The New Delhi Principal bench of the National Company Law Appellate Tribunal (NCLAT) held that petition under section 95 of the Insolvency and Bankruptcy Code (IBC) cannot be maintained if it is filed merely to thwart the proceedings already initiated under section 9 of the Arbitration and Conciliation Act.
Neon Laboratories ltd, the appellant advanced a loan amount to the tune of Rs. 1.75 crores to Satra Properties India Ltd , the corporate debtor. A personal guarantee was given for this loan amount by Praful Nani Satra (personal guarantor/respondent no. 2). A deed of guarantee was executed in which it was specified that the payment has to be made by the personal guarantor within 60 days from receiving a demand notice from the lender.
Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor on August 3, 2020 by Vistra ITCL India Ltd. under section 7 of the Insolvency and Bankruptcy Code (IBC). A demand notice was served on the personal guarantor on November 1, 2021.
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Thereafter, a petition under section 9 of the Arbitration and Conciliation Act was filed by Mayank Shah (Intervenor/respondent no.1) in which deposit of Rs. 131.02 crores was sought. This matter was scheduled for hearing by the Bombay High Court. A petition under section 95 of the IBC was filed on December 1, 2021 by the appellant against the personal guarantor before the Bombay High Court could hear the arbitration matter which triggered the moratorium under section 96 of the IBC and led to the adjournment of the arbitral proceedings.
TheMumbai bench of National Company Law Tribunal (NCLT) dismissed the petition filed under section 95 of the IBC along with a cost to be paid by the appellant. It was observed by the NCLT that the petition under section 95 of the IBC was prematurely filed as time period of 60 days after issuance of demand notice had not expired. The tribunal further noted that this petition was filed in collusion with the corporate debtor and halt the arbitral proceedings.
The appellant contended that right to file a petition under section 95 of the IBC arises after expiry of 14 days from issuance of demand notice notwithstanding 60 days time period is provided under a deed of guarantee. It was further submitted that section 238 of the IBC gives overriding effect to the provisions of the IBC over other laws including contractual provisions. It was further argued that allegations of collusion levelled by the respondent are unwarranted and baseless as they were not substantiated by evidence.
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Per contra, it was contended by the respondent that the petition under section 95 of the IBC was filed before 60 days time period had elapsed from the issuance of demand notice as specified in the guarantee deed therefore the petition was filed prematurely. It was further argued that the petition was filed to obstruct the arbitration proceedings as filing of the petition will trigger the moratorium under section 96 of the IBC. It was further contended that the appellant was in favour of the extension of resolution plan as the extension was supported in the meetings of the committee of creditors (CoC). This support indicated that there was collusion with the corporate debtor.
The bench comprising Mr. Justice Rakesh Kumar Jain (Judicial Member) and Mr. Indevar Pandey (Technical Member) viewed that the petition was filed on December 1, 2021 which was only 30 days after the service of demand notice therefore the petition was premature. The tribunal further held that terms of a guarantee deed will be given precedence while determining whether the petition under section 95 is maintainable or not.
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The NCLAT upheld the findings of the NCLT and held that filing of the petition just before the scheduled date for hearing in the arbitration matter indicated collusion between the appellant and the respondent no 2. It was evident that the appellant filed the petition under section 95 of the IBC with a bad intention and the objective of the petition was to thwart the arbitral proceedings initiated by interim moratorium under section 96 of the IBC. The NCLAT dismissed the petition.
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