NCLT Kolkata Imposes ₹1 Lakh Penalty On Indian Bank For Misguided Insolvency Petition Against Personal Guarantor Already Undergoing Insolvency Proceedings

Brief Facts:

The Indian Bank (Financial Creditor) initiated insolvency proceedings against Mr. Manish Kumar, the Personal Guarantor for M/s. Aryavrat Trading Pvt. Ltd. (the Principal Borrower). The Financial Creditor sought to initiate insolvency and bankruptcy proceedings under Section 95(1) of the Insolvency and Bankruptcy Code, 2016. The total amount claimed to be in default is Rs. 18,28,47,313/. The Financial Creditor argued that Mr. Kumar provided a personal guarantee for the repayment of loans extended to Aryavrat Trading Pvt. Ltd. and executed a Deed of Guarantee. The principal debtor defaulted on its repayments which lead to the account being classified as Non-Performing Asset (N.P.A.). Notices were issued to Mr. Kumar demanding payment of outstanding amounts. Subsequently, the Corporate Debtor was admitted for Corporate Insolvency Resolution Process (CIRP) and liquidation proceedings were initiated on September 21, 2022.

In response, Mr. Kumar contended that the Financial Creditor's claim of default from December 29, 2018 was unsubstantiated as no supporting documents were provided. He claimed that the Financial Creditor omitted to mention that it previously filed an application under Section 95 of the IBC against him concerning a different guarantee for Wearit Global Limited which also faced corporate insolvency. This prior application invoked an interim moratorium under Section 96 of the IBC which prohibited further legal action. Mr. Kumar further argued that the report by the Resolution Professional lacked due diligence and failed to comply with the mandatory requirements of the IBC and the related rules.

Observations by the NCLT:

The NCLT noted that that on January 18, 2024 Mr. Kumar was already admitted into insolvency proceedings upon a petition from Indian Bank. With the interim moratorium commencing under Section 96 of the IBC, all legal actions or proceedings related to any debt against Mr. Kumar were stayed. This meant that no creditors could initiate legal actions regarding his debts.

The NCLT noted that the financial creditor failed to mention the ongoing CIRP for Mr. Kumar in its submission. Additionally, the Resolution Professional's recommendation to admit this company petition was made without verifying the fact that Mr. Kumar was already undergoing insolvency proceedings. The NCLT held the role of the Resolution Professional is to act as a facilitator tasked with gathering and verifying facts.

Therefore, the NCLT held that application by Indian Bank was frivolous. The NCLT decided to impose a penalty under Section 65 of the IBC. The applicant was directed to pay a penalty of one lakh rupees.

Case Title: Indian Bank Vs Mr. Manish Kumar

Case Number: Company Petition (IB) No. 340/KB/2022 And I.A. (IB) No. 316/KB/2024

Date of Judgment: 03.07.2024

Click Here To Read/Download Order or Judgment