L. Ramalakshmamma & Anr. Vs. State Bank of India. - On going through word ‘shall’ occurred in Section 97(1) of ‘IBC’ employed in Section 97(1) of ‘IBC’, this ‘Tribunal’ is of the considered view that it is only ‘Directory’ and not ‘Mandatory’ and holds it so.

NCLAT(22.11.2021) In L. Ramalakshmamma & Anr. Vs. State Bank of India. [Company Appeal(AT)(CH)(Insolvency) No. 220 & 221 of 2021] held that; - 

• # 32. A ‘Resolution Professional’ is an indispensable person in ‘Insolvency Resolution Process’, as he has a pivotal part to play. No wonder, an ‘Adjudicating Authority’ can exercise his judicial discretion in appointing a ‘Resolution Professional’ in a given case, based on the facts and circumstances of the case, which float on the surface.

• # 33. Moreover, if viewed from the object and purpose to be achieved by ‘IBC’, the word employed in Section 97(1) “shall” can only be construed as ‘directory’ by any stretch of imagination and not a mandatory one, that too by adopting a purposeful, meaningful, practical, pragmatic and result oriented approach, with a view to prevent an aberration of justice and to secure the ends of justice.

• # 34. In the instant case on hand, on going through word ‘shall’ occurred in Section 97(1) of ‘IBC’ employed in Section 97(1) of ‘IBC’, this ‘Tribunal’ is of the considered view that it is only ‘Directory’ and not ‘Mandatory’ and holds it so,

 

Excerpts of the order;

# 2. The ‘Adjudicating Authority’ had passed the ‘Impugned Orders’ dated 23.07.2021 in I.A.(IBC) No. 346 of 2021 CP(IB) No. 02/95/HDB/2021 and I.A.(IBC) No. 347 of 2021 in CP(IB) No. 03/95/HDB/2021 whereby and whereunder he had appointed Mr. Anil Kohli as an ‘Interim Resolution Professional’ and directed him to file report under Section 90 of IBC, within 5th days from the date of his appointment etc. 

 

# 5. It is represented on behalf of the Appellants that the ‘Adjudicating Authority’ on 27.08.2018 passed an order for liquidation of Lanco Infratech Ltd and because of the reason that no Resolution Plan was approved by the ‘Committee of Creditors’ (in short ‘CoC’), Mr. Savan Godiavala was appointed as ‘Liquidator’.

 

#7. The Learned Counsel for the Appellants points out that in the year 2021, the First Respondent filed Company Petition No. 03/95/MDB/2021 as per Section 95 of ‘IBC’ against the Appellants before the ‘Adjudicating Authority’ and that on 31.05.2021, the Hon’ble Supreme Court of India had upheld the validity of the Rules. Moreover, through an order dated 23.07.2021, the ‘Adjudicating Authority’ had allowed the Application filed by the First Respondent for ‘Urgent Hearing’ and listed the matters for ‘Hearing’ on the same day. In fact, the ‘Adjudicating Authority’ by the ‘‘Impugned Orders’’’ had appointed Mr. Anil Kohli as the ‘IRP’ without adhering to the mandatory Section 97 of ‘IBC’.

 

# 8. The Learned Counsel for the Appellants contends that Section 95(1) of the ‘IBC’ enjoins that a Creditor may, either by himself or through a Resolution Professional file an Application for initiating ‘Insolvency Resolution Process’ against the ‘Personal Guarantor’ or a Partnership Firm. Also, that it is the stand of the Appellants that even Application under Section 95 of ‘IBC’ is filed through Resolution Professional, as in the instant case, then Section 97(1) & (2) of the ‘IBC’ can get attracted.

 

# 10. The Learned Counsel for the Appellants adverts to Rule 8(1) of the Insolvency and Bankruptcy (Application to ‘Adjudicating Authority’ for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 which provides that for the purposes of sub-Section (2) of Section 97 and sub-Section (5) of Section 97. The Board may share the database of the ‘Insolvency Professional’s including the information about disciplinary proceedings against them with the ‘Adjudicating Authority’ from time to time and that the ‘Adjudicating Authority’ shall accordingly pass an order in terms of Section 97(5) of ‘IBC’.

 

# 11. The stand of the Appellants is that the ‘IBC’ 2016 provides that appointment of the ‘IRP’ under Section 97(5) of IBC requires mandatory compliance of Sections 97(1) and 97(2) of IBC read with Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Clearly, before ‘IRP’ being appointed the same was to seek confirmation from the IBBI that no disciplinary proceedings are against him. However, in the instant case, the ‘Impugned Orders’ are completely silent as to whether the ‘Adjudicating Authority’ was in receipt of communication issued by the IBBI confirming the appointment of the ‘IRP’ under Section 97 of ‘IBC’ or in receipt of any database to confirm that no disciplinary proceedings are pending against the ‘IRP’ under Rule 8 of Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019. Besides this, the ‘Impugned Orders’ had relied on 96(1)(a) of “IBC’ and that the ‘Adjudicating Authority’ had appointed Mr. Anil Kohli as the ‘IRP’.

