The Chennai bench of the National Company Law Appellate Tribunal ( NCLAT ) dismissed appeals and held that the creditors have the right to file for bankruptcy beyond the threshold timeline under section 118 of Insolvency Bankruptcy Code ( IBC ), 2016.
The appeal was filed by Tummala Sri Ganesh and other applicants. Tummala Sri Ganesh had entered into a guarantee agreement and a supplemental guarantee deed in favour of SBI, providing personal guarantee for the debt liabilities of the principal borrower, Chadalvada Infratech Limited.The principal borrower had defaulted on the repayment of debt and CIRP was invoked in pursuance to which NCLT approved a repayment plan. However, the appellants, without completing the repayment process, made the RP file a report under Section 118 of IBC.
Boost Your GST Skills: Master Notice Responses & Drafting â Enroll Now
SBI sent demand notices to the appellants on 21st October 2021. The appellant did not pay the due amounts in response to these notices also. Therefore, the petition under Section 95 of the IBC was put before the NCLT, Hyderabad Bench by the State Bank of India and on 20th April, 2022, NCLT granted Interim Moratorium.
The Resolution Professional ( RP ) was appointed with a mandate to file a report under Section 99 of the IBC. On 21 June 2022, upon hearing the matter, NCLT admitted the petitions and directed RP to jointly draft a payment scheme with appellants and SBI. The appellants individually filed debt repayment plans on 15th August 2022. The plans were fine-tuned after joint consultation with the creditors. The amended repayment proposals were filed before NCLT on 26th December 2022, and, on 13th September 2023, NCLT approved the repayment proposals by directing them to be executed. Despite receiving successive reminders from RP appellants failed to make the payouts as per the scheme of repayment proposal.
Boost Your GST Skills: Master Notice Responses & Drafting â Enroll Now
NCLT, after making a perusal of the report, passed an order on 7th February 2024, under Section 118(3) of IBC, holding that the repayment plan was not duly implemented and granted liberty to SBI to file for bankruptcy against the appellants. On 29th April 2024, the appellants filed petitions asking the Tribunal to reverse its February order.
Appellants argued that they were deprived of an opportunity to faithfully comply with the repayment schedule. It was contended that the notice under Section 20(1) of the IBBI Regulations had not been issued to them before the submission of the RP’s report under Section 118(2). They also complained about irregularities in the procedure followed in the repayment process.
On the other hand, the State Bank of India and the Resolution Professional brought on record such a plea by contending that the appellants had indeed defaulted on the repayment plan due within the stipulated timeline. According to the debtors, their respective repayment plan was approved by the NCLT on 13th September 2023 and since on several occasions, it had sent reminders, the appellants still failed to remit the pertinent payments.
Boost Your GST Skills: Master Notice Responses & Drafting â Enroll Now
The NCLAT found that the appellants failed to adhere to the repayment plan approved by NCLT on 13th September 2023 and failed to act in consonance with the discharge plan presented by the RP for reimbursement of dues as per the schedule of repayment. NCLAT held that Section 118 of the Insolvency and Bankruptcy Code provides that where an insolvency resolution plan contemplated under the IBC is not filed within the threshold timeline, its mere existence lapses even before the lapse of its natural duration; at which point the right of the creditor to file bankruptcy proceedings vests.
While dismissing the appeals, the bench of Justice Sharad Kumar Sharma, Member ( Judicial ) confirmed the orders of NCLT and grant permission to SBI to file bankruptcy proceedings against the appellants.It was viewed that the debtors had not undertaken full implementation of the repayment plan in accordance to the given timeframe, which meant it had attained a premature end at that time by exercising its right and which allowed the creditor so to move for bankruptcy proceedings.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
