Moratorium Can't Be AShield To Defeat Legitimate Claims Of The Creditors: NCLT Chandigarh

The National Company Law Tribunal (NCLT), Chandigarh Bench, comprising Shri Harnam Singh Thakur (Judicial Member) and Shri Ashish Kumar Verma (Technical Member), admitted an insolvency petition under section 95 of the Insolvency and Bankruptcy Code (IBC) against Ms. Mohita Indrayan, a personal guarantor, for the debts of M/s Indian Clothing League Private Limited (corporate debtor). This petition was filed by Punjab National Bank along with Indian bank (banks). The NCLT observed that despite a petition under section 94 of the IBC filed by the personal guarantor, no further steps were taken to proceed with the case therefore benefit of interim moratorium under section 96 of the IBC could not be given. Brief Facts The corporate debtor took loan to the tune of Rs. 20 crores from Punjab National Bank and Rs. 15 crores from Allahabad Bank( now merged with Indian bank) for which Ms. Mohita Indrayan (personal guarantor) provided a personal guarantee. The personal guarantor filed a petition under section 94 of the IBC for initiating insolvency proceedings against itself on September 1, 2022. Consequently, this petition triggered an interim moratorium under section 96 of the IBC. Thereafter, a separate petition under section 95 of the IBC was filed by the banks on May 20, 2023 seeking insolvency resolution against the personal guarantor. Subsequently, an application bearing IA No. 2727/2023 was filed by the personal guarantor seeking dismissal of the petition under section 95 of the IBC filed by the banks. The second application bearing IA No. 2974/2023 was a report filed under section 99 of the IBC by resolution Professional (RP) in which admission of the banks' petition was recommended. Issue before NCLT If a Personal Guarantor files a petition under Section 94 of the Insolvency and Bankruptcy Code (IBC) before a Financial Creditor files a petition under Section 95, whether Personal Guarantor is entitled to the benefit of an interim moratorium under Section 96 of the IBC. NCLT's Analysis The NCLT observed that no subsequent steps were taken after the petition was filed under section 94 of the IBC by the personal guarantor. No resolution professional was appointed even after a lapse of significant time from the date of petition being filed. Additionally, repeated adjournments were taken. The tribunal further noted that the petition under section 94 was a tactic adopted by the personal guarantor to delay any action being taken in the petition filed by the banks under section 95 of the IBC. It was observed as under: “Despite an application under Section 94 of the Code had been filed by the Personal Guarantor prior to the Application under Section 95 was filed by the Financial Creditors, no efforts were put in by the Personal Guarantor to proceed with the application filed under Section 94 of the Code, which is clear from the fact that repeated adjournments were sought after filing of the petition u/s 94, resulting into that no RP could be appointed yet in the Section 94 petition.No Resolution Professional has been appointed in the Section 94 Petition so far. Therefore, from the conduct of the personal Guarantor, it is clear that he has not come before us with clean hands for his insolvency resolution but to stall the proceedings if any initiated by the Financial Creditor banks to take any action against him for the default committed by him for which he himself had moved the petition u/s 94 of the Code”. The NCLT observed that while it is true that interim moratorium under section 96 of the IBC gets triggered when petition under section 94 is admitted. However, it does not mean that this provision can be misused by the personal guarantor to defeat the legitimate claims of creditors. If such a course is allowed, it will defeat the very purpose for which the IBC was enacted-maximisation of assets value and insolvency resolution. The tribunal held as under: “If an application is filed under Section 94 by the Personal Guarantor himself, prior to any application being filed under Section 95 of the Code by the Financial Creditor and it appears to the Adjudicating Authority that the Section 94 Application is mere a shield to avoid or dodge the insolvency process which has been initiated by the Financial Creditors, the Personal Guarantor cannot be granted the benefit of an interim moratorium under Section 96 of the Code in the interest of justice Therefore, the moratorium u/s 96 claimed by Personal Guarantor against the initiation of insolvency resolution on account of the filing of petition u/s 95 by banks would not come to his rescue, when he herself has admitted to be in default as per petition filed by her u/s 94 of the Code”. The NCLT held that it was necessary to proceed with the petition filed under section 95 by the banks in the interest of justice as the petition under section 94 had not progressed due to...

Moratorium Can't Be AShield To Defeat Legitimate Claims Of The Creditors: NCLT Chandigarh

Mohd Malik Chauhan

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Moratorium Can't Be AShield To Defeat Legitimate Claims Of The Creditors: NCLT Chandigarh

Mohd Malik Chauhan

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