 

# 12. The prime submission of the Learned Counsel of the Appellants is that the word ‘shall’ has been employed in Section 97 of ‘IBC’ is a mandatory character of the legislative intent and in short Sections 97(1) & 97(2) of ‘IBC’ are mandatory pre-condition which ought to be satisfied before the ‘Adjudicating Authority’ can proceed to pass order under Section 97(5) of ‘IBC’.

 

# 13. The Learned Counsel for the Appellants comes out with the plea that when a statute prescribes certain formalities to be complied with, those prescribed formalities are very much essential to do something which is mandatory in nature and the same cannot be simply ignored or given a goby in haste and in this connection the Learned Counsel for the Appellants places reliance on the decision of the Hon’ble Supreme Court of India in the matter of ‘The State of Haryana and Anr. Versus Raghubir Das’ reported in (1) (1995)1SCC 133 and in ‘Mohan Singh & Ors. Vs. International Airport Authority’ in (1997) 9 SCC 132.

 

# 14. The Learned Counsel for the Appellants takes a state that without determining the aspect of non-compliance of Section 97 of ‘IBC’, any determination under Section 100 of ‘IBC’ shall affect the vital rights of the Appellants. That apart, the Learned Counsel for the Appellants submits that the ‘IBC’ is a complete, exhaustive and inclusive Code and any deviation from the prescribed procedure would defeat the intent and purposes of the Code and refers to the decision of the Hon’ble Supreme Court of India in ‘M/s Innoventive Industries Ltd. Vs. ICICI Bank & Anr.’ Reported in AIR 2017 SC 4084 and ‘M/s Embassy Property Developers Pvt. Ltd. Vs. State of Karnataka’ reported in (2020) 13 SCC 308.

 

# 19 The Learned Counsel for the Respondents by placing reliance on the Judgment of this ‘Tribunal’ in ‘Mr. Ravi Ajit Kulkarnis Vs. State Bank India’ vide Company Appeal (AT)(Insolvency) No. 316 of 2021 contends that the provisions of Sections 97(1) & 97(2) of ‘IBC’ whereby the ‘Adjudicating Authority’ is required to confirm the Board before appointing ‘Resolution Professional’ is directory in nature and the same is not mandatory one. Moreover, the Rule 8(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 specifically mentions that the Board may provide the ‘Adjudicating Authority’ the database containing the requisite details of ‘Resolution Professional’ to enable the ‘Adjudicating Authority’ to appoint ‘Resolution Professional’ in a timely manner to further the objects of ‘IBC’.

  

# 23. The Learned Counsel for the Respondents contends that the use of the word ‘shall’ under Section 97 of ‘IBC’ is directory and not mandatory and call for substantial and not rigid interpretation as used in Section 97 of “IBC’. In this regard, the Learned Counsel for the Respondent adverts to the decision of the Hon’ble Supreme Court in “Kailash Vs. Nanhku & Ors.” reported in (2005) 4 SCC 480 wherein in paragraph-8 it is observed as under:

• “All the rules of procedure are the handmaid of justice. The language employed by the draftsman of processual law may be liberal and stringent, but the fact remains that the object of prescribing procedure is to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating in the process of justice dispensation. Unless compelled by express and specific language of the Statute, the provisions of the CPC or any other procedural enactment ought not to be construed in a manner which would leave the court helpless to meet extraordinary situations in the ends of justice.”

 

# 24. The Learned Counsel for the Respondents submits that where the expression ‘shall’ has been used it would not necessarily mean that it is mandatory and it will always depend upon the facts of the given case. The conjoint reading of relevant provision together with other provisions of the Rules, the purposes sought to be achieved and the object beginning implementation of such a provision as per decision in ‘Dinesh Chandra Pandey Vs. High Court of M.P. & Anr.’ Reported in (2010) 11 SCC 500.

 

# 25. The Learned Counsel for the Respondents contends that ‘time is the essence of the Code’ and further that the Hon’ble Supreme Court in the decision of ‘Mohan Singh & Ors. Vs. International Airport Authority’ in (1997) 9 SCC 132 has observed and held that the Court is required to keep in view the impact of the Professional necessity of its compliance if the word ‘shall’ is considered as having mandatory character, the mischief that would ensure by such construction.

 

# 32. A ‘Resolution Professional’ is an indispensable person in ‘Insolvency Resolution Process’, as he has a pivotal part to play. No wonder, an ‘Adjudicating Authority’ can exercise his judicial discretion in appointing a ‘Resolution Professional’ in a given case, based on the facts and circumstances of the case, which float on the surface.

 

# 33. Moreover, if viewed from the object and purpose to be achieved by ‘IBC’, the word employed in Section 97(1) “shall” can only be construed as ‘directory’ by any stretch of imagination and not a mandatory one, that too by adopting a purposeful, meaningful, practical, pragmatic and result oriented approach, with a view to prevent an aberration of justice and to secure the ends of justice.

