2026 (1) TMI 526 - AT - IBC

Personal guarantor liability after CIRP repayment dispute: approved s.31 plan binds, unpaid balance remains; s.95 admission upheld

Liability of personal guarantors under an admitted CIRP claim and approved resolution plan was contested on the plea of full repayment/incorrect ... Initiation of insolvency proceedings - repayment of debt and absence of default method of computation or acknowledged the debt - Resolution Professional (RP) failed to verify repayment figures and mechanically accepted the Bank’s statements, leading to erroneous conclusions in the Section 99 report - Pendency of recovery proceedings oust Or restrict the jurisdiction conferred upon NCLT under Section 95 read with Sections 97–100 of IBC. - Whether the Adjudicating Authority was justified in admitting the application under Section 95 of the Code by order against the Appellants, who stood as Personal Guarantors to the Corporate Debtor - HELD THAT:- Neither the admitted claim amount nor the approved Resolution Plan was challenged before any forum by the CD or the Personal Guarantors. Under Section 31 of the Code, an approved plan binds all stakeholders, and unless it expressly provides for discharge of guarantors, their liability continues for unpaid balances. Consequently, the admitted unpaid portion remains legally recoverable from personal guarantors unless discharged in law. There is no evidence that the Bank accepted the Appellants’ method of computation or acknowledged the debt as discharged. No documents like No- Dues Certificate, settlement agreement, accord and satisfaction, waiver, novation, or judicial order which extinguish the liability of the Borrower/Guarantor have been placed on record. The law requires affirmative proof of settlement to extinguish guarantor liability. Mere deposits, without demonstrated exhaustion of contractual interest burden and principal balance, cannot constitute full discharge. Interest computation is pending before the DRT - The Appellants also placed reliance on the pendency of Section 19 proceedings before the DRT to argue that the Section 95 proceedings should be deferred. In this regard, reference may be made to decision of this Tribunal in State Bank of India v. Abhijeet Ferrotech Ltd. [2024 (7) TMI 624 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] where the Tribunal examined a question as to whether an application under the IBC could be rejected solely on the ground that DRT proceedings were pending and that the DRT had passed certain orders. The Tribunal held that proceedings under Section 19 which were still inconclusive could not prevent admission of proceedings under the IBC, and that such pendency was not a ground to hold an insolvency application as barred. Thus, pendency of Section 19 proceedings before the DRT cannot, by itself, bar consideration of insolvency proceedings. It is clear from the Judgment in Abhijeet Ferrotech, that pendency of a proceeding in DRT is not a bar for initiation of CIRP process under Section 7. Section 7 in case of companies is similar to Section 95 for the Personal Guarantors to the corporates and pari materia the same principle applies for the Personal Guarantors. Allegation of non-receipt of notice - The record contains evidence that notices were issued by the Resolution Professional, including notices requiring disclosure of payments. More importantly, the Appellants replied to the notice of the RP; thereafter filed their objections with NCLT; and finally submitted their written statements on 21.02.2024 before the Adjudicating Authority. Their participation in proceedings before the Adjudicating Authority demonstrates knowledge of proceedings. Even assuming some defect in service, procedural irregularity without prejudice is not a ground to set aside admission, where debt and default are established. Allegation that the RP failed to verify payments - Section 99 mandates preparation of a report by the RP, but Section 100 places the ultimate duty upon the Adjudicating Authority to independently satisfy itself regarding debt and default. The Adjudicating Authority considered the pleadings, objections, and documents before passing the Impugned Order. Even assuming some imperfection in the RP’s verification, no prejudice is shown because the documentary material relied on by the Appellants is insufficient to establish extinguishment of debt. Insolvency admission cannot be invalidated on procedural grounds, where substantive liability is established. When we look at the issue holistically considering the certified Bank statements binding the guarantors under Clause 19 of the Guarantee deed; the admitted CIRP claim of Rs. 19,08,69,464/-; the Resolution Plan allocation of Rs. 13,80,00,000/- and the continuing unpaid balance; the absence of any discharge document; the unilateral nature of computation sheets relied upon by the