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Judgment
ORDER
Oral Judgment : Justice Sharad Kumar Sharma, Member (Judicial): The Appellants in these two Company Appeals, being Company Appeal (AT) (CH) (INS) No. 151 / 2026 and Company Appeal (AT) (CH) (INS) No. 152 / 2026, are the Applicants to the proceedings under Section 94 of the I & B Code, 2016, which stood registered as CP (IB) / 138 (CHE) / 2024 & CP (IB) / 139 (CHE) / 2024.
In the aforesaid proceedings, the Resolution Professional, Respondent-1 herein had filed the application IA (IBC) / 9 (CHE) / 2026 in CP (IB) / 138 (CHE) / 2024; and the application IA (IBC) / 2088 (CHE) / 2025 in CP (IB) / 139 (CHE) / 2024 seeking closure of Personal Insolvency Resolution Process (PIRP) against the respective Appellants on the grounds that the repayment plan proposed by the Appellants has been rejected by the Financial Creditor (FC). Ld. NCLT has passed orders on both the applications on 08.01.2026, allowing the same. The effect of both the impugned orders, which are under challenge in the two Company Appeals before us have been, that the proposal for closure of Personal Insolvency Resolution Process (PIRP) has been allowed, with the direction that the necessary application for bankruptcy may be filed.
If we consider both the orders that have been passed by the Ld. Adjudicating Authority, the reason, which has been assigned therein is that owing to the fact that the Repayment Plan was not accepted by the Creditors in their meeting that was held on 02.09.2025, the PIRP has failed and hence, the Interlocutory Applications seeking closure of PIRP was allowed.
We feel it apt to precisely deal with short facts, as it engages consideration in these two Company Appeals. The facts contained in both the Appeals are almost identical except that the appellants are different and hence they are being dealt together.
In Company Appeal (AT) (CH) (INS) No. 151 / 2026, the Appellant is Mr. S.Kannaiah Reddy and in Company Appeal (AT)(CH)(INS) No. 152/2026, the Appellant is Mrs. Yamuna Kannaiah Reddy. Mr. Kannaiah Reddy is the promoter and director of the Corporate Debtor (CD), M/s. Shruthi Milk Products Private Limited, whereas Mrs. Yamuna Kannaiah Reddy is a director of the said CD. Admittedly, both the Appellants stood as Personal Guarantors to the credit facilities availed by the CD. The respondents in both the Appeals are the same, Respondent-1 being the Resolution Professional (RP) and Respondent-2 being the financial creditor (FC), State Bank of India.
The CD had availed various credit facilities from the FC since 2006. In FY 2020-2021 and 2021-2022 the loan account of the CD became irregular due to significant operational challenges across India including Covid pandemic and the said account was declared as NPA on 28.06.2021. Owing to default committed by the Principal Borrower / CD, a Demand Notice of under Section 13(2) of the SARFAESI Act, 2002 was issued against the CD and its directors, the Appellants herein on 12.06.2023, calling upon them to discharge their liability and pay the outstanding dues to the sum of Rs. 30.42 crore within a period of 60 days. Consequent to it, a Possession Notice was also issued on 05.10.2023 by invoking the provisions contained under Section 13(4) of the SARFAESI Act, 2002. However, the attempt by the FC to enforce the security interest by selling the secured assets of the CD , mortgaged to the FC by holding a public auction on 22.05.2024 failed.
While the matters stood as such, the Appellants filed an application under Section 94(1) of I & B Code, 2016, to initiate the Personal Insolvency Resolution Process, as against themselves. Section 94 of I & B Code, 2016, prescribes that a Debtor who commits a default himself may apply, either personally or through a Resolution Professional, to the Adjudicating Authority for initiation of the insolvency resolution process. Sub-section (4) & (5) of Section 94 prescribe who is not entitled to make an application for personal insolvency, which are that a Debtor shall not be entitled to make any application under sub-section (1), if he is an undischarged Bankrupt, undergoing a fresh start process, or undergoing an insolvency resolution process or undergoing a Bankruptcy Process or if an application under part III of I&B Code has been admitted in respect of the debtor during the period of twelve months preceding the date of submission of the application under this section. Since, none of the above restrictions as imposed by sub-sections (4) & (5) of Section 94 were being attracted, the Applications filed by the respective Appellants under Section 94(1) stood instituted before the Ld. Adjudicating Authority.
