NCLAT held that the Adjudicating Authority lacked the power to examine the merits in Section 95 applications until it had received the Resolution Professional's report under Section 99 of the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr, Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that under the IBC, an Adjudicating Authority is precluded from making jurisdictional determinations or dismissing a Section 95 application against a personal guarantor before appointing a Resolution Professional (RP) and receiving the RP's report under Section 99, as procedural steps are mandated and cannot be bypassed. The NCLAT further affirmed that waiver principles do not apply in this procedural context, emphasizing strict adherence to the statutory framework.
In this judgment, the National Company Law Appellate Tribunal (NCLAT) upheld the National Company Law Tribunal's (NCLT) decision rejecting the Appellant's application under Section 95 of the Insolvency and Bankruptcy Code (IBC) against the Respondent/Personal Guarantor of the Corporate Debtor. The Appellant (Bank) sought insolvency proceedings following a default by the Corporate Debtor, having classified the account as a non-performing asset (NPA). Despite serving a demand notice, the Adjudicating Authority dismissed the Section 95 application, accepting the Personal Guarantor's arguments on procedural and substantive grounds, particularly concerning limitation.
The Appellant bank contended that the Adjudicating Authority had improperly entertained preliminary objections rather than appointing a Resolution Professional (RP) under Section 97, as clarified in a recent Supreme Court ruling in Dilip B. Jiwrajka v. Union of India, REEDLAW 2023 SC 11575. This ruling mandates that issues under Section 95 should proceed only after an RP’s report under Section 99, restricting the Adjudicating Authority's role at this stage to non-adjudicative functions. However, the NCLAT observed that the bank had waived its jurisdictional objections in responding to the Personal Guarantor’s application (IA No. 5501 of 2023), thereby endorsing the Authority’s dismissal of the petition as procedurally sound and consistent with legal principles.
The NCLAT further acknowledged the statutory scheme under Section 100 of the IBC, wherein adjudication occurs exclusively post-RP’s report, reinforcing that any decision on admission or rejection of applications must be made following this procedural step. It emphasized the Supreme Court’s guidance in Dilip B. Jiwrajka v. Union of India, REEDLAW 2023 SC 11575, where the Court clarified that the Adjudicating Authority’s role becomes active only under Section 100, after receiving the RP’s report. Here, the Adjudicating Authority, however, dismissed the bank’s application without appointing an RP, aligning its decision with the IBC’s procedural requirements and the Supreme Court’s directive to prevent premature jurisdictional determinations at the RP appointment stage.
The Respondent’s counsel argued that the bank, by not objecting during IA No. 5501 of 2023, had waived its right to contest jurisdictional issues. However, the NCLAT referenced case law principles from Hira Lal Patni, Krishna Bahadur, and Babu Varghese, clarifying that waiver requires a deliberate and knowledgeable forfeiture of a right, often with consideration, which was inapplicable here. The NCLAT concluded that statutory procedural mandates under the IBC must be strictly observed, dismissing the notion of waiver in this context and affirming that the Authority retained jurisdiction, provided procedural steps as prescribed were duly followed. Thus, the appeal was dismissed, underscoring the IBC's adherence to procedural integrity in insolvency proceedings involving personal guarantors.
Mr. Ravi Raghunath, Ms. Aakashi Lodha and Mrs. Rathina Maravarman, Advocates represented the Appellant.
Mr. Krishnendu Dutta, Sr. Advocate with Mr. Rohit Gupta, Mr. Punit Damodar, Ms. Nikita H. Vardhan, Mr. C. George Thomas, Ms. Alina Mathew, Ms. Nidhi Pathak and Mr. Ansh Mittal, Advocates appeared for Respondent.
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