Section 95 Application Can Be Filed By Creditor In His Individual Capacity Or Jointly With Other Creditors Or Through RP: NCLAT

The NCLAT Bench of Justice Ashok Bhushan (Judicial Member, Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical member) has held that Section 95 of IBC clearly provides that a Section 95 application can be filed by a creditor in his individual capacity or jointly with other creditors or through a RP. It nowhere lays down any prescription that if the credit facility has been extended by more than one financial creditor, the Section 95 application is required to be filed collectively. Brief Facts In both these appeals the Appellants have assailed the impugned order admitting the Section 95(1) application filed by the Respondent No.1-State Bank of India allowing initiation of insolvency resolution process of the Appellants-Personal Guarantors. On 09.02.2016 SBI-the Respondent No.1 Bank along with two other consortium lenders i.e. Bank of Baroda and IDBI Bank entered into COR Common Loan Agreement (“CORLA” in short) with the principal borrower-Shirpur Power Private Limited for financing under COR Facility Agreement By virtue of a Security Trustee Agreement dated 21.09.2015, the lenders had appointed SBI Cap as their Security Trustee for the purpose of holding and dealing with the security including the guarantee contemplated under the Guarantee Agreement for the benefit of COR Lenders. A Personal Guarantee Agreement (“PGA” in short) was signed by both the Appellants-Personal Guarantors with SBI Cap as Security Trustee on 09.02.2016. On 04.03.2020, the Respondent No.1 Bank initiated proceedings under Section 7 following which the principal borrower was admitted into CIRP. Respondent No.1 Bank invoked the personal guarantees and issued a demand notice dated 20.10.2020 under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 to the Appellant. On 29.04.2021, Respondent No.1 Bank filed Section 95 application before the Adjudicating Authority for the initiation of insolvency resolution process against the Appellants under Section 95 of the IB Code vide CP (IB) No. 76 of 2021.Respondent No.2-RP submitted its report on 12.09.2021 before the Adjudicating Authority recommending admission of the insolvency against the Appellants. The Adjudicating Authority passed the impugned order on 17.05.2024 initiating the insolvency proceedings against the Appellant by admitting the Section 95 petition. Aggrieved by the impugned order, the present appeals have been preferred. Contentions: The appellant submitted that when the COR lenders had collectively appointed SBI Cap as the Security Trustee, the Respondent No.1 Bank in their individual capacity could not have initiated personal insolvency proceedings against the Personal guarantor. There was no request which flowed from the guarantor for release of loan in favour of the borrower and the guarantor is also not party to the CORLA. Moreover, the PGA is not a tripartite agreement between the Borrower, Lender and the Guarantor and hence the Section 95 application was not maintainable. Refuting the submissions, the respondents submitted that the fact that the personal guarantee was issued by the guarantors to the Security Trustee and not to the lenders cannot come to the rescue of the Appellant-Personal Guarantor as the personal guarantee was given under the CORLA expressly for the benefit of COR Lenders. Once the principal borrower had defaulted in repaying the loan account and was declared an NPA on 29.11.2017, the Respondent No.1 Bank was well within its rights to invoke the personal guarantee. It was also asserted that Section 95 application was filed by a duly authorised person as the conjoint reading of Section 50 of the State Bank of India Act, 1955 read with Regulations 76 and 77 of State Bank of India General Regulations, 1955 and Gazette Notification dated 02.05.1987 clearly specifies that officers in the Grade of SMGS-V were authorized to sign all documents and hence Mr Nitin Kumar Chauhan, the signatory was a duly authorized person. Observations: The tribunal observed that it is an admitted fact that the Corporate Debtor had not performed its obligation of debt repayment and its account was declared NPA and was later admitted into CIRP. It is a settled position in law that under Section 128 of the Indian Contract Act, 1872 the liability of the surety is coextensive with that of principal debtor unless it is otherwise provided by the contract. The same coextensive liability applies in the case of the personal guarantors. Once the principal borrower fails to discharge the debt, the liability of the personal guarantor gets triggered on the invocation of guarantee. It noted that the Adjudicating Authority has relied on the provisions of the Indian Contract Act, 1872 and on the findings of the RP that the Section 95 application was...

Section 95 Application Can Be Filed By Creditor In His Individual Capacity Or Jointly With Other Creditors Or Through RP: NCLAT

Mohd Malik Chauhan

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Section 95 Application Can Be Filed By Creditor In His Individual Capacity Or Jointly With Other Creditors Or Through RP: NCLAT

Mohd Malik Chauhan

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INR 1099+GST

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