No Notice Is Required For Personal Guarantor At The Stage Of Appointment Of IRP: NCLT Amravati

Background Facts

Sri Ananda Lakshmi Narasimha Industries India Pvt. Ltd. ("Corporate Debtor/Respondent No.2") had availed credit facilities amounting to Rs. 33,18,09,761.02/- from the Central Bank of India ("Financial Creditor"). Mr. Kothapatti Raju ("Personal Guarantor/Respondent No.1") stood as a Personal Guarantor to the credit facilities availed by the Corporate Debtor.

The Corporate Debtor had committed defaults in repaying the debt amount. The Financial Creditor had issued a recall letter requesting the Corporate Debtor to clear the entire due amount but to no avail. The Debt Recovery Tribunal (DRT) vide order dated 04.04.2022 had directed the Corporate Debtor to pay a sum of Rs. 33,93,23,650.15/- as on 03.08.2020 at applicable contractual rates of interest. Nonetheless, no payments were made.

The Financial Creditor filed an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), seeking to initiate Insolvency Resolution Process against the Personal Guarantor of the Corporate Debtor. Notice was issued to the Personal Guarantor but he did not enter appearance.

Decision Of NCLT

The Bench observed that Notice was issued to the Personal Guarantor but none appeared. It was observed that even if the Personal Guarantor had appeared, no right of audience is available to him under Section 95 or Section 97 of IBC.

The Bench observed that once an application under Section 95 of IBC is filed through a Resolution Professional, the Adjudicating Authority under Section 97 of IBC shall direct the Board within seven days to confirm that no disciplinary proceedings are pending against Resolution Professional. The Board shall communicate to the Adjudicating Authority in writing either (a) Confirming the appointment of the resolution professional; or (b) Rejecting the appointment of the resolution professional and nominating another resolution professional for the insolvency resolution process.

Under Section 99 of IBC, such Resolution Professional shall submit his report. Based on the said report, the Adjudicating Authority shall pass an order under Section 100 of IBC, either admitting or rejecting the Application. It is only under Section 100(3) of IBC that the Adjudicating Authority shall provide a copy of the order passed under Section 100(1) to the Creditors. Hence, in terms of Section 97 & Section 100 of IBC, no right of audience can be given to the Personal Guarantor at a stage before appointing the Interim Resolution Professional (IRP).

The Bench held that no notice is required for the Personal Guarantor at the stage of appointment of IRP. It was observed that the application under Section 95 of IBC was found to be complete. Accordingly, the Bench admitted the application under Section 95 of IBC and initiated insolvency resolution process against the Personal Guarantor.

Case Title: Central Bank of India v Mr.Kothapatti Raju

Case No.: CP (IB) No. 89/95/AMR/2022

Counsel For the Financial Creditor: Mr.V.V.S.N.Raju, Advocate.

Click Here To Read/Download Order