NCLAT Rejects Kerala High Court Judgment On Effective Date Of Insolvency Application Against Personal Guarantor

NCLAT Rejects Kerala High Court Judgment On Effective Date Of Insolvency Application Against Personal Guarantor

Cites its ruling in a similar previous case

The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT) has opposed a Kerala High Court judgment on applications to initiate the Corporate Insolvency Resolution Process (CIRP) against the personal guarantors.

The Coram of Justice (retired) Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) held that the effective date of an application is on which it was filed, and not the date on which it was registered.

The matter pertained to the date of an application under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016, to determine the interim moratorium under Section 96.

In 2022, in the Krishan Kumar Basia v. State Bank of India case, a similar judgment was held by the NCLAT.

However, in 2023, the Kerala High Court overturned it in the Jeny Thankachan v. Union of India case. It ruled that a moratorium would commence only after an application filed for initiating the CIRP was defect-free and complete, and not necessarily on the application’s filing date.

The appellate tribunal has now stated that it is bound to follow its earlier ruling and not the high court's subsequent judgment.

The NCLAT reasoned that the National Company Law Tribunal Rules, 2016 indicated that the date of filing an application was relevant. It added that this, and its 2022 ruling may not have been brought to the notice of the high court when it passed the judgment.

The bench stated, “We notice the Kerala High Court’s observations that interim moratorium shall commence only when an application is defect-free and registered and made without noticing the statutory scheme as delineated in the NCLT Rules, 2016. The date of filing the application has to be determined as per the statutory Rules for filing the application under Section 95.

It added, “We noticed the judgment of the 3-member bench of this tribunal in the Krishan Kumar Basia case, which was decided on 14.07.2022. This was much before the judgment delivered by the Kerala High Court on 16.11.2023. We are bound by the 3-member bench judgment and are not persuaded to accept the view of the Kerala High Court in the Jeny Thankacha case.”

The tribunal thus dismissed the appeal of the personal guarantor who challenged the 01 May order of the NCLT to appoint a resolution professional (RP).

The NCLT order had asked the RP to examine the application to initiate CIRP proceedings against a personal guarantor of Supertech Limited, which defaulted on some loans. The RP was ordered to submit a report on the matter under Section 99 of the IBC.

The order was passed under Section 95 (application by creditor to initiate insolvency process of personal guarantors) by the financial creditor, IFCI Bank Ltd. The application was filed on 02 June 2021 and registered on 09 August 9, the same year.

Meanwhile, on 14 July 2021, another financial creditor, PNB Housing Finance Limited filed a similar application, which was registered on 02 August 2021 - before the registration of the IFCI's application.

On 01 May 2014, the NCLT appointed an RP to examine the insolvency proceedings against the personal guarantor, who challenged it before the NCLAT. He submitted that an interim moratorium under Section 96 barred such a proceeding, triggered by (still in force) the PNBHFL application.

The appeal before the NCLAT was contested by IFCI, arguing that even if PNBHFL's application was registered first, IFCI's application was filed much earlier. Thus, the moratorium period in Section 96 began on 02 June, when its application was filed. Therefore, the PNBHFL's application registration or its pendency was not relevant.

The question was when an interim moratorium under Section 96 would start - the date when an application for initiating CIRP proceedings was filed or when the application was registered.

The bench approved the contention of the IFCI while relying on previous verdicts which held that the date of ‘filing’ an application was agreeable and not when it was registered.

Thus, while dismissing the appeal, the tribunal, ruled, "The filing of the application by IFCI was first, and the mere fact that it was filed by PNBHFL and registered earlier, is inconsequential.”

Advocates Gaurav Mitra, Lokesh Malik and Adit Singh represented the personal guarantor.

IFCI Limited was represented by advocates Amish Tandon and Anushree Kulkarni.