Petition U/S 95 Of IBC Not Maintainable If It Is Filed To Thwart Already Initiated Arbitral Proceedings: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Mr. Justice Rakesh Kumar Jain (Judicial Member) and Mr. Indevar Pandey (Technical Member), held that petition under section 95 of the Insolvency and Bankruptcy Code (IBC) cannot be maintained if it is filed merely to scuttle the proceedings already initiated under section 9 of the Arbitration and Conciliation Act. In this case, an appeal was filed against the decision of the NCLT wherein a petition under section 95 of the Insolvency and Bankruptcy Code (IBC) was dismissed.Brief FactsNeon Laboratories (appellant) advanced a loan amount to the tune of Rs. 1.75 crores to Satra Properties India Ltd (corporate debtor). A personal guarantee was given for this loan amount by Praful Nani Satra (personal guarantor/respondent no. 2). A deed of guarantee was executed on July 27, 2011 in which it was specified that the payment has to be made by the personal guarantor within 60 days from receiving a demand notice from the lender.Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor on August 3, 2020 by Vistra ITCL India Ltd. under section 7 of the Insolvency and Bankruptcy Code (IBC). A demand notice was served on the personal guarantor on November 1, 2021.Thereafter, a petition under section 9 of the Arbitration and Conciliation Act was filed by Mayank Shah (Intervenor/respondent no.1) in which deposit of Rs. 131.02 crores was sought. This matter was scheduled for hearing by the Bombay High Court on December 3, 2021.However, a petition under section 95 of the IBC was filed on December 1, 2021 by the appellant against the personal guarantor before the Bombay High Court could hear the arbitration matter. This petition triggered the moratorium under section 96 of the IBC which led to the adjournment of the arbitral proceedings.The National Company Law Tribunal (NCLT), Mumbai Bench, dismissed the petition filed under section 95 of the IBC along with a cost to be paid by the appellant. It was observed by the NCLT that the petition under section 95 of the IBC was prematurely filed as time period of 60 days after issuance of demand notice had not expired. The tribunal further noted that this petition was filed in collusion with the corporate debtor and halt the arbitral proceedings.ContentionsThe appellant contended that right to file a petition under section 95 of the IBC arises after expiry of 14 days from issuance of demand notice notwithstanding 60 days time period is provided under a deed of guarantee. It was further submitted that section 238 of the IBC gives overriding effect to the provisions of the IBC over other laws including contractual provisions. It was further argued that allegations of collusion levelled by the respondent are unwarranted and baseless as they were not substantiated by evidence.Per contra, it was contended by the respondent that the petition under section 95 of the IBC was filed before 60 days time period had elapsed from the issuance of demand notice as specified in the guarantee deed therefore the petition was filed prematurely. It was further argued that the petition was filed to obstruct the arbitration proceedings as filing of the petition will trigger the moratorium under section 96 of the IBC. It was further contended that the appellant was in favour of the extension of resolution plan as the extension was supported in the meetings of the committee of creditors (CoC). This support indicated that there was collusion with the corporate debtor.NCLAT's AnalysisThe NCLAT agreed with the contentions of the respondent and observed that the petition under section 95 of the IBC was prematurely filed as the time period of 60 days specified in clause 3 of the guarantee deed had not elapsed after service of demand notice. The tribunal further noted that the petition was filed on December 1, 2021 which was only 30 days after the service of demand notice therefore the petition was premature. The tribunal further held that terms of a guarantee deed will be given precedence while determining whether the petition under section 95 is maintainable or not. It was observed as under:“Clause 3 of the said agreement categorically lays down that the Guarantor would pay the amount of ICD of Rs. 1 Cr. 75 Lac to the lender within 60 days from the date of demand notice served by the Lender requiring the payment. Therefore, from the plain reading of this clause it is apparent that the liability to pay by the Guarantor to the lender shall arise only in two circumstance firstly, on the service of demand notice and secondly, within the period of 60 days from the receipt of demand notice.In fact the time was provided in the agreement to the guarantor to arrange payment of the lender to avoid legal complications. The right to file the petition under Section 95 thus would not arise after 14 days of service of the notice in view of the specific agreement between the parties that after the demand...

Petition U/S 95 Of IBC Not Maintainable If It Is Filed To Thwart Already Initiated Arbitral Proceedings: NCLAT New Delhi

Mohd Malik Chauhan

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Petition U/S 95 Of IBC Not Maintainable If It Is Filed To Thwart Already Initiated Arbitral Proceedings: NCLAT New Delhi

Mohd Malik Chauhan

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