NCLAT Dismisses Mercator Guarantor's Appeal Against Insolvency Order, Calls Natural Justice Plea 'Dilatory Tactic'

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld the admission of a personal insolvency petition filed by State Bank of India (SBI) against former Mercator Limited director Harish Kumar Mittal over dues of Rs. 236.19 crore, holding that his objection that his reply affidavit was not taken on record did not establish a violation of natural justice.

A three-member bench of Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed Mittal's appeal against the order of the NCLT, Mumbai which had admitted the petition under Section 95 of the Insolvency and Bankruptcy Code (IBC).

The bench observed:

“The noting of the Adjudicating Authority in the impugned order to the extent that Appellant's reply has not been filed doesn't give any ground for the Appellant to claim that natural justice has been denied to him, particularly in the background that he was personally heard, all the grounds raised by him as personal guarantor are same as that of the Corporate Debtor and furthermore the same reply had been noted by us at the appellate stage, and we don't find merit in that. We find these are dilatory tactics and should be discouraged under IBC which provides strict timelines at all stages.”

The appeal arose from the NCLT's order dated December 9, 2024, initiating insolvency proceedings against Mittal as a personal guarantor under Section 95 of the IBC.

SBI had granted various credit facilities to Mercator Limited. Mittal had executed a deed of guarantee in favour of the bank. After the company defaulted and its account was classified as NPA, SBI issued a recall notice dated October 31, 2019 and a demand notice dated June 1, 2021.

It thereafter filed a petition under Section 95(1) of the IBC seeking initiation of insolvency proceedings against the personal guarantor for Rs. 236.19 crore.

The NCLT had granted time to Mittal to file his reply. The reply was e-filed on March 1, 2024. However, it was not formally brought on record. The matter was listed multiple times thereafter. The NCLT ultimately admitted the petition.

Before the NCLAT, Mittal argued that the impugned order violated principles of natural justice because his reply affidavit was not considered. He also contended that the recall and demand notices were defective.

He raised objections regarding insufficient stamping of the guarantee deed. He further argued that a commercial suit pending before the Bombay High Court barred adverse orders in the insolvency proceedings.

SBI opposed the appeal. It argued that the reply was filed belatedly and was never taken on record despite several opportunities. It also contended that the appeal under Section 61 was not maintainable.

The bank maintained that debt and default were established. It submitted that objections relating to pre-existing disputes, stamping of the guarantee deed and quantification were irrelevant in summary proceedings under the IBC.

The NCLAT rejected SBI's objection on maintainability. It held that Section 61 would apply to appeals arising from such proceedings.

On merits, the tribunal noted that the matter had been listed nine times before the NCLT after the reply was e-filed. It observed that no steps were taken to ensure the reply was formally brought on record. It further noted that Mittal had been heard by the NCLT before the order was passed.

The appellate tribunal referred to the Resolution Professional's report under Section 99, which recorded the existence of debt and default and noted that the guarantor's liability was co-extensive with that of the corporate debtor under Section 128 of the Indian Contract Act, 1872.

The NCLAT held that pre-existing disputes and stamping objections could not defeat a financial creditor's petition under Section 95. It concluded that the grounds raised in appeal did not justify interference with the NCLT's order and dismissed the appeal.