Application u/s 95 of IBC Can be Filed by Creditor in his Individual Capacity or Jointly through RP: NCLAT [Read Order]
The court found that Section 95 of the IBC stipulates that a creditor may file an application under the same section, either alone, in concert with other creditors, or through a representative
Section 95 of IBC – IBC Can be Filed by Creditor – Individual Capacity – Jointly through RP – NCLAT – Creditor in his Individual Capacity – taxscan
Section 95 of IBC – IBC Can be Filed by Creditor – Individual Capacity – Jointly through RP – NCLAT – Creditor in his Individual Capacity – taxscan
The National Company Law Appellate Tribunal (NCLAT) Bench of has held that Section 95 of Insolvency Bankruptcy Code (IBC), 2016 states that a Section 95 application can be filed by a creditor in his individual capacity or jointly with other creditors or through a Professional (RP).
Amit Dineshchandra Patel, the Appellants challenged the impugned order admitting the Section 95(1) application filed by the Respondent No.1-State Bank of India allowing initiation of insolvency resolution process of the Appellants-Personal Guarantors. SBI-the Respondent No.1 Bank along with two other consortium lenders i.e. Bank of Baroda and IDBI Bank entered into COR Common Loan Agreement (“CORLA”) with the principal borrower-Shirpur Power Private Limited for financing under COR Facility Agreement
In order to retain and handle the security, including the guarantee envisioned under the Guarantee Agreement, for the benefit of COR Lenders, the lenders designated SBI Cap as their Security Trustee through a Security Trustee Agreement dated 21.09.2015. On February 9, 2016, the appellants-personal guarantors and SBI Cap, the security trustee, signed a Personal Guarantee Agreement ("PGA").
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The principal borrower was admitted into CIRP after respondent No. 1 Bank started proceedings under Section 7. In accordance with Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019, Respondent No. 1 Bank invoked the personal guarantees and sent the appellant a demand notice dated October 20, 2020.
Later, in accordance with CP (IB) No. 76 of 2021, the respondent No. 1 Bank applied to the adjudicating authority under Section 95 of the IB Code to begin the insolvency resolution process against the appellants. On September 12, 2021, Respondent No. 2-RP presented its report to the Adjudicating Authority, suggesting that the Appellants be admitted into insolvency. On May 17, 2024, the Adjudicating Authority issued the contested order, admitting the Section 95 petition and starting the insolvency procedures against the appellant.
The appellant argued that Respondent No. 1 Bank was not permitted to file for personal insolvency against the personal guarantor in their individual capacity after the COR lenders collectively designated SBI Cap as the Security Trustee. The guarantee is not a party to the CORLA, and there was no request made by the guarantor for the loan to be released in the borrower's favor. Furthermore, the Section 95 application was unmaintainable since the PGA is not a tripartite agreement between the borrower, lender, and guarantor.
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The respondents disputed the submissions, arguing that the guarantors' personal guarantee, which was granted under the CORLA specifically for the benefit of COR Lenders, could not be used to support the Appellant-Personal Guarantor because it was given to the Security Trustee rather than the lenders. The Respondent No. 1 Bank had every right to use the personal guarantee after the principal borrower had stopped making loan payments and was listed as a non-performing asset (NPA) on November 29, 2017.
Additionally, it was claimed that the Section 95 application was submitted by a duly authorized individual because Section 50 of the State Bank of India Act, 1955, along with Regulations 76 and 77 of the State Bank of India General Regulations, 1955, and the Gazette Notification dated 02.05.1987, explicitly state that officers in the Grade of SMGS-V were permitted to sign all documents. As a result, Mr. Nitin Kumar Chauhan, the signatory, was a duly authorized individual.
While dismissing the appellant's position, the tribunal's Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member) determined that Respondent No. 1 Bank had signed the CORLA, in which it was explicitly identified as the COR Lenders' Agent. Furthermore, even though SBI Cap had been designated by the lenders as their Security Trustee, Clause 8.12 of the Security Trustee Agreement dated 21.09.2015 stated that the COR Lenders could fulfill any obligation or duty of the Security Trustee and that this would not be interpreted as a revocation of the trusts or agency established as a result.
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The court found that Section 95 of the IBC stipulates that a creditor may file an application under the same section, either alone, in concert with other creditors, or through a representative. Nowhere does it specify that the Section 95 application must be submitted jointly if the credit facility has been extended by multiple financial creditors. The Tribunal upheld the invocation of the personal guarantee by the Respondent No. 1 Bank and dismissed the appeal.
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