Moratorium Can't Be AShield To Defeat Legitimate Claims Of The Creditors: NCLT Chandigarh

Brief Facts

The corporate debtor took loan to the tune of Rs. 20 crores from Punjab National Bank and Rs. 15 crores from Allahabad Bank( now merged with Indian bank) for which Ms. Mohita Indrayan (personal guarantor) provided a personal guarantee.

The personal guarantor filed a petition under section 94 of the IBC for initiating insolvency proceedings against itself on September 1, 2022. Consequently, this petition triggered an interim moratorium under section 96 of the IBC. Thereafter, a separate petition under section 95 of the IBC was filed by the banks on May 20, 2023 seeking insolvency resolution against the personal guarantor.

Subsequently, an application bearing IA No. 2727/2023 was filed by the personal guarantor seeking dismissal of the petition under section 95 of the IBC filed by the banks. The second application bearing IA No. 2974/2023 was a report filed under section 99 of the IBC by resolution Professional (RP) in which admission of the banks' petition was recommended.

Issue before NCLT

If a Personal Guarantor files a petition under Section 94 of the Insolvency and Bankruptcy Code (IBC) before a Financial Creditor files a petition under Section 95, whether Personal Guarantor is entitled to the benefit of an interim moratorium under Section 96 of the IBC.

NCLT's Analysis

The NCLT observed that no subsequent steps were taken after the petition was filed under section 94 of the IBC by the personal guarantor. No resolution professional was appointed even after a lapse of significant time from the date of petition being filed. Additionally, repeated adjournments were taken. The tribunal further noted that the petition under section 94 was a tactic adopted by the personal guarantor to delay any action being taken in the petition filed by the banks under section 95 of the IBC. It was observed as under:

“Despite an application under Section 94 of the Code had been filed by the Personal Guarantor prior to the Application under Section 95 was filed by the Financial Creditors, no efforts were put in by the Personal Guarantor to proceed with the application filed under Section 94 of the Code, which is clear from the fact that repeated adjournments were sought after filing of the petition u/s 94, resulting into that no RP could be appointed yet in the Section 94 petition.No Resolution Professional has been appointed in the Section 94 Petition so far.

Therefore, from the conduct of the personal Guarantor, it is clear that he has not come before us with clean hands for his insolvency resolution but to stall the proceedings if any initiated by the Financial Creditor banks to take any action against him for the default committed by him for which he himself had moved the petition u/s 94 of the Code”.

The NCLT observed that while it is true that interim moratorium under section 96 of the IBC gets triggered when petition under section 94 is admitted. However, it does not mean that this provision can be misused by the personal guarantor to defeat the legitimate claims of creditors. If such a course is allowed, it will defeat the very purpose for which the IBC was enacted-maximisation of assets value and insolvency resolution. The tribunal held as under:

“If an application is filed under Section 94 by the Personal Guarantor himself, prior to any application being filed under Section 95 of the Code by the Financial Creditor and it appears to the Adjudicating Authority that the Section 94 Application is mere a shield to avoid or dodge the insolvency process which has been initiated by the Financial Creditors, the Personal Guarantor cannot be granted the benefit of an interim moratorium under Section 96 of the Code in the interest of justice Therefore, the moratorium u/s 96 claimed by Personal Guarantor against the initiation of insolvency resolution on account of the filing of petition u/s 95 by banks would not come to his rescue, when he herself has admitted to be in default as per petition filed by her u/s 94 of the Code”.

The NCLT held that it was necessary to proceed with the petition filed under section 95 by the banks in the interest of justice as the petition under section 94 had not progressed due to negligence on the part of the personal guarantor. A report had already been filed by RP in a petition filed under section 95 of the IBC by the banks recommending initiation of insolvency resolution process. The tribunal observed that:

“Therefore, in the interest of justice, application filed under Section 95 of the Code has to be proceeded with as both the applications filed aim to initiate the Insolvency Resolution Process against the Personal Guarantor”.

Conclusion

The NCLT concluded that the petition filed under section 95 of the IBC by Punjab National Bank along with Indian Bank cannot be refused to be admitted on the ground that a petition under section 94 of the IBC had already been filed by Ms. Mohita Indrayan rendering subsequent petition inadmissible due to interim moratorium under section 96 of the IBC. The purpose of the IBC will be defeated if such proceedings are allowed to continue. The tribunal finally held as under:

“The Adjudicating Authority hereby admits the said application u/s 95 in accordance with the provisions of Section 100 of the Code, 2016 and accordingly, the Insolvency Resolution Process stands initiated against Ms. Mohita Indrayan, viz. the Respondent herein”.

Case Title: Punjab National Bank and Anr v. Mohita Indrayan

Court: National Company Law Tribunal, Chandigarh

Case Reference: IA No. 2727/2023, IA No. 2974/2023 & CP (IB) No. 158/Chd/Hry/2023

Judgment Date: 12/08/2024