Appellants; the continuing co-extensive liability of guarantors under Section 128 of the Contract Act; the legal irrelevance of pending DRT proceedings in IBC jurisdiction; the opportunity afforded to the Appellants to submit objections; and the absence of prejudice from alleged notice lapses it becomes clear that the existence of debt and default is established. The Appellants have not discharged the burden of proving full payment or extinguishment. Thus, we do not find any infirmity in the impugned order. Accordingly, both the appeals are dismissed. Pending IAs, if any, are closed. Issues: (i) Whether the Adjudicating Authority was justified in admitting an application under Section 95 of the IBC and initiating insolvency proceedings against personal guarantors on the basis that a legally recoverable debt subsisted at the time of filing; (ii) Whether the pendency of proceedings before the Debt Recovery Tribunal (DRT) or other fora concerning computation of debt prevents initiation or admission of insolvency proceedings under Section 95 of the IBC.Issue (i): Whether debt and default continued to subsist against the personal guarantors at the time of the Section 95 petition such that admission of insolvency proceedings was proper.Analysis: The issue focuses on whether repayments relied upon by guarantors exhausted contractual liability. Relevant legal framework includes the guarantee clause making a bank-certified statement of account conclusive, the admitted claim in CIRP and the approved resolution plan under Section 31 of the IBC, principles of co-extensive guarantor liability under Section 128 of the Contract Act, and the duties of the Resolution Professional under Section 99 with the Adjudicating Authority's obligation under Section 100 to satisfy itself on debt and default. Documentary acknowledgements recording receipt of payments do not in themselves constitute discharge unless they affirm settlement or there is an express discharge document (for example a no-dues certificate, settlement agreement, or judicial order). Where competing computations exist, a contractual provision making the bank's certified accounts binding on guarantors is determinative unless independent evidence shows exhaustion of the indebtedness. The admitted claim and plan allocation left a residual unpaid amount which, absent affirmative proof of extinguishment, remained legally recoverable from guarantors. Procedural imperfections in the RP's verification do not vitiate admission where substantive liability is established and no prejudice from such imperfections is shown.Conclusion: The Adjudicating Authority was justified in admitting the Section 95 application because the evidence did not establish that the alleged repayments extinguished the contractual indebtedness of the guarantors.Issue (ii): Whether pendency of DRT proceedings or similar adjudications on computation of debt bars initiation or admission of proceedings under Section 95 of the IBC.Analysis: The relevant legal framework comprises the independent jurisdictional scheme of the IBC (including parity between Section 7 and Section 95 in purpose), and prior appellate authority holding that pendency of recovery or DRT proceedings does not preclude initiation or admission of insolvency proceedings. The insolvency process determines existence of debt and default for insolvency purposes and is not rendered incompetent merely because computation disputes are pending in another forum. The admissibility inquiry under Section 95 is not suspended by parallel proceedings elsewhere; the Adjudicating Authority must satisfy itself on debt and default on available material, but need not await external adjudication.Conclusion: Pendency of proceedings before the DRT or similar forum does not bar initiation or admission of Section 95 proceedings under the IBC.Final Conclusion: The admission of the Section 95 applications and initiation of insolvency proceedings against the personal guarantors stands upheld because contractual binding of bank-certified statements, the residual unpaid amount after the approved resolution plan, absence of affirmative proof of discharge, and settled precedent that parallel recovery proceedings do not bar IBC action collectively support the existence of debt and default at the relevant time, permitting continuation of insolvency proceedings.Ratio Decidendi: Where a guarantee agreement renders a bank-certified statement of account conclusive against guarantors and an approved resolution plan leaves an undischarged balance, the guarantors bear the burden of proving, by affirmative and independent evidence (such as a settlement instrument or clear accounting reconciled with contractual terms), that repayments extinguished the debt; absent such proof, pendency of parallel adjudications does not preclude admission of insolvency proceedings under Section 95 of the IBC.