The Ld. NCLT on 09.07.2024 after considering the applications to be maintainable in the eyes of law, appointed Mr. Manohar M, as Resolution Professional (RP) for the purposes to examine the petition in the light of the provisions contained under Section 97 of the I & B Code, 2016. Consequentially, the Ld. Tribunal proceeded to pass orders on 24.07.2025 in IA(IBC)/1632(CHE)/2024 in CP(IB)/138(CHE)/2024and in IA(IBC)/1746(CHE)/2024 in CP(IB)/139(CHE)/2024, allowing the section 94 petitions and directing commencement of PIRP as against the respective Personal Guarantors / Appellants herein.
The 1st meeting of the Committee of Creditors (CoC) was held on 02.09.2025 and in the said meeting, Respondent No. 2, the sole Secured Financial Creditor rejected the Repayment Plans proposed by the Appellants. On 29.09.2025, the then RP was replaced by Mr. R. Venkatakrishnan by Ld. NCLT. Subsequently, in January 2026, the RP filed the applications for closure of PIRP proceedings and for initiation of bankruptcy proceedings on grounds that the repayment plans proposed by the debtors / Appellants has been rejected, on the ground that they are not viable. This was taken into consideration by the Ld. Tribunal in passing the impugned orders directing closure of the PIRP and permitting the FC to file the necessary application for Bankruptcy. It is these orders which have been subjected to challenge in the instant Appeals.
The Ld. Counsel for the Appellant has submitted that, it is not that the Appellants were derelict in submitting the Repayment Plans for consideration. Rather he has contended that, the Personal Insolvency Resolution Process has not been carried in accordance with the Scheme objectives and mandatory provisions of Part III of Chapter III & IV of I & B Code, 2016, by Respondent No. 1, the RP.
The contention of the Appellants has been that the Repayment Plan submitted by them could not meet the expectations of the FC because they being personal guarantors did not have the necessary expertise to prepare a proper resolution plan and the Resolution Professional failed to properly advise and assist them in the said process, thus failing to discharge his statutory and attached fiduciary duties, as it has been contemplated under Section 99, 105 & 106 and such other ancillary provisions, which lay down the role and duties of RP in conduct of PIRP under Section 94 of I & B Code, 2016.
The Appellants have come up with the case that, in the absence of RP functioning as a facilitator for preparation of the Repayment Plan in accordance with the statutory conditions of law, the Repayment Plan submitted by the Appellant could not be modulated in accordance with the intention of the statute so as to make it acceptable to the Financial Creditor / Respondent No. 2 for purposes of finalization of the PIRP.
It is the case of the Appellants that, since the Resolution Professional has not acted in the spirit of the intention of the statute by not engaging himself with the Appellants and assisting them in restructuring or revising or improving the Repayment Plan, before placing the same before the Committee of Creditors, an appropriate repayment plan which could have been acceptable by the FC; could not be prepared and presented before the CoC.
The Ld. Counsel for the Appellant has further submitted that, rejection of the repayment plan by the sole Secured Creditor in the meeting of 1st CoC, without granting any effective opportunity to the Appellant to revise or to modify the Plan as per the suggestions / requirements of the FC, is against the very purpose and objective of the Personal Insolvency Resolution Process as contemplated under Section 94 of I & B Code, 2016.
He has also submitted that, it was not correct on part of Ld. Tribunal to come to a hasty conclusion that the PIRP as against the respective Appellants are to be closed merely on the basis that the Appellants have failed to submit an acceptable Repayment Plan at the first instance and that the RP has filed an application IA (IBC) / 9 (CHE) / 2026, under Section 105, 112 & 113 of the I & B Code, 2016, seeking for acceptance of the proposal for closure of the PIRP and for filing of a necessary application for initiation of the Bankruptcy process.