 

# 34. In the instant case on hand, ongoing through word ‘shall’ occurred in Section 97(1) of ‘IBC’ employed in Section 97(1) of ‘IBC’, this ‘Tribunal’ is of the considered view that it is only ‘Directory’ and not ‘Mandatory’ and holds it so, in the teeth of Rule 8(1) of the Insolvency and Bankruptcy (Application to ‘Adjudicating Authority’ for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 and also by which the NCLT may pick up any one from the Panel for appointment of ‘IRP’ Liquidator, Resolution Professional and Bankruptcy Trustee. As such, when the ‘Adjudicating Authority’ had exercised its judicial discretion in fair manner for the appointment of Mr. Anil Kohli as an ‘IRP’, the same cannot be found fault with as opined by this ‘Tribunal’.

 

# 35. In view of the foregoings, the contra plea, taken on behalf of the Appellants that before passing of an order under Section 97(5) of ‘IBC’, the ingredients of sections 91 and 92 of ‘IBC’, are ought to be satisfied, is not acceded to by this ‘Tribunal’. Looking at from any angle, the ‘Impugned Orders’ dated 23.07.2021 in I.A.(IBC) No. 346 of 2021 CP(IB) No. 02/95/HDB/2021 and I.A.(IBC) No. 347 of 2021 in CP(IB) No. 03/95/HDB/2021 for appointment of Mr. Anil Kohli as ‘IRP’ and directing him to file ‘Report’ under Section 99(1)) of ‘IBC’ are free from any legal patent legal errors. Hence, the ‘Appeals’ fail.

 

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PNB Housing Finance Ltd. Vs. Mr. Goldy Gupta - Where Application(s) in relation to the CD for initiation of CIRP is pending in NCLT then, initiation of CIRP of the CD is not a prerequisite for maintainability of an application under Section 95 filed for initiating IR Process against the Personal Guarantor of that CD before the NCLT.

NCLT New Delhi-II (20.10.2021) In PNB Housing Finance Ltd. Vs. Mr. Goldy Gupta   [Company Petition No. (IB)-375(ND)2021 ] held that;

• in the matter of Lalit Kumar Jain Vs.  Union of India, wherein the Hon'ble Supreme Court in para 99 and 100  of the Judgement held that 

• “……Section 179, which defines what the  Adjudicating Authority is for individuals is “subject to” Section 60. Section  60(2) is without prejudice to Section 60(1) and notwithstanding anything to  the contrary contained in the Code, thus giving overriding effect to Section  60(2) as far as it provides that the application relating to insolvency  resolution, liquidation or bankruptcy of personal guarantors of corporate  debtors shall be filed before the NCLT, where proceedings relating to  corporate debtors are pending…….” 

• Hence, we conclude that in a situation where  Application(s) in relation to the Corporate Debtor for  initiation of CIRP is pending in National Company Law  Tribunal (NCLT) then, initiation of CIRP of the  Corporate Debtor is not a prerequisite for  maintainability of an application under Section 95 of  the IBC, 2016 filed for initiating IR Process against the  Personal Guarantor of that Corporate Debtor before the  NCLT.”

Excerpts of the order;

The present Application has been preferred by M/s PNB Housing  Finance Ltd. (the ‘Applicant/Financial Creditor’), under Section 95(1)  read with Rule 7(2) of the Insolvency and Bankruptcy (Application to  Adjudicating Authority for IRP for Personal Guarantors to Corporate  Debtor) Rules, 2019, for initiating the Insolvency Resolution Process (the  “IR Process") against Mr. Goldy Gupta (the “Personal Guarantor /Debtor”), who is the Partner of M/s Star Raison Landmarks and  Directors of Star Realcon Pvt. Ltd. (the ‘Corporate Debtor’). 

 

# 4. It is stated by the Applicant/Creditor that the Corporate Debtor  committed breach of the Loan Agreement dated 10.02.2017, by defaulting  payment of the EMI's due and payable. In the circumstances, the  Applicant/Creditor issued a Demand Notice dated 28.12.2020 calling  upon the guarantors as well as the Borrowers to pay the outstanding  amount of Rs.4,41,50,495.39 (Rupees Four Crores Forty One Lacs Fifty  Thousand Four Hundred Ninety Five and Thirty Nine Paisa) only due as  on 09.12.2020, but of no avail. 

 

# 5. It is further stated that the Financial Creditor terminated the loan facility No. B-WFH/CCF/0017/346647 vide Loan Recall Notice dated  27.01.2021 and called upon the Borrowers as well as the guarantors to  pay an amount of Rs.4,12,23,678/- due and payable as on 22.01.2021. 

 

# 6. It has been submitted that the Applicant/Creditor, vide notice  dated 25.02.2021, invoked the arbitration clause of the Loan Agreement.  Additionally, the Creditor presented the post-dated securities cheque(s)  for encashment. However, even the security cheques were dishonoured for which, proceedings under Section 138 of the Negotiable Instruments Act,  1881 have been initiated, which are pending adjudication before Court. 

 

# 7. It is further submitted by the Applicant that since the Guarantor  of the Borrowers having co-extensive liability along with the Borrowers are  liable to pay the dues towards both the loan facilities, it had invoked the  personal guarantee tendered by the Guarantor vide its Loan Recall Notice  dated 27.01.2021. 

