Smt. Nukala Savithri vs Bank Of Maharastra & Anr.

Oral Judgment : Justice Sharad Kumar Sharma, Member (Judicial):

The Prime question which engages consideration in these Company Appeals and calls for a reply by this Tribunal is as to ``whether the impugned judgments which are under challenge in these 4 Company Appeals satisfy the parameters required to be satisfied under Section 99 to be read with Section 100 of the I & B Code, 2016, for the purposes of initiation of Insolvency Resolution proceedings under Section 95 in light of the directives as issued by the Hon’ble Apex Court, in the matter where the vires of Sec. 95 was the subject matter of consideration’’.

Before dealing with the aforesaid issue as argued by the respective learned Counsels appearing for the parties, we feel it apt to precisely deal with the controversy which has been attempted to be argued by the learned Practising Company Secretary appearing for the Appellant, as against the impugned order, by virtue of which, Section 95 of the I & B Code, 2016, has been directed to be admitted and consequent to it, the IRP proceedings had been initiated.

In Company Appeal (AT) (CH) (INS) No. 169 / 2023, the challenge is given by the Appellant to the Impugned Judgment dated 28.04.2023, passed in the Company Petition (IB) No. 181 / 95 / HDB / 2022, Bank of Maharashtra V. Smt. Nukala Savithri & Anr., by the learned Adjudicating Authority, NCLT, Hyderabad. As a consequence of the Impugned Judgment, Section 95 proceedings has been admitted to be initiated as against the Appellant, i.e. the Personal Guarantor.

In the Company Appeal (AT) (CH) (INS) No. 171 / 2023, the challenge is given to the Impugned Order dated 28.04.2023 as passed in CP (IB) No. 183 / 95 / HDB / 2022, Bank of Maharashtra V. NNBV Venkateshwara Rao & Anr., passed by the learned Adjudicating Authority, consequently admitting the Appellant to face the IRP proceedings under Sec. 95 of the I & B Code, 2016.

The Company Appeal (AT) (CH) (INS) No. 238 / 2023, Shri. Manda Satyanarayana V. Bank of Maharashtra & 2 Ors., stood instituted before this Tribunal on 30.04.2023, wherein the Appellant has questioned the propriety of the Impugned Order dated 31.03.2023, which was passed by the learned Adjudicating Authority, NCLT, Hyderabad, in CP (IB) No. 179 / 95 / HDB / 2022 and as a consequence to the judgment impugned, the Appellant / Personal Guarantor was admitted to the IRP proceedings under Section 95 of I & B Code, 2016.

In Company Appeal (AT) (CH) (INS) No. 239 / 2023, Manda Venkata Mahalakshmi V. Bank of Maharashtra & 2 Ors., the Appellant has put a challenge to the Impugned Judgment dated 31.03.2023, as passed by the learned Adjudicating Authority of the National Company Law Tribunal at Hyderabad Bench in CP(IB) No.173 / 95 / HDB /2022, by virtue of which, the Personal Guarantor i.e. the Appellant herein was admitted into the IRP proceedings under Sec. 95 of the I & B Code, 2016.

All these Appeals are circumscribed by a common set of facts which are required to be considered to arrive at a conclusion as to whether the said facts justify admission of the said Personal Guarantors into IRP proceedings under Section 95 of the I & B Code, 2016.

Before we delve into these pleadings, we need to dwell upon the basic principles, as enunciated under the Statute, as to under what circumstances the proceedings under Section 95 could be initiated against the Personal Guarantors. For the aforesaid purpose, the key point will be the stage at which the Resolution Plan is submitted by the Resolution Professional, which will then be examined, by the learned Adjudicating Authority, to determine as to whether the Personal Guarantors are to be placed to face the proceedings under Sec. 95 of I & B Code, 2016.

At this stage, it only calls for recording of a satisfaction by the learned Adjudicating Authority qua the report submitted by the Resolution Professional under Sec. 99, that the Personal Guarantors could be placed to face the proceedings under Sec. 95. For the Personal Guarantors, the stage of contest arises, only when the proceeding actually reaches the stage of Sec. 100 of the I & B Code, 2016. Section 100 reads as under:

What is relevant, would be the implications contained under sub-section (1) of section 100, which is the stage where the Resolution Professional has already submitted the report under Sec. 99, prior to the conclusion drawn by the learned Adjudicating Authority to admit the Personal Guarantor to face the IRP proceedings under Sec. 95. In the first and foremost stage, the learned Adjudicating Authority is required to apply his mind and pass a reasoned order. Once he passes a reasoned order admitting the application, he may issue instructions for conducting a negotiation process between the Debtor and the Creditor for arriving at a Repayment Plan. If he passes an order rejecting Section 95 Application, he shall record that the Creditor is entitled to file for Bankruptcy Order under Chapter IV of I & B Code, 2016. Thus, it can be seen that, it is only upon the admission of the Application under Sec. 100 (1), further process with reference to IRP proceedings, such as public notice, invitation of claims from the Creditors, registration of claims, preparation of repayment plan, its approval by the learned Adjudicating Authority and further implementation are undertaken.

