Application U/S 95 Of IBC Against Personal Guarantors Not Barred By Change In Debt Quantum After Approval Of Plan Against Corporate Debtor: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Arun Baroka (Technical Member) has held that a change in the quantum of debt to be paid by the personal guarantor, following the approval of the resolution plan in the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor, does not negate the right of the creditors to proceed against the personal guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016 (Code). Brief Facts: These appeals have been filed by the personal guarantors of the corporate debtor, challenging the order dated 07.10.2024 passed by National Company Law Tribunal (NCLT), Principal Bench, New Delhi. The order admitted a Section 95 application filed by the State Bank of India and also rejected the personal guarantors' IAs, IA No. 155 of 2024 and IA No. 2595 of 2024, seeking deferment of the proceedings. Aggrieved by this decision, the appellants have approached this Tribunal. The Appellant submitted that the Section 95 application ought not to have been admitted, as the Resolution Plan in the CIRP against the Corporate Debtor was already approved on 05.09.2019. It was further submitted that under Clause 1.8F of the Resolution Plan, the Financial Creditor's right against the Personal Guarantor is limited only to the unrecovered portion of the financial debt. Since the Resolution Plan has altered the quantum of debt, it is submitted that proceedings under Section 95 should not have been allowed to continue. Per contra, the Respondent submitted that there is no error in the initiation of the CIRP against the Personal Guarantor and the question about the quantum of debt or any part of debt already realized by the Bank can be gone into at the time of finalization of the repayment plan as per the provisions of the Code. Observations: The Tribunal observed that there is no dispute that the Resolution Plan is binding on all stakeholders, including the Financial Creditor. Clause 1.8F, relied upon by the Appellant, only states that Financial Creditors may recover any unrecovered financial debt from the Personal Guarantor. Based on the above, it held that therefore, any amount recovered under the Resolution Plan must be duly accounted for while preparing the repayment plan in the personal guarantor's insolvency. However, the Appellant's argument that a change in the quantum of debt invalidates the initiation of CIRP against the Personal Guarantor cannot be accepted. It further opined that the Financial Creditor retains the right to file a Section 95 application if the personal guarantee is invoked and the debt remains unpaid. In this case, proceedings were rightly initiated following the issuance of notice under Rule 7 of the 2019 Rules. The NCLAT in Hari Singh Thakur vs. Sandeep Kumar Bhatt (RP) and Anr.- 2024 held that the Appellant's contention that the debt has not been correctly reflected in the Section 95 application is not a valid ground for rejecting the application at the admission stage. Issues regarding the quantum of debt and adjustments for any amounts already recovered by the Bank are matters to be considered during the finalization of the repayment plan. The Appellate Tribunal in the above case also held that similarly, concerns about asset valuation can be raised by the Appellant before the Adjudicating Authority with appropriate supporting material. These arguments do not justify challenging the admission of the Section 95 application. Accordingly, the present appeal was dismissed. Case Title: Aarti Singal Vs. State Bank of India & Anr. Case Number:Company Appeal (AT) (Insolvency) No. 2121 of 2024 Judgment Date: 21/04/2025 For Appellant: Mr. Sandeep Bajaj, Mr. Soayib Qureshi, Mr. Mayank Siyani, Advocates. For Respondents: Mr. Sanjiv Sen, Sr. Advocate with Ms. Srideepa Bhattacharya, Ms. Neha Shivhare, Mr. Uday Khare, Ms. Anjali Singh, Mr. Prahalad Balaji, Mr. Pragyan Mishra, Advocates for SBI. Click Here To Read/Download The Order

Application U/S 95 Of IBC Against Personal Guarantors Not Barred By Change In Debt Quantum After Approval Of Plan Against Corporate Debtor: NCLAT

Mohd Malik Chauhan

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