 

# 8. It is added by the Applicant/Creditor that it had sent a Demand  Notice dated 22.06.2021, seeking payment of the outstanding /unpaid  debt of Rs.3,92,89,697/-. The Tracking Report of the Demand Notice  depicting successful delivery to the Personal Guarantor is annexed by the  Applicant on page no. 195 and 196 of the Petition.  : 

 

# 10. That during the course of hearing on 09.08.2021, the Ld. Counsel  for the Applicant informed this Bench that the Applicant has filed IB  Applications against the Borrowers/Corporate Debtors before this  Adjudicating Authority to initiate CIR Process against them. The cases are registered as CP. (IB)-408/2021 titled as M/s. PNB Housing Finance Ltd.  Vs. M/s. Star Realcon Pvt. Ltd. and CP. (IB)-407/2021 titled as M/s. PNB  Housing Finance Ltd. Vs. M/s. Pinnacle Housing Pvt. Ltd.  

 

# 11. That the Ld. Counsel for the Personal Guarantor appeared on the  advance notice and opposed the prayer made by the Applicant on the  ground of the maintainability of the present petition. Both the parties have  also filed their written submissions with regard to maintainability of the  present petition. 

 

# 12. It is averred by the Respondent in its written submissions that : 

• “1. As per Section 179(1) and Section 179(2) of the IBC,  2016 the adjudicating authority for initiation of  insolvency proceedings against individuals and firms is  conferred upon the Debt Recovery Tribunal. Therefore,  the present petition filed under Section 95 of the  Insolvency and Bankruptcy Code ought to have been filed  before the Debt Recovery Tribunal. 

• 2. Section 60(2) provides jurisdiction to National  Company Law Tribunal to entertain petitions against  personal guarantors who have extended guarantee to the  Corporate Debtor and where the CIRP or the liquidation  proceedings have been admitted against the Corporate  Debtor. It is submitted that though S. 7 petitions have  been filed against the co-borrowers who are the  Corporate Debtors in the present case, no order of  admission has yet been passed by this Hon’ble  Tribunal and therefore, the petitions filed by the 2 5-12  Financial Creditor under Section 95 are not maintainable  before this Tribunal as being premature.  

• C. The judgment of the Hon’ble National Company Law  Appellate Tribunal in the case of Ferro Alloys Corporation  Ltd. [Company Appeal (AT) (Insolvency) No. 92 of 2017]  is inapplicable in as much as, firstly, the judgment  pertained to a regime prior to the notification of the  provisions against the personal guarantor on  15.11.20219 and secondly, the issue involved in that  litigation related to corporate guarantors and not  personal guarantors.  

• D. It is submitted that the notification dated 15.11.2019  has notified all the provisions relating to individuals who  have extended personal guarantee to Corporate Debtor.  The legislative intent as evidenced by the judgment of the  Hon’ble Supreme Court in Lalit Kumar Vs. UOI (para 99)  is that under Section 60(2) the NCLT would get  jurisdiction only in case where the CIRP or the  liquidation proceedings are pending against the  Corporate Debtor.” 

 

# 13. Further, the Personal Guarantor has placed reliance on the  decision of Mumbai Bench of NCLT dated 09.07.2021 passed in the matter  of Altico Capital India Ltd. Vs. Rajesh Patel & Ors. I.A 1062/2021 in C.P.  293/2020. The order dated 09.07.2021 is reproduced below: 

• “IA-1062/2021 The above I.A. is filed by the Financial Creditor under  section 95 of IBC against the personal guarantor.  However, on an enquiry from the Bench it came out  that the Corporate Debtor for which the personal  guarantee has been given is not under CIRP. In view  of the above, the present I.A. cannot be prosecuted  and therefore the above I.A. 1062/2021 is disposed  of and CP 293/2020 is also dismissed.” 

 

# 14. That the Personal Guarantor has also place reliance on the  Judgment of NCLT Chennai in CP/713/IB/CB/2018 titled as SBI v.  Vijaraj Surana. The relevant extracts of the order are reproduced below :  

• “17. Let us contemplate a converse situation, if no  CIRP is initiated against principal borrower, in such  situation, can NCLT as Adjudicating Authority will  have jurisdiction to proceed independently against  personal guarantor in the absence of CIRP against the  principal borrower, certainly not because personal  guarantor being an individual, proceedings lie  against him before DRT as Adjudicating Authority.  This jurisdiction to proceed against personal  guarantors before NCLT is contingent upon CIRP  proceeding pending before NCLT….” 