The validity of Sec. 95 & Sec. 100 of I & B Code, 2016, was challenged under Article 32 of the Constitution of India, before the Hon’ble Apex Court in a bunch of Writ Petitions with the leading Petition being Writ Petition Civil No. 1281 / 2021 - Dilip B. Jiwrajka v. Union of India & Ors. The said Petition stood decided by the Hon’ble Apex Court by the judgment dated 09.11.2023, wherein it answered the questions posed and upheld the vires of Sec. 95 holding it to be intra vires. Further, while concluding the judgment, the Hon’ble Apex Court, observed that in an IRP proceedings, during the stages contemplated from Sec. 95 to Sec. 99, it is exclusively the prerogative of the learned Adjudicating Authority to satisfy itself as to whether at all it is justified to initiate the proceedings for initiation of the IRP proceedings against the Personal Guarantor and that, the Personal Guarantors cannot challenge the same at those stages.

The Hon’ble Apex Court in said Order observed in very clear terms that, as far as the Personal Guarantors are concerned, they will not have any role as such to play nor they are required to be even heard, up to the stage till the Resolution Professional submits its report, before the learned Adjudicating Authority justifying the necessity to initiate the IRP proceedings under Sec. 95. Hence, at the stage up to Sec. 95 to 99, no opportunity of hearing is contemplated to be given to the Personal Guarantors to have their say. The Hon’ble Apex Court has summarised its views in the aforesaid judgment in para 86, which is extracted hereunder:

It needs to be reiterated that the Judgments rendered by the Hon’ble Apex Court in the exercise of its inherent jurisdiction under Article 32 of the Constitution of India, have a binding implication under Article 141 of the Constitution of India. However, this Judgment uploading the vires of Sec. 95 to 100 of I & B Code, 2016, was subsequently in time i.e. 09.11.2023, in relation to the Orders delivered by the learned Adjudicating Authority in the instant cases.

Let us now examine whether the Impugned Orders satisfy the prescriptions laid down in the said Judgment of Hon’ble Apex Court. The Hon’ble Apex Court makes it clear that the judicial determination will take place only at the stage of Sec. 100 during the proceedings for initiation of the proceedings under Sec. 95 against the Personal Guarantors, when the Personal Guarantors are called upon by the learned Adjudicating Authority to hold their defence, as to whether under the given circumstances, IRP proceedings under Section 95 is required to be initiated against them or not. The Code lays down that the report submitted under Sec. 99 by the Resolution Professional needs to be examined by the learned Adjudicating Authority and that it has to apply its mind before passing Order under Sec. 100 (1), either admitting or rejecting the Application under Sec. 95 for initiation of IRP proceedings in respect of the Personal Guarantors.

The Hon’ble Apex Court under the premises that the rights of the Personal Guarantor could be prejudiced only when, the learned Adjudicating Authority, passes Order admitting the Application under Sec. 100 (1), goes on to prescribe that the learned Adjudicating Authority at the stage when it is considering the report submitted by the Resolution Professional under Sec. 99, must observe the principles of natural justice and therefore, should hear the Personal Guarantors who are likely to be burdened upon with the IRP proceedings for the purposes of determining as to whether, it is at all necessary to accept or reject the application preferred under Sec. 95 of the I & B Code, 2016. This being the guiding principles governing admission of IRP proceedings against Personal Guarantors, we will now strive to appreciate the contention being made by the Appellants in the instant case.

The argument as extended by the learned Practising Company Secretary for the Appellant is that, at the stage when Sec. 95 proceedings are initiated, they have filed their counter affidavit, the contents of which has been extracted in the impugned order in Para 3, giving detailed justification as to why there is no necessity, in the given set of circumstances to initiate a proceeding under Sec. 95. But, the said objection taken by the Personal Guarantors in their counter affidavit, has not been dealt in detail in the Impugned Order while passing orders u/s. 100(1), admitting the Sec. 95 Application by the learned Adjudicating Authority.

