the guarantee was only for future disbursement cannot defeat admission where contemporaneous contractual and bank records demonstrate that facilities had been granted and repayment obligations crystallised. Conclusion: The contention of no post-guarantee disbursal did not negate liability; admission remained proper. Issue 3 - Whether invocation of guarantee and demand/default were established Legal framework: Admission requires materials showing demand or invocation; notices and recovery proceedings can evidence invocation. Precedent treatment: None cited. Interpretation and reasoning: The Court accepted the call-back notice and the Section 13(2) notice as indicating invocation of the guarantee. The subsequent demand under Rule 7(1) and the filing of recovery proceedings before the DRT were treated as consistent steps evidencing invocation and default. The RP's report taking note of these facts supported admission. Ratio vs. Obiter: Ratio - Demand notices and initiation of recovery proceedings are sufficient material to establish invocation/default at admission stage for Section 95 purposes. Conclusion: Invocation of the guarantee was adequately established; Section 95 admission was sustainable. Issue 4 - Effect of pendency of recovery proceedings / counter-claim before DRT on Section 95 proceedings Legal framework: Remedies under IBC (Section 95) and recovery forums (DRT) are distinct; pendency in one forum does not automatically bar initiation in another absent statutory prohibition. Precedent treatment: None relied upon; Court applied statutory logic. Interpretation and reasoning: The Tribunal held that the pendency of a recovery claim and counter-claim before the DRT does not preclude the creditor from invoking Section 95. The IBC provides a separate remedy; overlapping proceedings do not operate as a bar to admission under Section 95. The mere fact of a disputed liability (counter-claim) in another forum was not a ground to refuse admission where documentary evidence supports the creditor's claim. Ratio vs. Obiter: Ratio - Pendency of parallel recovery proceedings and counter-claims does not automatically preclude admission under Section 95; the adjudicating authority may admit where requisite material is placed on record. Conclusion: Pendency of DRT proceedings/counter-claim did not invalidate admission under Section 95. Issue 5 - Whether selective proceeding against one co-guarantor defeats Section 95 application Legal framework: Creditors have discretion as to enforcement against one or more guarantors; IBC does not require simultaneous action against all guarantors. Precedent treatment: Not cited. Interpretation and reasoning: The Court observed that it is open to the creditor to proceed against one or more guarantors; selective initiation does not vitiate the proceedings. The solvent status of a guarantor does not preclude the creditor's right to sue, and the guarantor may propose a repayment plan under IBC provisions. Ratio vs. Obiter: Ratio - Creditor's discretion to proceed against particular guarantors does not invalidate a Section 95 application. Conclusion: Selective prosecution of one guarantor was not a ground to set aside the admission. Issue 6 - Effect of settlement after admission and procedure for withdrawal of Section 95 application (Rule 11 and related regulations) Legal framework: Rule 11 of the Personal Guarantors Rules permits withdrawal after admission only if 90% of creditors agree; RP must verify claims and prepare/upload list of creditors under Regulations 7 and 9, and ascertain creditors' consent for withdrawal. Precedent treatment: None cited; Court applied statutory/regulatory scheme. Interpretation and reasoning: The Court upheld admission but directed that withdrawal on the basis of settlement must follow Rule 11(1)(b): the RP shall upload the list of creditors with admitted amounts (after verification/modification as per Regulations 7(5),(7) and 9), and the creditor may file an application for withdrawal before the Adjudicating Authority. The RP must ascertain whether 90% of creditors agree and file a report/affidavit; the Adjudicating Authority may then consider withdrawal. The Court declined to close the process merely on settlement between creditor and guarantor without compliance with statutory withdrawal procedure and required creditor consent thresholds. Ratio vs. Obiter: Ratio - Post-admission withdrawal of a Section 95 proceeding pursuant to settlement is permissible only in accordance with Rule 11(1)(b) (90% creditor consent) and the RP's obligations under Regulations 7 and 9; procedural compliance is mandatory. Conclusion: Settlement entitling the creditor to seek withdrawal does not automatically close the insolvency process; prescribed withdrawal procedure (including 90% creditor consent verified by RP and approved by the Adjudicating Authority) must be followed. The Court directed RP to upload the creditor list, the creditor to move for withdrawal, and the RP to report on the 90% consent threshold for the Adjudicating Authority to decide. Overall Disposition Admission under Section 95 was upheld on the basis that the guarantee, loan agreement, repayment schedule, promissory note and bank records established facilities granted, consideration, invocation/demand and default; parallel proceedings and selective action against one guarantor did not preclude admission. A post-admission settlement permits an application for withdrawal but only in conformity with Rule 11 and related regulations, including verification of claims by the RP and 90% creditor consent for withdrawal to be considered by the Adjudicating Authority.