 

# 15. That in response to the contentions of the Personal Guarantor, it  is argued by the Applicant/Creditor that the Adjudicating Authority for  individuals (Personal Guarantor) shall be, what has been provided under  Section 60 of the Code [as amended vide the Insolvency and Bankruptcy  Code (Second Amendment) Act, 2018] [effective from 06.06.2018]. The  Applicant has submitted that a bare perusal of Section 60 of the Code  shows that this Section has following three limbs/situations, under which  an Application can be entertained before this Adjudicating Authority : 

• “A) Section 60(1) deals with the situation where the  Adjudicating Authority will be NCLT having territorial  jurisdiction over the place where the registered office of  the corporate person is located. {fresh filing} 

• B) Whereas Section 60(2) deals with a situation where,  the Adjudicating Authority would be NCLT where CIRP or  liquidation proceedings of a Corporate Debtor is pending.  {pending CIRP against CD} 

• C) Section 60(3) which deals with the situation where the  Adjudicating Authority would be NCLT which has seized  of the matter against the Corporate Debtor and the  insolvency resolution process or liquidation or  bankruptcy proceeding is already pending against the  Corporate Guarantor or Personal Guarantor in any Court  or Tribunal shall be transferred to such NCLT dealing  with CIRP or liquidation process of such Corporate  Debtor. {Transfer}” 

 

# 16. It is further submitted by the Applicant that all the aforesaid three sub-sections of Section 60 are independent of each other and come into effect in three different situations. This can also be deduced from  perusal of the judgment passed by the Hon'ble Supreme Court in the  matter of Lalit Kumar Jain Vs UOI (Transferred Case (Civil) No.  245/2020). The aforesaid interpretation of Sub-section (1), (2) and (3) of  Section 60 can also be drawn from a bare perusal of the judgment passed  by the Hon'ble NCLAT on 08.01.2019 in the matter of Ferro Alloys Corporation Limited vs. Rural Electrification Corporation Limited, [Company Appeal (AT) (Insolvency) No. 92 of 2017) which was upheld by  the Hon'ble Supreme Court vide order dated 11.02.2019, wherein the  Hon'ble NCLAT has categorically held that it is not necessary to initiate  CIRP process against the principal borrower before initiating CIRP against  the Corporate Guarantor.  

 

# 17. It is added by the Applicant that the Hon'ble NCLAT, while  passing the aforesaid Judgment relied upon the landmark judgment in the  matter of Bank of Bihar Limited vs. Dr. Damodar Prasad & Anr. (1969)  1 SCR 620, wherein the Hon'ble Supreme Court held that “under Section  128 of the Indian Contract Act, save as provided in the contract, the  liability of the surety is co-extensive with that of the principal debtor. The  surety became thus liable to pay the entire amount. His liability is  immediate. It cannot be deferred until the creditor exhausted his remedies  against the principal debtor. Further the Hon'ble Supreme Court held that  the Financial Creditor has not only right to recover the outstanding dues  by filing a suit, but also has a right to initiate resolution process against  the corporate person, whose liability is co-extensive with that of the  principal borrower. 

 

# 18. That it is submitted further by the Applicant that the notification  relating to Part III was challenged in the matter of Lalit Kumar Jain Vs.  Union of India, wherein the Hon'ble Supreme Court in para 99 and 100  of the Judgement held that 

• “……Section 179, which defines what the  Adjudicating Authority is for individuals is “subject to” Section 60. Section  60(2) is without prejudice to Section 60(1) and notwithstanding anything to  the contrary contained in the Code, thus giving overriding effect to Section  60(2) as far as it provides that the application relating to insolvency  resolution, liquidation or bankruptcy of personal guarantors of corporate  debtors shall be filed before the NCLT, where proceedings relating to  corporate debtors are pending…….” 

It is contended by the Applicant that it  is clear from the aforesaid analysis that the Parliamentary intent was to  treat the personal guarantor differently from other categories of  individuals. 

 

# 19. After hearing submissions of both the parties, perusing the  documents placed on record and written submissions of the parties, we  observe that in the present case, though the CIRP has not been initiated  against the Corporate Debtor, as revealed by the parties, the  Applicant/Creditor has filed Applications No. CP. (IB)-408/2021 titled as  M/s. PNB Housing Finance Ltd. Vs. M/s. Star Realcon Pvt. Ltd. and CP. No. (IB)-407/2021 titled as M/s. PNB Housing Finance Ltd. Vs. M/s.  Pinnacle Housing Pvt. Ltd against the Borrowers/Corporate Debtors  before this Adjudicating Authority to initiate CIR Process against them. Hence, we find that the facts of the present case and issues raised herein  are akin to the facts of the Company Petition No. (IB)-395(ND)/2021- PNB Housing Finance Ltd. Vs. Mr. Mohit Arora, decided by this Bench  recently vide Order dated 29.09.2021 and the issues raised therein. In the  aforesaid case, we have held that : 

• “31. While going through the Section 60(1), we have seen that  the Adjudicating Authority, in relation to the insolvency  resolution and liquidation for corporate persons including  corporate debtors and personal guarantors thereof shall be  the NCLT having territorial jurisdiction over the place where   the registered office of a corporate person is located. Hence,  in the case herein, there is a situation where various IB  applications for initiation of CIR process against the  Corporate Debtor are pending, though the CIR Process is yet  to be initiated. In our considered view, the moment the IB  applications in relations to Insolvency resolution of the  Corporate Debtor are pending before this Adjudicating  Authority, the provisions of Section 60(1) get attracted and  the jurisdiction to entertain insolvency process against the  personal guarantor would, therefore, lie with the NCLT. 