The Ld. Counsel for the Appellant has submitted, that Ld. Adjudicating Authority should have directed the RP to make further efforts to help the Appellants to raise finance through mortgage of their personal properties to meet the liabilities of the CD and to resolve the corporate insolvency of the CD as well as the personal insolvency of the Appellants, as the CD does not have any other assets, except the hypothecated machinery and the parcel of the land located in Chennai, which will not be sufficient to discharge the liabilities of the CD. He has submitted that the RP did not follow the mandatory process of consultation in preparing the Repayment Plan and did not initiate negotiations with FC which makes the proceedings to be vitiated in the eyes of law. The Ld. Counsel for the Appellant has further submitted that the rejection of Repayment Plan merely because of the rejection of his Repayment Plan in the 1st meeting of CoC on 02.09.2025 as observed in the impugned order may not be a valid reason to allow the application of Respondent No. 1, as preferred under Section 105, 112 & 113 of I & B Code, 2016, and that more chances could have been granted to them to make PIRP successful.
On the contrary, the Ld. Counsel for Respondent-1, the RP has submitted that, the instant Company Appeal deserves dismissal, because sufficient time and opportunities have been given to the personal guarantors to submit a viable resolution plan-cum-repayment plan. He has stated that CIRP had also been commenced against the CD by the FC on 29.04.2025 and the IRP had invited Expression of Interest (EoI) from eligible parties and in view of the PIRP proceedings going on simultaneously, the last date for submission of the Expression of Interest (EoI), which was fixed on 04.09.2025, was subsequently extended to 25.09.2025. In the said process, three Prospective Resolution Applicants (PRA) including Shri. S. Kannaiah Reddy (one of the Appellants herein) had participated as recorded in the minutes of the 8th CoC meeting. In the meantime, the Appellants who are also the Personal Guarantors had expressed their interest in submission of a combined Resolution Plan-cum-Repayment Plan.
He has further submitted that the request of the Appellants to permit them to submit a combined Resolution Plan cum Repayment Plan had been acceded to and further, on their request, the timeline for submitting the Resolution-cum-repayment Plan was extended multiple times up to 18.11.2025, but the Resolution Plan, which was submitted by the Appellants was incomplete, and was found to be suffering from several discrepancies and not in compliance with the provisions contained under the I & B Code, 2016. Ld. Counsel for the Respondent-1 has further submitted that on account of the fact that no complete Resolution Plan-cum-Repayment Plan was received from the Appellants, it was decided in the 12th meeting of CoC held on 24.11.2025, to file a closure application of the PIRP and accordingly the closure application was filed, based on which, the impugned order has been passed closing the PIRP of the Personal Guarantor and permitting initiation of the Bankruptcy proceedings by the FC.
Ld. Counsel for the Appellant has argued to the contrary that, passing of an order of Bankruptcy merely on account of one-time failure of the Appellants, to submit a repayment plan that could have been acceptable to the CoC and that too, in the first meeting, is not correct and not in the spirit of I & B Code, 2016, because, the Appellants have already expressed their bona fide by submission of Repayment Plan and that, even though the plan submitted by them might have been found to be having certain shortcomings, they should have been given a chance to cure those shortcomings. They have further stated that they were unable to submit an effective Resolution Plan, because of the fact that the RP has failed to perform his duties with diligence and that, had the RP facilitated the Appellants to rectify the lacunae in the repayment plan submitted by them, such shortcomings in the Resolution Plan / Repayment Plan could have been rectified.
He has further submitted that the Appellants have made genuine efforts to meet the intention of Section 94 of the Code, and that, PIRP should not have been closed merely on the basis of the decision taken in the first meeting of the CoC dated 02.09.2025, without giving them a further chance to bring around a successful resolution of his insolvency by submitting a revised and improved repayment plan.
