2026 (2) TMI 611 - AT - IBC

Personal guarantor insolvency proceedings: appeal maintainable; procedural e filing omission not vitiating admission; substantive defenses insufficient

Orders admitting petitions under the insolvency regime against personal guarantors are open to challenge by way of appeal under the appellate provision, ... Maintainability of appeal u/s 61 read with Section 60 - Initiation of Section 7 petition against the Corporate Debtor - summary adjudication u/s 100 - relevance of pre-existing dispute to admission under Part III (Section 95) - requirement of proof of debt and default for admission - treatment of insufficiently stamped instrument in summary IBC proceedings - role of the resolution professional's report u/s 99 - violation of the principles of natural justice - HELD THAT:- There was no violation of the principles of natural justice under Section 95 to Section 100 of the IBC as the Appellant-personal guarantor got the opportunity to participate in the process of the examination of the application by the RP under Section 99 of the IBC. The RP had asked for information/explanations from the debtor before filing the report and the information was provided by the personal guarantor and basis that the resolution professional had filed the report before the adjudicating authority. Till this stage the debtor had the opportunity to provide information/explanation to substantiate their contentions. We find that as per Section 100 of the Code strict timeline has been prescribed for the Adjudicating Authority to either admit or reject the application bases the report under Section 99 within 14 days. But in this case the matter lingered on for very long time as noted by us herein. The reply was only e-filed and never physically filed or never brought to the notice of the Adjudicating authority that it has been e-filed. In any case the personal guarantor was heard by the Adjudicating Authority and basis that only the order has been passed. The noting of the Adjudicating Authority in the impugned order to the extent that Appellant’s reply has not been filed doesn’t give any ground for the Appellant to claim that natural justice has been denied to him, particularly in the background that he was personally heard, all the grounds raised by him as personal guarantor are same as that of the Corporate Debtor and furthermore the same reply had been noted by us at Appellate stage and we don’t find merit in that. We find these are dilatory tactics and should be discouraged under IBC which provides strict timelines at all stages. Thus, we find that the appellant has been unduly delaying the proceedings and the Adjudicating Authority was well within rights to not treat the reply which was not properly filed. Initiation of Section 7 petition against the Corporate Debtor - claims that the application under Section 7 was not maintainable in view of the pre-existing dispute. - The Appellant has claimed that there is a commercial suit which is filed by the Corporate Debtor against R1-SBI which seeks alleged damages suffered by the Corporate Debtor. We also note that the matter relating to existence or non-existence of a pre-existing dispute is irrelevant for the purpose of admission of an Application under Section 7 or Section 95 of the Code and therefore such an argument is unsustainable and that too in Section 95 proceedings. Furthermore, during the hearing, it was informed to us by the Appellant that the suit in Hon’ble High Court of Bombay has since been dismissed. It was also brought to our notice this suit was filed subsequent to the initiation of Section 95 proceedings against the Appellant. Thus, the ground raised by the Appellant relating to a pending dispute is infructuous. Insufficient stamp duty on the guarantee deed - We note that the proceedings before· the Adjudicating Authority are summary in nature and the IBC, 2016 being a complete code in itself the provisions of the Code of Civil Procedure, 1908 and the Indian Evidence Act, 1872 do not strictly apply to the proceedings before the Adjudicating Authority while adjudicating an application u/s 95 IBC, 2016. Further, unlike a recovery forum where the court before decreeing a suit or a proceeding against the debtor in favour of the creditor has to examine the admissibility of documents is not requirement as such and the proceedings are limited to an aspect of ascertaining default on the part of the Personal Guarantor. We thus find that the ground relating to insufficient stamp duty on the guarantee deed is another frivolous ground which is untenable and is rejected. Requirement of proof of debt and default for admission - We find that the execution of a guarantee deed, disbursement of amounts and debt is admitted by the Appellant and the R1-SBI had issued a recall notice and thereafter issued a demand notice and thus, the contention of the Personal Guarantor that the amounts were payable on demand only and no demand was raised is untenable and we reject that argument. Appellant has also argued that the Respondent failed to specify the facility under which the Respondent has called upon the Appellant to pay the said amount, however it is clear from recall notice dated 31.10.2019 under which the Respondent No. 1 has called upon the Corporate Debtor to pay an amount Rs.140,73,58,277.59/-which was the outstanding amount as on 30.10.2019 and further invoking the guarantee deed for further payment of interest amounting to Rs. 85,86,61,167.45/- under Working Capital Credit Facilities within 7 days of receipt. The recall notice further stated that the total dues payable by the Corporate Debtor is Rs. 226,60,19,445/- which is the sum total of interest plus outstanding amount as on 30.10.2019. Thus, on the grounds that there was defect in the recall notice and initial demand notice, we find them to be untenable at this stage, particularly in the background that it was never raised at the initial stage when