NCLAT held that the Personal Guarantor’s failure to submit a repayment plan entitled creditors to initiate bankruptcy proceedings as a statutory consequence.
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 Yesterday and observed that under Sections 114 and 115 of the Insolvency and Bankruptcy Code, if a Personal Guarantor fails to submit a repayment plan, creditors are entitled to initiate bankruptcy proceedings as a statutory consequence, and such action does not infringe upon principles of natural justice even if the debtor was not specifically served on the termination application filed by the Resolution Professional.
In this case, the National Company Law Appellate Tribunal (NCLAT) examined an appeal filed by a Personal Guarantor against the National Company Law Tribunal (NCLT) Kolkata’s order, which terminated the Insolvency Resolution Process (IRP) for the Guarantor, discharged the Resolution Professional (RP), and permitted creditors to initiate bankruptcy proceedings. The appellant argued that the order violated principles of natural justice, claiming they were not served or given an opportunity to respond to I.A. No. 449/2024, which the RP filed to terminate the IRP due to the debtor's failure to submit a repayment plan.
The background showed that the State Bank of India initiated insolvency proceedings against the Guarantor under Section 95(1) of the Insolvency and Bankruptcy Code (IBC), leading to the RP’s appointment in August 2021. Despite reminders, the Guarantor did not submit the necessary documents or a repayment plan. After the appellant’s appeals against the RP’s appointment and the admission order were dismissed by both the NCLAT and the Supreme Court, the RP sought IRP termination, invoking Sections 114 and 115 of the IBC. These sections allow creditors to initiate bankruptcy if the repayment plan is not submitted or approved.
The appellant argued that the RP had not provided the necessary documentation, as required under Regulation 19 of the Insolvency Resolution Process for Personal Guarantors, 2019, and that they were denied a fair hearing on I.A. 449/2024. However, the RP’s Counsel highlighted the appellant's repeated non-cooperation, asserting that the creditors were legally entitled to pursue bankruptcy under Section 115(2) since no repayment plan had been prepared. The NCLAT found that Regulation 19 did not apply because no repayment plan or report had been submitted, rendering the requirement to serve documents inapplicable.
Considering the arguments, the NCLAT concluded that the Adjudicating Authority’s order did not infringe upon natural justice principles. The tribunal observed that the appellant’s persistent non-compliance hindered the insolvency process, and creditors were entitled to initiate bankruptcy under statutory provisions. The NCLAT dismissed the appeal, emphasizing the appellant’s lack of substantial grounds and upheld the statutory rights of the creditors to pursue bankruptcy in the absence of a repayment plan.
Mr. Anando Mukherjee, Mr. Raja Ratan Bhura, Mr. Shwetank Singh, Advocates represented the Appellant.
Mr. Kushal Bansal Advocate appeared for Respondent.
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