Summarising the facts and issues involved in both the Company Appeals, the stand taken by the Respondents, that is, the Financial Creditor and the RP, happens to be the same, that there was persistent inaction on part of the Appellants to submit an effective Repayment Plan, that the repayment plan submitted was already rejected by the CoC on 02.09.2025 finding it to be not as per the conditions of the Code and that in the absence of a proper repayment plan, there was no option but to seek closure of PIRP. At the same time, the Appellants have pleaded to the contrary that summary rejection of the Repayment Plan, when there are reasons to believe that the Resolution Professional has not carried out due diligence, the closure of the PIRP would be fatal to the insolvency resolution process, and would defeat the very objective of the Code and that, the impugned order has been passed in a rather routine manner without due application of mind and based on an isolated failure in submission of an effective Repayment Plan on 02.09.2025, and hence the same should be set aside and a further chance should be given to the Appellants to submit the resolution plan and to bring the insolvency to a successful conclusion in order to serve the objective of Section 94 of the I & B Code, 2016.
Having heard the Ld. Counsel for the Appellant, as well as the Ld. Counsel for the Respondent, we come to the conclusion that the Application submitted by the Appellants by invoking Section 94 of the Code, was a bona fide attempt by the Appellants / Personal Guarantors to the CD, Shruti Milk Products Private Limited, to arrive at a resolution of the insolvency of the Corporate Debtor as the Corporate Debtor did not have sufficient assets to cover its liabilities and as the Appellants stood as a security to the loans & advances taken by the Corporate Debtor and mortgaged their personal Assets to secure the borrowings of the Corporate Debtor.
In view of the above, a pragmatic view should have been taken by the Ld. Tribunal since as per the records, the Resolution Professional does not appear to have facilitated or enabled the Appellants / the Personal Guarantors to submit an effective and viable Repayment Plan, which could have been improved further so as to be made acceptable by the Financial Creditor and Ld. NCLT should have asked RP to apply himself in this task of bringing around a resolution, instead of merely accepting the closure proposal submitted by the RP and passing the impugned order, directing closure of the PIRP and permitting initiation of the Bankruptcy process. Further, it has not been the case of the Resolution Professional, before Ld. NCLT and even in the proceedings before this Appellate Tribunal that, he had effectively discharged his responsibilities as a Resolution Professional in assisting the Personal Guarantors to submit a viable Repayment Plan, which could have been acceptable by the Financial Creditors. Under these circumstances, we are of the view that closing the PIRP and permitting initiation of Bankruptcy process as against the Appellants is rather premature, when measured against the legislative intent of the provisions under Section 94 of the Code.
In that view of the matter and particularly in the context of a wider objective to meet the interest of justice of the Appellants, we are of the view that, the impugned order is an order passed in haste to close the PIRP process, which would consequentially lead to initiation of the Bankruptcy proceedings and hence, we are inclined to extend the time for the Appellants to submit a fresh Repayment Plan and if it is done, the Resolution Professional will discharge his responsibility, under the Code and Regulations framed thereunder, to ensure that, the Plan is prepared in a manner that is acceptable to the Financial Creditor so as to be acted upon in accordance with law, for which, the Appellant is granted two weeks’ time from the date of uploading of this order, to submit a fresh Repayment Plan in consultation with the Resolution Professional, and if it is done within a period of two weeks from today, the same would be considered for acceptance in accordance with law, within a period of one month thereafter, and that, in case, there is a failure on part of the Personal Guarantors, the Appellants herein, to furnish a Repayment Plan as directed above, the impugned order will take its normal effect in accordance with law.
Subject to the above, the Company Appeals, being Company Appeal (AT) (CH) (INS) No. 151 / 2026 and Company Appeal (AT) (CH) (INS) No. 152 / 2026 would stand allowed. The impugned orders are quashed, subject to the directions given by today’s Judgment. All pending Interlocutory Applications would stand closed.