the appellant had the opportunity to provide information to the RP. Thus, we find that we conclude that the grounds raised by the Appellant do not justify to grant a relief for setting aside the order dated 09.12.2024 passed by the Adjudicating Authority. As we have gone through the affidavit and all the grounds raised by the Appellant have been noted and evaluated by us, we therefore, cannot allow NCLT to hear it afresh. Under these conditions, there is no justification left for the matter to be remanded back to the Adjudicating Authority. Orders Accordingly, the Appeal is dismissed. Issues: (i) Whether an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 is maintainable against an order passed under Section 95/100 of the Insolvency and Bankruptcy Code, 2016; (ii) Whether the Impugned Order dated 09.12.2024 admitting the Company Petition under Section 95/100 IBC is vitiated for violation of principles of natural justice on account of the Appellant's affidavit in reply not being taken on record; (iii) Whether the Appellant's substantive grounds (pre-existing dispute, defective invocation of guarantee, insufficient stamping, non-provision of complete statement of accounts, creditor-induced default) justify setting aside the Impugned Order and rejecting the petition under Section 95/100 IBC.Issue (i): Whether the appeal under Section 61 IBC is maintainable against an order under Section 95/100 IBC.Analysis: The Tribunal examined Section 60(1) and Section 61(1) of the Insolvency and Bankruptcy Code, 2016 together to determine the scope of appeal. Section 60(1) designates the Adjudicating Authority for corporate persons including personal guarantors; Section 61(1) provides the right of appeal to the Appellate Tribunal against orders of the Adjudicating Authority under that part. The sequence and purpose of these provisions were considered to assess whether personal guarantors are entitled to appeal under Section 61.Conclusion: The appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 is maintainable in respect of orders passed under Sections 95 to 100 concerning personal guarantors; the Respondent's objection to maintainability is rejected.Issue (ii): Whether the Impugned Order is vitiated for violation of natural justice because the Appellant's affidavit in reply (e-filed on 01.03.2024) was not formally taken on record by the Adjudicating Authority.Analysis: The Tribunal reviewed the filing record, the NCLT Rules definition of 'filed' (Rule 2(14) of the National Company Law Tribunal Rules, 2016), the listing history, the report of the Resolution Professional under Section 99, and the fact that the Appellant had been heard in final arguments. The Appellate Tribunal noted that the affidavit was e-filed though not formally brought on record at the Adjudicating Authority; nonetheless the Appellant participated in hearings and argued on the basis of the reply. The Tribunal considered whether non-recording of formal filing amounted to denial of hearing and whether the grounds raised were in substance not considered.Conclusion: There was no violation of the principles of natural justice sufficient to set aside the Impugned Order. The Appellant had the opportunity to be heard, the Resolution Professional's report recorded the Appellant's contentions, and the Appellate Tribunal itself considered the reply. The procedural omission of formally taking the e-filed affidavit on record does not vitiate the Impugned Order.Issue (iii): Whether the substantive defenses raised by the Appellant (pre-existing dispute, defective invocation of guarantee, insufficient stamping, non-provision of complete account statements, creditor-induced default) preclude admission of the application under Section 95/100 IBC.Analysis: The Tribunal examined the nature of Section 95/Section 7 admission jurisprudence and precedent (including the distinction between operational creditor and financial creditor regimes), the report of the Resolution Professional under Section 99, the evidence of invocation and demand (recall notice and demand notice), and the summary nature of proceedings under the Code. The Tribunal treated allegations of pre-existing disputes, stamp insufficiency and account completeness as matters that did not, on the material before the Adjudicating Authority and the RP's report, demonstrate absence of debt or default. The Tribunal observed that proceedings under Sections 95-100 are summary and focus on existence of debt and default; detailed documentary or contested evidentiary disputes were not shown to be decisive to defeat admission.Conclusion: The Appellant's substantive grounds do not establish that debt and default are absent or that the petition under Section 95 should have been rejected. The contentions raised are insufficient to set aside the Impugned Order admitting the petition and initiating the insolvency resolution process against the Appellant.Final Conclusion: The Appellate Tribunal finds no merit in the appeal: the appeal is maintainable, there is no fatal breach of natural justice in the procedural record as to vitiate the Impugned Order, and the substantive defenses do not negate debt and default on the material before the Adjudicating Authority; hence the Impugned Order is upheld and the appeal is dismissed.Ratio Decidendi: Where the Adjudicating Authority and the Resolution Professional have, on the material before them, recorded existence of debt and default and the debtor/personal guarantor has had an opportunity to participate, procedural defects in formally placing an e-filed reply on record do not automatically vitiate admission under Sections 95-100 of the Insolvency and Bankruptcy Code, 2016; in summary admission proceedings, pre-existing commercial disputes, insufficiency of stamp or other documentary contests ordinarily do not prevent admission unless they demonstrate absence of a due and payable debt on the record before the Adjudicating Authority.