DRT Recovery Certificate Confers Financial Creditor Status And Gives Rise To Fresh Cause Of Action: NCLAT Chennai

The company appeals were filed by the personal guarantors of the corporate debtor, challenging the order admitting the Insolvency Resolution Process (IRP) against them u/s 95 of the IBC, 2016. The issues before the Ld. NCLAT were whether the demand notice was properly served and whether the initiation of the proceedings was barred by the limitation. Background of the Case The corporate debtor availed the loan facility from the financial creditor and the appellants were the personal guarantors for the same. The accounts of the corporate debtor were classified as the NPA in 2015, and the DRT issued the debt recovery certificate after concluding the debt recovery proceedings in 2019. Subsequently, the financial creditor invoked the personal guarantees of the guarantors and issued a demand notice under Rule 7 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process against Personal Guarantors to Corporate Debtors) Rules, 2019, on 29.12.2021. It initiated IRP against the guarantors before the adjudicating authority, but the application was dismissed on the ground of failure to serve the mandatory demand notice. However, the financial creditor served the same notice to the guarantors in April 2023 and filed a fresh application u/s 95 of the IBC. The NCLT admitted the application, aggrieved by which the present appeal has been filed by the personal guarantors. Observations of the NCLAT The NCLAT dismissed the appeal and upheld the order admitting the IRP of the personal guarantors. The bench observed that the earlier dismissal of the IRP application by the NCLT due to non-service of demand notice only highlighted the procedural defect, and it didn't mandate issuing a second notice. Thus, the subsequent service of notice in April 2023 satisfies the requirement u/s 95 of the IBC. The tribunal referred to the Hon'ble Supreme Court's decision in the case of Dena Bank v. C. Shivkumar Reddy, wherein the court held that the recovery certificate holder is to be treated as to be the Financial Creditor under Section 5 (7) of the I & B Code, 2016. Hence, the Recovery Certificate of 09.07.2019, as issued by the DRT (Debt Recovery Tribunal) Hyderabad, would give a fresh cause of action holding the Respondent to be the Financial Creditor under Section 5 (7) of the I & B Code, 2016, for the purposes of initiation of the proceedings, and is not barred by the limitation. It also observed that even the subsequent proceedings, which were initiated on 05.07.2023, are within the prescribed time if the limitation is computed from 29.07.2019 and the period of the COVID-19 pandemic is excluded, as mandated by the Hon'ble Apex Court. The tribunal dismissed the petition, holding that the issuance of notice does not suffer from any apparent error and the petition is within the limitation. The bench observed that the demand notice dated 29.12.2021 was admittedly served in April 2023. Case Title: Mr. Virigneni Anjaiah & Smt. Kadiyala Suneetha v. M/s Pridhvi Asset Reconstruction and Securitization Company Ltd. & Ors. Case Number: Company Appeal (AT) (CH) (INS) Nos. 163 & 164 of 2024 For Appellant: Mr. Pogulakonda Pratap, Advocate For Respondent: Mr. Surya Teja SS Nalla, Advocate for Respondent No. 1 Bench: Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member) Judgment Date: 24.07.2024 Click Here To Read/Download The Order

DRT Recovery Certificate Confers Financial Creditor Status And Gives Rise To Fresh Cause Of Action: NCLAT Chennai

Mohd.Rehan Ali

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