Resolution Professional Cannot Be Passive Spectator In Personal Guarantor Insolvency Process: NCLT Ahmedabad

The National Company Law Tribunal (NCLT) at Ahmedabad has recently held that a resolution professional cannot remain a “passive spectator” and attribute delays in a personal guarantor insolvency process to the guarantor or the financial creditor without taking proactive steps.

The tribunal made the observation while dismissing a plea to close the personal insolvency resolution process with liberty to initiate bankruptcy proceedings.

A bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma made the observation while dismissing the application filed by resolution professional Nitin Om Kothari.

“The Resolution Professional, being the custodian of the process, cannot remain a passive spectator and attribute the delay either to the Personal Guarantor or to the Financial Creditor, without taking proactive steps under the framework of the Code,” the tribunal observed.

The tribunal noted that the insolvency process against Irfan Khan, personal guarantor to DMB Paper Mills Private Limited, had continued for 534 days. This resulted in a delay of 414 days beyond the prescribed timeline.

Kothari attributed the delay to the personal guarantor's non-cooperation. He said that despite repeated communications, Khan failed to submit the statement of affairs and repayment plan.

The financial creditor, Krishkan Investment Private Limited, supported this explanation. It said time was also spent on an asset tracing exercise and internal commercial deliberations before taking a commercial call.

However, the tribunal held that non-cooperation alone could not justify such prolonged delay. It observed that sufficient mechanisms existed to address non-cooperation, including seeking directions from the adjudicating authority.

The bench found that the resolution professional had failed to place any material on record showing that timely applications were filed before the adjudicating authority. It observed that this reflected lack of due diligence.

“It is also observed that the Resolution Professional is not merely a facilitator but is an officer of the Court, entrusted with statutory duties and responsibilities, and is expected to act with utmost diligence, promptness, and adherence to the provisions of the Code,” the tribunal said.

The tribunal further held that even if the financial creditor delayed taking a commercial decision, the resolution professional was duty-bound to approach the adjudicating authority. It said the process could not be allowed to continue in violation of timelines.

Holding that the proceedings suffered from material irregularity and were conducted contrary to the object of the Code, the tribunal terminated the insolvency proceedings against the personal guarantor.

It also set aside all consequential actions, including the appointment of the resolution professional, meetings, reports, and the moratorium. The tribunal directed that a copy of the order be sent to the Insolvency and Bankruptcy Board of India for consideration of appropriate action against Kothari, if deemed fit.