When Repayment Plan Is Not Submitted, Creditors Are Entitled To File Application For Bankruptcy Against Debtor U/S 121 Of IBC: NCLAT

The NCLAT New Delhi Bench of Justices Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) held that the creditors are entitled to file a Bankrupcty Application under section 121 of the IBC if no repayment plan as per section 106 of the IBC is submitted or if submitted but rejected by the Adjudicating Authority under section 115 of the IBC. Brief Facts This Appeal by a Personal Guarantor of the Corporate Debtor has been filed, challenging the Order dated 10.04.2024 passed by the Learned Adjudicating Authority by which I.A. No. 449(KB)/2024 filed by the Resolution Professional (RP) has been allowed terminating the Insolvency Resolution Process of Personal Guarantor and discharging the RP and further granting liberty to the Creditors of the Personal Guarantor to initiate Bankruptcy Process against the Personal Guarantor. Aggrieved by the Order, this Appeal has been filed by the Appellant, the Personal Guarantor. An Application under Section 95(1) was filed by the State Bank of India (SBI) against the Appellant being C.P. (IB) No. 54(KB)/2021. The Adjudicating Authority vide Order dated 03.08.2021, appointed the Respondent, Prashant Jain as RP.The RP after interacting with the Personal Guarantor submitted a Report under Section 99 recommending initiation of Insolvency Proceeding against the Personal Guarantor. Against the Order dated 16.06.2022, admitting Section 95 Application, Appellant also filed Comp. App. (AT) (Ins.) No. 740/2022. After admission of Section 95 Application RP issued Public Notice on 21.06.2022. Claims were received under Section 104 of the Insolvency and Bankruptcy Code, 2016 by the RP. RP prepared updated list of Creditors and intimated the Appellant to submit a Repayment Plan. The request sent by the RP, reminder was sent on 08.09.2022, no communication was received from the Appellant, no Repayment Plan having submitted by the Personal Guarantor. Appellant filed I.A. No.449(KB)/2024 before the Adjudicating Authority. Adjudicating Authority has passed the Impugned Order dated 10.04.2024. Adjudicating Authority after noticing the provisions of Section 114, 115 & 121 of the IBC came to the conclusion that when no repayment Plan is proposed, the provisions of Section 114 & 115 is to apply and Creditors are entitled to file an Application for Bankruptcy under Chapter IV. Contentions The appellant submitted that Order passed by the Adjudicating Authority is in violation of Principle of Natural Justice since I.A. No.499/2024 was neither served on the Appellant nor Appellant was given any hearing. That as per Regulation 19 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtor), Regulations 2019 the RP was obliged to provide copies of all documents filed before the Adjudicating Authority and to serve copy of the I.A. 449/2024. Per contra, the respondent submitted that RP has requested the Appellant to submit a Repayment Plan and requested to provide relevant necessary documents to verify the claims submitted by the Creditors so as to finalise the Repayment Plan. No documents were provided by the Appellant nor any Repayment Plan could be prepared. That rejection of Repayment Plan and non-submission of Repayment Plan has to be kept on same footing so as to take further steps. The Personal Guarantor who failed to cooperate so as to prepare a Repayment Plan cannot be heard in questioning the steps taken by the Adjudicating Authority under Section 115 and that when there is no approved of Repayment Plan, the Creditors are entitled to file an Application for Bankruptcy under Chapter IV. NCLAT's Analysis At the outset, the tribunal discussed the scheme of the IBC after the admission of application under section 95 of the IBC against the personal guarantor. Section 106 of the IBC provides that the debtor may propose a repayment plan which may be accepted or rejected under section 114 of the IBC by the Adjudicating Authority. Section 115 further provides the consequences of the acceptance and rejection of the repayment plan. Having noticed the above scheme, the tribunal observed that Sub-Section (2) of Section 115 provides that where the Adjudicating Authority reject the Repayment Plan under Section 115, Debtor and Creditor shall be entitled to file an Application for Bankruptcy under Chapter IV. Thus, the entitlement of Creditor to file an Application for Bankruptcy under Chapter IV flows from Statutory Scheme under Section 115(2). The tribunal while adverting to the facts of the present case observed that the Adjudicating Authority took the view that when the Repayment Plan has not been received, the effect and consequence of rejection of Plan has to ensue by virtue of Section 115. The Application I.A. 449/2024, which was filed by RP, and the Prayers made thereunder were in...

When Repayment Plan Is Not Submitted, Creditors Are Entitled To File Application For Bankruptcy Against Debtor U/S 121 Of IBC: NCLAT

Mohd Malik Chauhan

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