Adjudicating Authority Cannot Accept Report Of Resolution Professional Mechanically, Must Conduct Independent Assessment U/S 100 Of IBC: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that the Adjudicating Authority, while considering the report of the Resolution Professional submitted under Section 99 of the Insolvency and Bankruptcy Code, 2016 (Code), must conduct its own independent assessment to determine whether all essential issues required for accepting or rejecting the application filed under Section 95 of the Code are fulfilled. It cannot merely accept the findings of the Resolution Professional mechanically. Brief Facts: Indian Bank extended financial facilities to M/s. Metrix Healthcare Private Limited (Corporate Debtor). Working capital facility as well as FITL was extended by the bank. The appellant executed a personal guarantee deed in favour of the bank guaranteeing the repayment. A demand notice in 'Form-B' dated 16.03.2024 was issued. After issuance of the demand notice, Company Petition (IB) No. 158/AHM/2024 was filed against Mrs. Rajini Ajay Gupta (Personal Guarantor). Resolution Professional (RP) submitted its Report on 23.05.2024, in pursuance of which, the adjudicating authority passed the impugned order under Section 100 of the Code by which an application under section 95 of the code was admitted. Against this order, the present appeal has been filed. Contentions: The Appellant submitted that the application which was filed by the Indian Bank was not complete since record of default as required by Regulation 2A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) has not been filed. It was also argued that when the amount which is due on the corporate debtor has not yet been ascertained, there is no question of proceeding with personal insolvency of the guarantors. It was further contended that guarantors have to submit a repayment plan and unless the amount due on the corporate debtor i.e., payable by the guarantors is not ascertained, no repayment plan can be submitted by the personal guarantors. Adjudicating authority has to apply its mind to all matters which may have bearing on admission of the application. Per contra, the Respondent submitted that in the Section 95 application, the bank has clearly mentioned about the amount which was realised from sale of the mortgaged assets and the amount claimed as due was after adjusting the amount which was realised by the sale of mortgaged assets. Lastly, it was submitted that there being default committed by the corporate debtor in repayment of dues, bank has rightly proceeded against personal guarantor. Observations: The Tribunal observed that before filing the application under section 95 of the code, the bank must issue a notice to the personal guarantor in 'Form-B.' In the present case, the notice was issued on 16 March 2024, and the application was filed in 'Form-C,' which contains all necessary documents with respect to the particulars of debt. It further added that the mode and manner of filing the application under Section 95(1) of the code are governed by the 2019 Rules, which prescribe the required documents that have to be filed with the application in 'Form-C.' Therefore Regulation 2A of the CIRP Regulations shall not be applicable. The Tribunal further noted that RP in the Report, although has noticed the realisation, the amount realised by the bank as was claimed, but in paragraph 7 of the report has not made any statement with regard to amounts which has been realised by the bank and as to what is the amount which is due on the corporate debtor. The Supreme Court in 'Dilip B. Jiwrajka' Vs. 'Union of India & Ors.' (2024) held that adjudicatory functions of the adjudicating Authority commences under Section 100 of the code after the submission of the Report. It was further held that adjudicating authority has to conduct an independent assessment not solely relying on the RP's Report to decide the fate of application. Based on the above, the Tribunal held that in the present case, the adjudicating authority has not carried any independent assessment which is evident from the order of the adjudicating authority. The Tribunal further observed that when a default is committed by the principal borrower, the surety is jointly and severally liable to the creditor.In the present case, the bank realized ₹5,92,92,750/- from the sale of the assets of the corporate debtor and personal guarantors under SARFAESI Act, and an email from the personal guarantor indicated that a property possessed by the bank was sufficient to settle the debt. Based on the above, the Tribunal held that however, this issue was neither addressed by the RP in its report nor considered by the Adjudicating Authority. There is a ...

Adjudicating Authority Cannot Accept Report Of Resolution Professional Mechanically, Must Conduct Independent Assessment U/S 100 Of IBC: NCLAT

Mohd Malik Chauhan

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