The National Company Law Appellate Tribunal, Chennai (“NCLAT”), by a judgment pronounced on March 29, 2023, in the matter of Union Bank of India v. Mr. P. K. Balasubramanian [Company Appeal (AT) (CH) (Ins) No. 293 of 2022] has held that the Insolvency and Bankruptcy Code, 2016 (“IBC”) does not contemplate multiplicity of applications against the same personal guarantor.

Facts

Union Bank of India (“Appellant”) had filed an application under Section 95 (Application by creditor to initiate insolvency resolution process) of the IBC, before the National Company Law Tribunal, Chennai (Bench – I) (“NCLT”), thereby seeking initiation of insolvency resolution process against the Mr. P. K. Balasubramanian (“Respondent”), in the capacity of personal guarantor of Tebma Shipyard Limited (“Principal Borrower”). The aforesaid application was filed by the Appellant on December 31, 2021 and the same was assigned a registration number by the NCLT registry on February 9, 2022.

State Bank of India (“SBI”) had also filed an application before the NCLT under Section 95 of the IBC, seeking initiation of insolvency resolution process against the Respondent on January 3, 2022, that is, three days after filing of the above-mentioned application against the Respondent by the Appellant. The aforesaid application filed by SBI was assigned a registration number by the NCLT registry on January 12, 2022, that is, earlier in point of time as against the application filed by the Appellant.

The application filed by the Appellant was listed before the NCLT on March 4, 2022, May 1, 2022, May 2, 2022 and June 7, 2022. However, on June 7, 2022, the application filed by SBI was listed relatively higher on board in the cause list issued by the NCLT as against the application filed by the Appellant. In the virtual hearing on June 7, 2022, the application filed by SBI was heard first and the NCLT passed an order appointing an interim resolution professional in respect of the Respondent, so as to examine the application filed by SBI and submit a report for recommending acceptance or rejection of the aforesaid application in the report, within a period of ten (10) days, as envisaged under Section 99(1) (Submission of report by resolution professional) of the IBC. In view of an interim resolution professional having already been appointed in the application filed by SBI, when the application filed by the Appellant was subsequently taken up, the NCLT dismissed the application filed by the Appellant.

Aggrieved by the aforesaid order dated June 7, 2022, whereby the NCLT dismissed the application filed by the Appellant (“Impugned Order”), the Appellant preferred an appeal before the NCLAT. In the meanwhile, the interim resolution professional submitted a report dated July 2, 2022 with recommendation to initiate the insolvency resolution process in respect of the Respondent. However, the Respondent subsequently withdrew his appeal before the NCLAT, with liberty to raise all factual and legal contentions on merits of the case, before the NCLT, prior to passing of the final order of initiation of insolvency resolution process of the Respondent by the NCLT.

Issue

Whether the IBC contemplates multiplicity of applications against the same personal guarantor.

Arguments

Contentions raised by the Appellant:

The Appellant contended that the NCLT proceeded with appointment of insolvency resolution professional in the application filed by SBI, treating the application filed by SBI as an earlier application and thereby ignoring the fact that the application under Section 95 of the IBC was filed by the Appellant at a prior point in time as against filing of a similar application by SBI.

The Appellant further submitted that the NCLT registry was at fault by assigning registration number to the application filed by SBI earlier in point of time (January 12, 2022) as against assigning registration number to the application filed by the Appellant (February 9, 2022), whereas, in fact, the Appellant had filed the application against the Respondent earlier in point of time (December 31, 2021) as compared to SBI (January 3, 2022).

Further, the Appellant placed reliance on judgment delivered by the Supreme Court in the matter of Vidyawati Gupta and Others v. Bhakti Hari Nayak [(2006) AIR SCW 813] and a three-judge bench judgment delivered by the National Company Law Appellate Tribunal, New Delhi in the matter of Krishan Kumar Basia v. State Bank of India [Company Appeal (AT) (Ins) No. 721 of 2022] to substantiate its contention that the expression ‘filing’ and ‘date of application’ could be interpreted to mean the date of filing of an ‘application’ manually and electronically and allotting of number electronically and not the date of numbering by the registry finding it to be defect free.

Contentions raised by the Respondent:

It was submitted on behalf of SBI that the Appellant did not challenge the order dated June 7, 2022 passed by the NCLT in the application filed by SBI. Further, the interim resolution professional had already submitted its report in terms of Section 99 of the IBC and the NCLT would pass order in due course for admission or rejection of the application filed by SBI, as the case may be.

It was further submitted that the ‘date of application’ is nowhere contemplated in the IBC and it would imply that, the application should be defect free and eligible to be taken on record by the NCLT. Hence, it cannot be said that ‘interim moratorium’ ought to have commenced from the ‘date of filing’ of a defective application.

Observations of the NCLAT

It was observed that by Impugned Order passed on June 7, 2022, the NCLT had appointed an interim resolution professional, directing him to submit a report recommending for acceptance or rejection of the application filed by SBI; however, the NCLT has not admitted or rejected the aforesaid application.