With the pronouncement of Judgment by the Hon’ble Apex Court, Para 86 of the said Judgment will now form the yardstick by which the maintainability of Order u/s. 100(1) will have to be judged. Sub Para (vi) of Para 86 states that

On scrutiny of the Impugned Judgment under challenge, what could be found is that the learned Adjudicating Authority has noted that ``the Resolution Professional has filed his report on 17.06.2022, recommending the admission of the Petition under Section 95 of the Code, 2016. The Resolution Professional in his report its clear that the grounds for admission of this instant Petition are that the Personal Guarantor stood as a guarantor to the loans availed by the Corporate Debtor and Corporate Debtor failed to repay the same and since the Personal Guarantor has admitted the debt and non-existence of dispute’’ and based on such, he has admitted the Company Petition. Nowhere in his Order, the learned Adjudicating Authority has tried to take into account the Counter of the Respondents (the Appellant herein) and has simply relied on RP’s findings.

The learned Practising Company Secretary for the Appellant has contended that the matter in which the conclusion in the Impugned Order has been arrived at by the learned Adjudicating Authority is contrary to the directions given by the Hon’ble Apex Court as well as the provisions contained under Sec. 100 of the I & B Code, 2016.

This argument extended by the learned PCS for the Appellant is being attempted to be controverted by the Respondent’s Counsel stating that if the Impugned Judgment is taken into consideration in its entirety, it can be seen that the Appellant’s objections have been recorded in the Order and so it rather satisfies the ingredients of Sec. 100 of the I & B Code, 2016, as well as the directives issued by the Hon’ble Apex Court in the judgment of Dilip B. Jiwrajka v. Union of India & Ors. (Supra).

However, it is to be held that this argument as extended by the Respondent’s Counsel does not satisfy the test as provided by the Hon’ble Apex Court Judgment, as well as Sec. 99 of I & B Code, 2016, to be read with Sec. 100, because, in the absence of there being any specific findings recorded by the learned Adjudicating Authority in the impugned order with regard to the Counter of the Appellant, the same cannot be relied upon with by the learned Counsel for the Respondent by qualifying his argument, other than, what was being considered by the learned Adjudicating Authority, at the stage of passing the Impugned Order. It needs no reference that it is the settled law that in a counter, the opposite party to the proceedings cannot be permitted to plead or develop a case, than which has been pleaded in relation to the subject matter of consideration before the Principal Court, when the proceeding was being considered on merits.

After scrutinising the conclusion drawn by the learned Adjudicating Authority, in the Impugned Judgment from Para 11 onwards, we are of the considered view that at no place, it does reveal that the learned Adjudicating Authority, has resorted to the process prescribed under sub-para (vi) of Para 86 of the Hon’ble Apex Court Judgment, as well as that of Sec. 100 (1) of the I & B Code, 2016.

Thus, the judgment apparently seems to suffer from the procedural vices, because the process to be resorted to before passing of the Judgment u/s. 100 (1) has not been done and the chain of process contemplated under law as dealt with above was completely ignored by the learned Adjudicating Authority.

On this simpliciter ground, because of non-compliance of the directives of the Hon’ble Apex Court as given in sub para (vi) of Para 86 as well as, that of the requirement to give a reasoned order by the learned Adjudicating Authority, itself renders the Judgment to be in apparent non-compliance of the procedure prescribed from Sec. 99 onwards before resorting to the process at the stage of Sec. 100 (1) of I & B Code, 2016.

Since, the Impugned Judgment suffers from an apparent procedural flaw, the Judgments are hereby quashed and the matter is respectively remitted back to the learned Adjudicating Authority i.e. National Company Law Tribunal, Hyderabad Bench - I, to reconsider the Application under Sec. 95 from the stage of Sec. 99 of I & B Code, 2016, onwards and then come to a conclusion after resorting with the process as laid down in Para 86 of the Judgment of Hon’ble Apex Court, as to whether, under the given set of circumstances and based on the report as submitted by the Resolution Professional, it is satisfied that the conditions justify initiation of the IRP proceedings under Sec. 95 of I & B Code, 2016. It goes without saying that when the learned Adjudicating Authority would deal with the aforesaid aspect about the implications of the report of the Resolution Professional, he would ensure to supply the copy of report to the parties, so that they may be able to place their rival contentions before the learned Adjudicating Authority to justify their respective stand, as to whether Sec. 95 of I & B Code, 2016, is at all required to be resorted to or not.

Subject to the aforesaid, the Company Appeal (AT) (CH) (INS) Nos. 169, 171, 238 & 239 / 2023, would stand allowed. The pending connected Interlocutory Applications, if any, are closed.