NCLAT Delhi: Section 95(1) Of IBC Permits Creditors To Initiate Insolvency Proceedings Against Personal Guarantors Via A Resolution Professional

The National Company Law Appellate Tribunal ('NCLAT') Delhi bench, comprising Mr. Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member) held that Section 95(1) of Insolvency and Bankruptcy, Code, 2016 ('IBC') allows creditors to initiate insolvency process against a Personal Guarantor through a Resolution Professional ('RP'). It held that such an application cannot be questioned to be defective on the ground that the application was signed by the Resolution Professional rather than an authorized officer. Background Facts: Dena Bank extended a credit facility of Rs. 32.15 crores to Morakhia Metals and Alloy Pvt. Ltd. (Corporate Debtor). On 25.07.2012, a joint Deed of Guarantee was executed by Shrenik Ashokbhai Morakhia (Appellant) along with Mr. Pankaj Kumar Morakhia towards the credit facility. The Corporate Debtor's account was declared NPA on 31.05.2015. On 04.03.2016, Dena Bank invoked the Personal Guarantee demanding repayment of Rs. 26.68 crore from the Appellant within 15 days. On 29.01.2018, the Appellant issued a Declaration-cum-Undertaking in favor of Dena Bank which assigned the loan facility to Reliance Asset Reconstruction Company Ltd (Financial Creditor). The Corporate Debtor was admitted into the Corporate Insolvency Resolution Process ('CIRP') under Section 7 of IBC on 19.02.2020 and a Resolution Plan was also approved. On 12.07.2021, a Demand notice was issued by the Financial Creditor for a claim of Rs. 27.81 Lakhs, and a Section 95 application was filed to initiate insolvency proceedings against the Appellant on 10.08.2021. On 19.04.2022, RP was appointed and submitted a report. The Appellant contested the Section 95 application, however NCLT Ahmedabad via its Order dated 20.03.2024 admitted the said application under Section 100 of IBC. The Appellant has filed the appeal against the said Order. Contention of the Appellant: The Appellant argued that since the default occurred on 04.03.2016, the Section 95 application filed on 10.08.2021 exceeds the three-year limitation period, which expired on 04.03.2019. Therefore, the application should be dismissed as time-barred. It was also contended that Dena Bank, having already invoked the guarantee, could not have assigned the debt to the Financial Creditor, rendering the Assignment Agreement invalid. Further, the Appellant contended that the Section 95 application was signed by the proposed Resolution Professional rather than an authorized officer and is invalid and should be rejected. NCLAT Verdict: The NCLAT Delhi bench dismissed the appeal and held that Section 95(1) of IBC permits creditors to file an application through a RP for initiating the insolvency resolution process against a Personal Guarantor. The Appellate Tribunal noted that the RP's written consent in Form A, along with authorization from the Financial Creditor to sign the application on their behalf, was submitted to the NCLT, Ahmedabad Bench, and included in the appeal records. Therefore, the Financial Creditor's application through the RP was valid. The Appellate Tribunal also addressed the limitation issue regarding the Section 95 application. The Appellant argued that the Deed of Guarantee dated 25.07.2012 was invoked by a Recall Notice on 04.03.2016, therefore, the three-year limitation period ended on 04.03.2019, rendering the Financial Creditor's application filed on 10.08.2021 time-barred. NCLAT observed that the notice demanded repayment of Rs. 26.68 crore within 15 days and the Appellant issued a Declaration cum Undertaking on 29.01.2018. Therefore, the declaration acknowledged the company's debt to the Financial Creditor. Moreover, the acknowledgment of debt is in writing which is sufficient to extend the period of limitation as per Section 18 of the Limitation Act. Hence, the application filed on 10.08.2021 is deemed to be within the extended limitation period. Furthermore, the Supreme Court's Suo Motu Writ Petition (Civil) No. 03 of 2020 excluded the period from 15.03.2020 to 28.02.2022. Since the application was filed on 10.08.2021, it fell within this excluded period. The three-year period from the date of the Declaration cum Undertaking ended on 28.01.2021 and is within the excluded period specified by the Supreme Court. In conclusion, NCLAT dismissed the appeal as the application filed on 10.08.2021 is within the Limitation period and observed that a creditor can file an application against the Personal Guarantor via RP. Case Title: Shrenik Ashokbhai Morakhia vs. Reliance Asset Reconstruction Company Ltd. and Anr. Case No.: Company Appeal (AT) (Insolvency) No. 719 of 2024 Counsel for Appellant: Mr. Pranit Bhattacharya and Mr. Raj Sarit Khare, Advocates Counsel for Respondent: Mr. Bharat Sood, Mr. P.S. Sudheer, Ms. Anne Mathew and Ms. Miranda Solaman, Advocates for R-1. Date of Judgement: 13th May, 2024 ...

NCLAT Delhi: Section 95(1) Of IBC Permits Creditors To Initiate Insolvency Proceedings Against Personal Guarantors Via A Resolution Professional

Sachika Vij

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