• 32. In the light of the aforesaid facts, we would like to  summarise in relation to that

•  i) there are pending IB cases in  relation to initiation of insolvency resolution of the Corporate  Debtor;

•  ii) Section 60(2) of IBC 2016 is without prejudice to  Section 60(1) as held by the Hon’ble Supreme Court in the  matter of Lalit Kumar Jain V. Union of India; and 

• iii)  Section 179(1) of IBC 2016 is subject to Section 60 of IBC  2016, which includes Sub-Section (1), therefore, in our  considered view, the jurisdiction in relation to the  insolvency resolution and liquidation for corporate persons  including corporate debtors and personal guarantors thereof  shall be the National Company Law Tribunal in terms of  Section 60(1) of IBC 2016.  

• 33. Hence, we conclude that in a situation where  Application(s) in relation to the Corporate Debtor for  initiation of CIRP is pending in National Company Law  Tribunal (NCLT) then, initiation of CIRP of the  Corporate Debtor is not a prerequisite for  maintainability of an application under Section 95 of  the IBC, 2016 filed for initiating IR Process against the  Personal Guarantor of that Corporate Debtor before the  NCLT.” 

 

# 20. Therefore, in the present case having the similar facts and issues,  we would like to reiterate that in the event of the Application(s) for  Insolvency and Bankruptcy (IB) being pending for initiation of CIR Process  before this Adjudicating Authority, commencement of CIRP against the  Corporate Debtor is not a condition precedent for maintaining an  application under Section 95 of the IBC, 2016 filed for initiating IR Process  against the Personal Guarantor of the Corporate Debtor before the NCLT. 

 

# 21. The Applicant has averred in its application that the Personal  Guarantor has committed, prima facie, default in making repayment of the  loan, for which he has given the personal guarantee to the Applicant/  Creditor on behalf of the Corporate Debtors/Borrowers. Hence, we are  inclined to proceed in the matter in accordance with the law. As  regards, the issue of limited notice to the personal guarantor as held by  the Hon’ble NCLAT in the matter of Ravi Ajit Kulkarni V. State Bank of  India in Company Appeal (AT) (Insolvency) No. 316 of 2021 vide its  judgement dated 12.08.2021, since the Personal Guarantor has already  caused appearance on the advance notice, we do not see any need for  issuing further notice. 

 

# 22. It is, therefore, made known to everyone that on filing this  Application by the Applicant/Creditor, the interim-moratorium  commences as stipulated under Section 96 (1) (a) in relation to all the debts  of the personal guarantor and shall cease to have effect on the date of  admission of this Application and during the interim- moratorium period, the following are prohibited: 

• (a) Any pending legal action or proceeding in respect of any debt  of the personal guarantor shall be deemed to have been  stayed; and 

• (b) The Creditors of the personal guarantor shall not initiate any  legal action or proceedings in respect of any debt. 

This shall, however, not apply to such transactions as may be notified by  the Central Government in consultation with any financial sector  regulator. 

 

# 23. The Applicant/Creditor has not proposed the name of any,  Insolvency Professional, for appointment as Resolution Professional.  Therefore, this Bench from the suggested panel of the IBBI appoints Mr.  Brijesh Kumar Tamber, as the Resolution Professional in exercise of the  powers conferred under Section 97 of the IBC, 2016 on this Authority  subject to the Regulation 4 (1) and (2) of the Insolvency and bankruptcy  Board of India (Insolvency Resolution Process for Personal Guarantors to  Corporate Debtors) Regulations, 2019. The details of the Resolution  Professional are as under: 

 

Name : Mr. Brijesh Kumar Tamber 

Registration No. : IBBI/IPA-002/IP-N00523/2017-18/11593 E-mail : officeofbrijeshktamber@gmail.com 

 

# 24. The Resolution Professional shall exercise all the powers as  enumerated under Section 99 of the IBC, 2016 read with the Rules made  thereunder. He is directed to examine the Application and make  recommendations along with the reasons in writing for acceptance or  rejection of this Application within the stipulated time as envisaged  under the provisions of Section 99 of the IBC, 2016. The RP shall give  a copy of the report under Sub-Section (7) of Section 99 to the  Applicant/Creditor, as soon as the same is filed before this Authority. Nothing expressed herein shall be constructed as an opinion before the RP  before filing his report. 

 

# 25. For the purpose of making report/recommendations, nothing  expressed herein shall be construed as an opinion/observation on the  reported default of the personal guarantor.  

 

# 26. The Applicant or his Counsel and the Registrar/Court Officer are  directed to serve the copy of this Order along with copy of the Application  and documents immediately on the Resolution Professional so appointed  by all modes for information and compliance. 

 

# 27. List the matter on 08.11.2021. 

 

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Surendra B. Jiwrajka Vs. Omkara Assets Reconstruction Pvt. Ltd. - As per sub-section (9) [of section 99] the resolution professional is required to record reasons in both eventualities either recommending acceptance or rejection of the application.

