Time-Barred Insolvency Plea Can Be Rejected Without RP Appointment: NCLAT New Delhi

On 7 August, the New Delhi National Company Law Appellate Tribunal (NCLAT) held that the National Company Law Tribunal (NCLT) can reject a personal guarantor's insolvency application at the threshold if it is ex facie barred by limitation, without first appointing a Resolution Professional (RP) under Section 97 of the Insolvency and Bankruptcy Code, 2016 (IBC).

A Bench of Judicial Member Justice Mohd Faiz Alam Khan with Technical Members Arun Baroka and Indevar Pandey dismissed the appeal filed by Prabhaben Ravjibhai Harkani, personal guarantor of Shubham Ginning Pressing Pvt. Ltd., challenging the Ahmedabad Bench of the NCLT's order rejecting her Section 94 insolvency petition as time barred. It observed:

“…appointment of a Resolution Professional is not an essential requirement in every case under section 94. The Adjudicating Authority, where it finds, on the admitted facts and the applicable law, that the application is not maintainable, it can reject an application under Section 94 before appointing the RP. The order cannot be said to be invalid merely because a Resolution Professional was not appointed. The validity of such an order has to be examined in the facts of each case.”

Harkani had executed personal guarantees in favour of Bank of Baroda in 2013 and 2015. The guarantees were invoked on 19 September 2016 under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Recovery proceedings were subsequently initiated before the Debt Recovery Tribunal (DRT), followed by SARFAESI auctions. The auctions were successfully concluded in December 2024. Harkani thereafter filed a fresh petition under Section 94 of the IBC in January 2025, which the NCLT rejected as barred by limitation.

Before the NCLAT, Harkani argued that the Limitation Act, 1963 does not apply to debtor-initiated insolvency proceedings under Section 94 of the IBC. She relied on judicial precedents and the Insolvency Law Committee Report of 2018. She also contended that the NCLT could not have rejected her petition without first appointing an RP and obtaining a report under Section 99.

Bank of Baroda opposed the appeal, contending that the insolvency petition was filed only to obstruct SARFAESI recovery after the auctions had concluded and third-party rights had been created. It further submitted that the application was ex facie barred by limitation since the guarantee had been invoked on 19 September 2016, whereas the Section 94 application was filed only in January 2025. Therefore, there was no requirement to appoint an RP before rejecting the petition.

Rejecting Harkani's contentions, the NCLAT noted that the guarantee was invoked in 2016 and that the petition consequently became time barred in 2019. The Bench held:

“The Respondent Bank however maintained that the account of Principle Borrower was declared NPA on 29.07.2016 and by issuing notice under Section 13 (2) of the SARFAESI Act the guarantee was invoked against the appellant by the Respondent no. 1 on 19.09.2016 and by these dates the proceedings may be filed before the Ld. Adjudicating Authority either on or before 29.07.2019 or 19.09.2019.”

Referring to Arnita Kiran Sheth, the NCLAT reiterated that appointment of an RP is not mandatory in every case. Where an application is not maintainable on admitted facts and the applicable law, the NCLT can reject it at the threshold without appointing an RP. It also noted that Harkani filed the insolvency petition only after the SARFAESI auctions had concluded and the sale consideration had been deposited, indicating an attempt to obstruct lawful recovery.

Accordingly, the NCLAT upheld the NCLT's order rejecting the Section 94 petition as time barred and dismissed the appeal.

For Respondents: Advocates Rohan Talwar and Preksha Divakar