Thereafter, the NCLAT analysed the applicable provision of the IBC dealing with insolvency resolution process in respect of a personal guarantor, including Sections 96 (Interim-moratorium), 97 (Appointment of resolution professional), 99 and 100 (Appointment of resolution professional) of the IBC.

Further, the NCLAT observed that one of the arguments raised by the Appellant is that since the application against the Respondent was filed by the Appellant, three days earlier in point of time, as compared to the date of filing of application by SBI; the application filed by the Appellant ought to have been admitted first.

However, the NCLAT observed that no prejudice has been caused to the Appellant, since in terms of Section 103 (Registering of claims by creditors) of the IBC, all creditors including the Appellant can file their claims with the resolution professional, upon admission of the insolvency resolution process against the Respondent.

The NCLAT also observed that even though both the respective legal counsels, appearing on behalf of the Appellant and the Respondent were present when the Impugned Order was passed, however, none pointed out to the NCLT that the application against Respondent was filed by the Appellant, three days earlier in point of time, as compared to the date of filing of application by SBI.

Further, the NCLAT analysed the judgment delivered by the National Company Law Appellate Tribunal, New Delhi in the matter of Dinesh Kumar Basia v. State Bank of India [Company Appeal (AT) (Ins) No. 724 of 2022], whereby it was concluded that even if there is any defect in the application, which is subsequently cured, the date of presentation of the application shall remain the same and shall not depend upon the date when defects are cured. In view of the afore-mentioned ratio laid down, in the present case, the NCLAT observed that it is the ‘date of filing’ of the ‘application’ under Section 95 of the IBC to be taken into consideration, and not the date when the ‘application’ is numbered.

However, in the present case, when the application filed by the Appellant was taken up for hearing on March 4, 2022, April 1, 2022, May 2, 2022 and June 7, 2022, it was never brought to the notice of the NCLT, that SBI had also filed an application under Section 95 of the IBC, three days later than the application filed by the Appellant. Hence, the Appellant cannot raise a contention that it had no opportunity to the apprise the NCLT about the afore-mentioned, particularly on June 7, 2022, whereby both the applications filed by the Appellant and SBI were listed on the same day, and when the application filed by SBI was taken up first, the NCLT passed an order appointing the interim resolution professional.

Further, the NCLAT observed that Section 96(1)(a) of the IBC provides that an interim moratorium shall commence on the date of the ‘application’ in relation to all the debts. Further, as per Section 96(1)(b) of the IBC, during the course of the interim moratorium: (i) any legal action or proceeding pending in respect of any ‘debt’ shall be deemed to have been stayed; and (ii) the ‘creditors of the debtor’ shall not initiate any legal action or proceedings in respect of any ‘debt’. In this regard, the NCLAT observed that the expression ‘creditors of the debtor’ implies all other ‘creditors of the debtor’, apart from the ‘creditor’, on whose ‘application’ ‘interim moratorium’ had commenced. Further, once ‘application’ under Section 100 of the IBC is admitted, ‘moratorium’ commences with respect to all ‘debts’ under Section 101 (Moratorium) of the IBC and thereafter ‘public notice’ is issued and ‘claims’ from ‘creditors’ are invited under Section 102 (Public notice and claims from creditors) of the IBC. Further, as per Section 103 of the IBC, all creditors can file their respective claims before the resolution professional appointed in respect of personal guarantor, which addresses the concern of the Appellant, and hence, no prejudice would be caused to the Appellant. Hence, when an ‘insolvency resolution process’ commences against the ‘personal guarantor’, all ‘creditors’ of the ‘personal guarantor’ are taken care of. Therefore, the IBC does not contemplate multiplicity of ‘applications’ against the same ‘personal guarantor’.

Decision of the NCLAT

In view of the fact that the NCLT has not yet admitted the application filed by SBI and more pertinently, no prejudice would be caused to the Appellant by virtue of Section 103 of the IBC, the NCLAT dismissed the appeal without imposing any costs.

VA View:

Considering that there are multiple applications being filed against the same personal guarantor across various benches of the National Company Law Tribunal throughout India, the jurisprudence in relation to the provisions pertaining to insolvency resolution against personal guarantor of a corporate debtor is still evolving with time; this judgment provides a much-needed practical clarity and puts this issue to rest that there cannot be multiple applications going on against the same personal guarantor.

Further, while addressing the above-mentioned legal issue, the National Company Law Appellate Tribunal has explained the legislative intent behind enacting Section 103 of the Insolvency and Bankruptcy Code, 2016, by virtue of which all creditors are entitled to file their respective claims before the resolution professional appointed to conduct the insolvency resolution process of the personal guarantor of the corporate debtor, and as such, there is no requirement to file and continue to adjudicate multiple applications against the same personal guarantor.

For any query, please write to Mr. Bomi Daruwala at [email protected]

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