HC Bombay (30.09.2021) In Surendra B. Jiwrajka Vs. Omkara Assets Reconstruction Pvt. Ltd. [Writ Petition (L.) No. 21271 of 2021 and Writ Petition (L.) No. 21272 of 2021] held that; 

• that having regard to the scheme of the IBC, more particularly sections 95 to 100, no interference by the writ court at this stage is called for. He submits that the stage from sections 95 to 99 is only for the purpose of collecting evidence. Question of hearing the petitioner or for that matter the respondent will arise only after submission of report by the resolution professional under section 100 of IBC.

• A conjoint reading of sub- sections (6) and (7) of section 99 would indicate that the resolution professional shall examine the application and ascertain whether the application satisfies the requirement set out in sections 94 and 95 and whether the applicant has provided information and given explanation sought for by the resolution professional under sub-section (4). After examination of the application resolution professional may recommend acceptance or rejection of the application in his report. 

• As per sub-section (9) [of section 99] the resolution professional is required to record reasons in both eventualities either recommending acceptance or rejection of the application. In terms of sub-section (10) the resolution professional shall give a copy of the report so prepared to the debtor or to the creditor, as the case may be.

• Though the legislature itself has provided in section 99(10) that a copy of the report of the resolution professional be furnished to the debtor or to the creditor thus complying with the requirement of the principles of natural justice, it would be in the fitness of things and in furtherance of the principles of natural justice that the parties are also heard before the decision is taken by the adjudicating authority one way or the other under section (1) of section 100.

Excerpts of the order;

4. From a perusal of the aforesaid order we find that the impugned order was passed under section 97 of the Insolvency and Bankruptcy Code, 2016 (IBC). Application was filed by the respondent before the Tribunal to initiate insolvency resolution process against the petitioner and for appointment of resolution professional. The application was opposed by the petitioner on the ground that petitioner had already assigned the entire loan to J.M. Finance. Therefore, the application under section 95 of IBC was not maintainable. Petitioner contended that resolution professional has no power to decide the issue and therefore, before proceeding further Tribunal should decide on maintainability of the application to initiate insolvency resolution process. Notwithstanding such objection raised by the petitioner, Tribunal took the view that provisions of the IBC, more particularly from sections 95 to 100, do not contemplate entertaining any objection at that stage till the receipt of report from the resolution professional. Therefore, objection raised by the petitioner was rejected whereafter resolution professional was appointed and he was directed to submit report in terms of IBC.

 

5. Mr. Dwarkadas, learned senior counsel for the petitioner submits that the principal borrower was under corporate insolvency resolution process. The New India Co-operative Bank Limited which had sanctioned the term loan to the borrower had assigned all its rights, title and interest in the term loan to the respondent. In terms of the implemented resolution plan outstanding dues has been assigned to the JM Financial Asset Reconstruction Company, JM Finance ARC- March, 2018 Trust (ARC Trust). Therefore, respondent can no longer seek to enforce the loan which is already sold for consideration to the ARC Trust. This is a jurisdictional fact the existence of which is essential for the Tribunal to assume jurisdiction. In the absence of such jurisdictional fact Tribunal could not have exercised jurisdiction and proceed with the application filed by the respondent. Referring to section 96 of IBC he submits that the moment such application is filed under section 95, interim moratorium commences thereby causing serious prejudice to the petitioner. That apart, subjecting the petitioner to such proceeding without affording him a hearing would impact his standing in the market. There is serious invasion of petitioner’s privacy, that too without the Tribunal first determining as to whether it has jurisdiction to proceed with the matter. Impugned decision of the Tribunal is clearly in violation of the principles of natural justice rendering the same a nullity. Therefore, interference by the High Court under Article 226 is called for.

 

6. To support his submissions, learned senior counsel has placed reliance on the following decisions:-

• 1. Arun Kumar Vs. Union of India, (2007)1 SCC 732.

• 2. State Bank of India Vs. M/s Veekay Polycoats Ltd., (IB)-1291(PB)/2018.

• 3. Lalit Kumar vs. Union of India, Civil No.245/2020.

 

7. The writ petition is vehemently resisted by Dr. Saraf, learned senior counsel for the respondent who submits that having regard to the scheme of the IBC, more particularly sections 95 to 100, no interference by the writ court at this stage is called for. He submits that the stage from sections 95 to 99 is only for the purpose of collecting evidence. Question of hearing the petitioner or for that matter the respondent will arise only after submission of report by the resolution professional under section 100 of IBC. Therefore, there is no error or infirmity in the impugned order. To support his submission Dr. Saraf has relied on a recent decision of the National Company Law Appellate Tribunal, Principal Bench, New Delhi in Ravi Ajit Kulkarni Vs. State Bank of India, decided on 12th August, 2021.

 

8. Submissions made by learned counsel for the parties have received the due consideration of the court.

 

9. We have already extracted the impugned order whereby objection raised by the petitioner to decide the jurisdictional issue at the threshold was declined by the Tribunal holding that at the present stage the same is unwarranted.

 

10. Section 95 of IBC deals with application by creditor to initiate insolvency resolution process. As per sub-section (1), a creditor may apply either by himself or jointly with other creditors or through a resolution professional to the adjudicating authority for initiating an insolvency resolution process under section 95 by submitting an application. As per sub-section (4) the application under sub-section (1) should be accompanied by the details and documents mentioned therein. Sub-section (5) mandates that the creditor should provide a copy of the application made under sub-section (1) to the debtor.

