Personal Guarantor's Non-Compliance With Repayment Plan Allows Bankruptcy Proceedings: NCLT Kochi

The Kochi Bench of the National Company Law Tribunal (NCLT) on 26 February, held that a personal guarantor's failure to submit a repayment plan despite sufficient opportunities has the same effect as rejection of a repayment plan, allowing creditors to initiate bankruptcy proceedings.

Judicial Member Vinay Goel allowed the application filed by the Resolution Professional of a personal guarantor to Tata Capital Limited. The Tribunal stated:

“Where no Repayment Plan is submitted, the Resolution Professional has no option but to refrain from convening a meeting of the creditors and instead file a report stating that, since no Repayment Plan has been filed, there is no justification for summoning such a meeting.”

Insolvency proceedings had earlier been initiated against the personal guarantor, and the Resolution Professional was appointed to conduct the process. Pursuant to public notice, claims aggregating to over Rs. 37.56 crore were admitted, and a Committee of Creditors (CoC) was constituted.

The personal guarantor was required to submit a repayment plan under Section 105 of the Insolvency and Bankruptcy Code, 2016. Despite repeated communications, reminders, and an extension granted by the creditors, no compliant repayment plan was submitted. Only a tentative proposal was provided, which did not meet statutory requirements, and the guarantor failed to participate effectively in creditor meetings.

In view of the continued non-compliance, the CoC unanimously resolved to initiate bankruptcy proceedings against the guarantor and authorised the Resolution Professional to approach the Tribunal.

The Tribunal noted that under Section 106 of the Code, the debtor must submit a repayment plan, which is examined by the Resolution Professional and placed before the Adjudicating Authority along with a report. The Authority then considers the creditors' report and decides whether to approve or reject the plan.

Relying on the NCLT Delhi Bench decision in Mr. Swatantra Kumar Singh v. Mr. Amul Gabrani, the Tribunal held that failure to submit a repayment plan despite sufficient opportunities has the same effect as rejection of a repayment plan. It further noted:

“in the event of rejection of repayment plan or there being no repayment plan submitted by the debtor/PG, an application for bankruptcy of debtor will be made by creditor individually or jointly with other creditors or by debtor to the Adjudicating Authority.”

Accordingly, the Tribunal allowed the application, granted liberty to initiate bankruptcy proceedings against the personal guarantor.

For Applicant: Advocate Shweta Pandey