No Right To Be Heard Can Be Given At Stage U/S 99 Of IBC, Resolution Professional's Role Is Only Recommedatory And Not Adjudicatory: NCLAT

The National Company Law Appellate Tribunal (NCLAT) Chennai bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Jatindranath Swain (Technical Member) has held that no opportunity of being heard is required at the stage when a report under Section 99 of the Insolvency and Bankruptcy Code, 2016 (Code) is submitted, as the role of the Resolution Professional at this stage is merely to assist the Adjudicating Authority in deciding whether the application should be accepted or rejected. Therefore, if no opportunity is given at this stage by the Resolution Professional, the admission order of the petition based on such a report cannot be set aside. Brief Facts: Indiabulls Housing Finance Limited (IHFL) entered into a loan agreement on 21.03.2018 with M/s. Raffles Residency Pvt. Ltd., with Mr. Iqbal Jumabhoy and Mr. Hussain Somjee, the Appellants, acting as personal guarantors. IHFL issued a demand notice under Section 13(2) of the SARFAESI Act on 14.02.2020 and another notice on 20.02.2020 under Rule 7(1) of the IBBI Rules, 2019. IHFL also filed applications before theDebt Recovery Tribunal (DRT). Applications were filed under Section 95 of the Code against the respective personal guarantors/Appellants. The Resolution Professional (RP), in his report under Section 99, recommended acceptance of these applications. The Adjudicating Authority, by orders under Section 100 of the Code, admitted the Section 95 applications and initiated the Insolvency Resolution Process against the Appellants. Against the above orders, the present appeals have been filed. Contentions: The Appellants submitted that though the settlement agreements, which the Financial Creditors have entered into, should have extinguished the original loan and personal guarantee agreements, the Financial Creditor has relied upon the same loan agreement and the personal guarantee agreement, to file the application Under Section 95 of the Code which is fundamentally flawed. It was further submitted that since, as a consequence of the Impugned Order, the Appellants were deprived of an opportunity to contest the Resolution Professional's report under Section 99 of the Code which was accepted resulting in the admission of the Section 95 application and initiation of the Insolvency Resolution Process (IRP) against them, the process is unsustainable in law. Observations: The Tribunal noted that the Supreme Court in Dilip B Jiwrajka Vs. Union of India & and others (2024), held that the legislature has appropriately interposed professionals before the adjudicatory function is assumed by the Adjudicating Authority, with proceedings commencing only at the Section 100 stage of the Code. The Apex Court further held that the Resolution Professional lacks the powers vested in the Adjudicating Authority and is not empowered under Part III of the Code to take over assets or business. Their role is purely recommendatory and does not bind the creditor, debtor, or the Adjudicating Authority. Based on the above, the Tribunal observed that the said report to be presented under Section 99 of the Code has to be considered only for the purposes of stepping into the stage of Section 100 of the Code and that the acceptance or rejection of the application is exclusively the prerogative of the Ld. Adjudicating Authority. It further added that the use of the expressions therein such as “examine the application”, “satisfies the requirements”, & “recommend” leave no doubt that the Resolution Professional's report under Section 99 does not have any element of adjudicating a right of any of the parties, as against whom the process under Section 95 of the Code is contemplated to be initiated. The Tribunal held that the Resolution Professional's role under Section 99 of the IBC, 2016 is purely recommendatory and not adjudicatory. The RP is not empowered to make binding factual determinations which require adherence to natural justice principles. The Tribunal further held that the RP's report does not bind the Adjudicating Authority under Section 100 of the Code. Principles of natural justice become applicable only when the Authority considers whether to accept or reject the application at the Section 100 stage. Based on the above, it held that the contention regarding violation of the ratio in Dilip B. Jiwrajka is unfounded. The report under Section 99 of the IBC, 2016 merely assists the Adjudicating Authority in assessing whether IRP proceedings under Section 95 should be initiated. At this stage, no principles of natural justice were violated. It held that the RP's report was provided to the Appellants and a two months time was granted to file a reply, which they failed to do. Given the strict timelines under the Code, the opportunities afforded were adequate. Accordingly, the present appeals were dismissed. Case Title:IQBAL JUMABHOY V SHRI...

No Right To Be Heard Can Be Given At Stage U/S 99 Of IBC, Resolution Professional's Role Is Only Recommedatory And Not Adjudicatory: NCLAT

Mohd Malik Chauhan

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