 

11. In terms of section 96(1) when an application is filed under section 94 (section 94 deals with application by debtor to initiate insolvency resolution process) or under section 95, an interim moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application. During the interim moratorium period, all legal actions or proceedings pending in respect of such debt shall remain stayed and creditors shall not initiate any legal action or proceeding in respect of such debt.

 

12. Section 97 deals with appointment of resolution professional. Under sub-section (3) where an application under sections 94 or 95 is filed by the debtor or by the creditor himself, as the case may be, the adjudicating authority shall direct the Insolvency and Bankruptcy Board of India (briefly “the board” hereinafter) to nominate a resolution professional for the insolvency resolution process within 7 days of the filing of such application. Under sub-section (4) the board shall nominate a resolution professional within 10 days of receiving the direction issued by the adjudicating authority under sub-section (3), whereafter the adjudicating authority shall appoint the resolution professional under sub-section (5). Sub-section (6) provides that the resolution professional appointed by the adjudicating authority shall be provided a copy of the application for insolvency resolution process.

 

13. Section 98 deals with replacement of resolution professional which may not have much relevance vis-a-vis the subject matter of the present writ petitions.

 

14. Under sub-section (1) of section 99 the resolution professional shall examine the application referred to in section 94 or section 95, as the case may be, within 10 days of his appointment, and submit a report to the adjudicating authority recommending for approval or rejection of the application. As per sub-section (2) where the application has been filed under section 95, the resolution professional may require the debtor to prove repayment of the debt claimed as unpaid by the creditor by furnishing evidence etc. In terms of sub-section (4), the resolution professional may seek such further information or explanation for the purpose of examining the application from the debtor or the creditor or any other person. Sub-section (5) says that the person from whom information or explanation is sought under sub-section (4) shall furnish such information or explanation within 7 days of the receipt of the request. A conjoint reading of sub- sections (6) and (7) of section 99 would indicate that the resolution professional shall examine the application and ascertain whether the application satisfies the requirement set out in sections 94 and 95 and whether the applicant has provided information and given explanation sought for by the resolution professional under sub-section (4). After examination of the application resolution professional may recommend acceptance or rejection of the application in his report. As per sub-section (9) the resolution professional is required to record reasons in both eventualities either recommending acceptance or rejection of the application. In terms of sub-section (10) the resolution professional shall give a copy of the report so prepared to the debtor or to the creditor, as the case may be.

 

15. That brings us to section 100 of IBC which deals with admission or rejection of the application. As per sub-section (1), the adjudicating authority shall within 14 days from the date of submission of the report under section 99 pass an order either admitting or rejecting the application referred to in sections 94 or 95, as the case may be. Sub-section (2) deals with the situation where the adjudicating authority admits an application under subsection (1) and sub-section (4) deals with the situation where the application under sub-section (1) is rejected by the adjudicating authority. In either case under sub-section (3) a copy of such order is required to be provided to the creditor alongwith the report of the resolution professional within 7 days from the date of the order.

 

16. Thus from an analysis of the provisions contained in sections 95 to 100 of IBC, we find that a definite time-line has been provided at each stage of the proceeding. That apart, the interim moratorium in terms of section 96 which commences from the date of the application remains in force till the date of admission of such application under section 100. Though time-lines have been prescribed at each stage of the proceeding leading to acceptance or rejection of the application under section 100, we find that no such time-line has been prescribed for submission of report by the resolution professional though section 100 provides that the adjudicating authority shall take a decision either admitting or rejecting the application within 14 days from the date of submission of the report. That apart on a careful examination of section 100, we are of the view that before the adjudicating authority takes a decision to either admit or reject the application upon receipt of report from the resolution professional, the parties to the insolvency resolution process are required to be heard. Though the legislature itself has provided in section 99(10) that a copy of the report of the resolution professional be furnished to the debtor or to the creditor thus complying with the requirement of the principles of natural justice, it would be in the fitness of things and in furtherance of the principles of natural justice that the parties are also heard before the decision is taken by the adjudicating authority one way or the other under section (1) of section 100.

 

17. In such circumstances, we do not find any good ground to interfere with the impugned orders save and except that the resolution professional should submit the report within a definite time period. This is because under sub-section (1) of section 96 the interim moratorium automatically commences from the date of the application and continues till the date of admission of such application (or rejection as the case may be). The legislative intent which is discernible is that such interim moratorium should be for a limited duration. Therefore, the resolution professional should expedite preparation and submission of report but at the same time complying with the requirements of section 99 of IBC. We may note that in this case the resolution professional has already been appointed.

 

18. Accordingly, we direct that the resolution professional shall submit his report within a period of six weeks from the date of receipt of a copy of this order, whereafter the Tribunal shall decide the application within 14 days thereafter in terms of section 100 of IBC after giving due opportunity of hearing to the parties. All contentions are kept open.

 

19. Both the writ petitions are accordingly disposed of.

 

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