Insolvency for Individuals & Partnership Firms | Is it proper for NCLT to record finding regarding default when RP is yet to consider it and submit report? NCLAT discusses Ss. 95, 97, 99 IBC

National Company Law Appellate Tribunal, New Delhi (NCLAT): Coram of Justice Ashok Bhushan (Chairperson) and Justice Jarat Kumar Jain, Judicial Member and

National Company Law Appellate Tribunal, New Delhi (NCLAT): Coram of Justice Ashok Bhushan (Chairperson) and Justice Jarat Kumar Jain, Judicial Member and Dr Alok Srivastava, Technical Member heard appeals filed against the decision passed by National Company Law Tribunal, Mumbai.

A petition was filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 through the Resolution Professional against the three appellants. Adjudicating Authority passed an order on the application filed through the Resolution Professional directing the Resolution Professional to exercise the powers enumerated under Section 99 of the I&B Code and submit the recommendations with reasons in writing for acceptance or rejection of application within the stipulated time as envisaged under Section 99.

Aggrieved by the above order, appeals were filed.

Analysis, Law and Decision

Section 97 of the I&B Code which deals with ‘appointment of resolution professional’ with reference to Insolvency Resolution Process under Chapter III, following is a statutory scheme as delineated by Section 97(1) and (2).

Appellate Tribunal expressed that there cannot be any dispute with the statutory scheme as contained in Section 97 that when application is filed by the Resolution Professional under Section 95, the Adjudicating Authority shall direct the Board within seven days of the date of the application to confirm that disciplinary proceedings pending against the Resolution Professional or not and the Board was required within seven days to communicate in writing either confirming the appointment of the Resolution Professional or rejecting the appointment of the Resolution Professional and nominating another Resolution Professional.

Coram stated that in the present matter, appellant’s case was not that any disciplinary proceedings were pending against the Resolution Professional who had filed the application, Appellate Tribunal saw no useful purpose in again directing the Adjudicating Authority to send the recommendation to the Board for confirmation.

The order having been passed more than three months’ prior to the passing of the order, hence Appellate Tribunal opined that due to the said reason the order of the Adjudicating Authority does not need to be interfered with.

Coming to another submission that Adjudicating Authority was not required at the stage when report was still to be filed by the Resolution Professional to record a finding regarding default, Appellate Tribunal was of the view that the said submission was fully supported by the decision Ravi Ajit Kulkarni

In the impugned judgment, the Adjudicating Authority had made observations to the following effect at page 33:-

“Based on the submissions made by the Applicant and the documents produced and placed on record before this Bench, the Bench has no doubt in its mind that there is a ‘default’ on the part of the Personal Guarantor by not fulfilling the debt owed to the Corporate Debtor, i.e., Anoushka Medicare & Diagnostics Private Limited as per the Deed of Personal Guarantee entered between the parties through the Deed of Personal Guarantee dated 01.08.2017.”

Appellate Tribunal found substance in the appellant counsel’s submission that the observation regarding default deserved to be deleted from the Judgment and was ordered to be deleted.

Counsel for the Respondent submitted that in the last paragraph, the Adjudicating Authority gave full liberty to the Resolution Professional to make a recommendation with reasons in writing for acceptance or rejection of the Application. The above directions do clearly mention that report has to be submitted as per Section 99, but to avoid any prejudice to any of the parties, Coram opined that the observations as quoted above are required to be deleted from the judgment.

Appeals were partly allowed. [Kanchan Nanubhai Desai Personal Guarantor v. Finquest Financial Solutions (P) Ltd., 2022 SCC OnLine NCLAT 8, decided on 3-1-2022]

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