Withdrawal Of Earlier Insolvency Plea By Personal Guarantor After OTS Not a Bar To Fresh Plea: NCLT Chennai

The National Company Law Tribunal (NCLT) at Chennai has held that a personal guarantor's withdrawal of an earlier insolvency application after securing a One Time Settlement (OTS) for one loan account does not, by itself, bar the filing of a fresh insolvency application in respect of continuing liabilities.

A coram of Judicial Member Jyoti Kumar Tripathi and Technical Member Ravichandran Ramasamy was considering a petition filed by D. Manuel Anand, a personal guarantor to Servo Craft HR Solutions Private Limited, under Section 94(1) of the IBC seeking initiation of the insolvency resolution process against himself.

"The withdrawal of the earlier application pursuant to settlement of one of the loan accounts, by itself, does not operate as a statutory bar against the filing of a fresh application under Section 94 in respect of the subsisting liabilities, particularly when the Applicant asserts that he continues to remain unable to repay the outstanding debts.” it held

Anand had executed personal guarantees and mortgaged his undivided 50% share in two properties in Chennai to secure loans availed by the corporate debtor from Deutsche Bank and other lenders.

According to the petition, the corporate debtor defaulted in repayment, leading to invocation of the personal guarantees and recovery proceedings under the SARFAESI Act as well as before the Debt Recovery Tribunal. Claiming that his liabilities far exceeded his available resources, Anand sought initiation of the insolvency resolution process.

Deutsche Bank opposed the plea, contending that Anand had earlier withdrawn an identical application after obtaining an OTS for one loan account, had suppressed material facts by not disclosing all outstanding liabilities, and had invoked the insolvency process merely to stall the bank's recovery proceedings.

Rejecting the bank's objections, the Tribunal held that withdrawal of the earlier application following settlement of one loan account did not create a statutory bar against filing a fresh application in respect of remaining liabilities.

The Bench further held that allegations relating to incomplete disclosure of liabilities or suppression of material facts require examination in accordance with the mechanism prescribed under Chapter III of Part III of the IBC.

It also rejected the bank's contention that the pendency of SARFAESI proceedings rendered the application non maintainable.

“The Insolvency and Bankruptcy Code provides an independent statutory framework for insolvency resolution of personal guarantors, and the existence of parallel recovery proceedings cannot be treated as a ground for rejecting the application at the threshold.” it stated

Referring to the Supreme Court's decision in Dilip B Jiwrajka v. Union of India, the Tribunal reiterated that no judicial adjudication is involved at the stage of appointment of a Resolution Professional.

Accordingly, the Tribunal appointed Sowmya Parasuraman as the Interim Resolution Professional to examine the application and submit a report under Section 99 of the Code.

For Applicant: Advocate K Koteswara Rao

For Respondent: Advocate AG Sathyanarayana