NCLAT Upholds IRP Initiation Against Personal Guarantor, Finds No Violation of Natural Justice [Read Order]

The Chennai Bench of National Company Law Appellate Tribunal(NCLAT) upheld the initiation of the Insolvency Resolution Process (IRP) against the personal guarantor under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016, and found no violation of natural justice.

Iqbal Jumabhoy,appellant, personal guarantor, challenged the Impugned Order dated 06.11.2024 in Company Appeal (AT) (CH) (Ins) No. 29/2025, which was related to the initiation of the Insolvency Resolution Process (IRP) under Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016.

The appellant’s counsel argued that before the Adjudicating Authority accepted the report of the Resolution Professional under Section 99 of the IBC, the appellant should have been given an opportunity to be heard. The report recommended initiating the IRP against the appellant, and the Adjudicating Authority had passed an order under Section 100, admitting the application under Section 95 without a hearing.

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The case involved Indiabulls Housing Finance Limited (IHFL), which had entered into a loan agreement with M/s. Raffles Residency Private Limited in 2018. The appellants had provided personal guarantees. IHFL issued demand notices and later filed applications to invoke the personal guarantees. However, following a settlement agreement in 2022, the proceedings before the Debt Recovery Tribunal (DRT) were withdrawn. The appellants argued that the settlement agreement should have extinguished the debt and guarantee agreements.

Despite this, IHFL and its assignees filed the application under Section 95 to initiate the IRP. The appellants contended that the original agreements were relied upon incorrectly and that the process violated natural justice as they had not been allowed a proper hearing before the report was accepted, leading to the initiation of the IRP.

The Senior Counsel for the Appellant argued that the Appellants should have been heard when the IAs (IA No. 445/2024 and IA No. 447/2024) were decided, as these contained the report of the Resolution Professional under Section 99 of the Insolvency and Bankruptcy Code (IBC). Since the Appellants were not heard, the orders issued under Section 100 were claimed to be legally flawed.

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To support this, the counsel referred to the Supreme Court judgment in Dilip B. Jiwrajka Vs. Union of India (2024), where the Court addressed challenges to personal insolvency laws. The Court confirmed that natural justice principles applied to the process between Sections 95 and 100 of the IBC. The counsel highlighted the conclusion in Para 85, which discussed the need to follow natural justice.

The counsel also pointed to Paragraphs 53 and 54 of the judgment, where the Supreme Court clarified the role of the Resolution Professional. It stated that the Resolution Professional’s job was only to check if the application met the requirements of Sections 94 or 95, and to provide a report to the Adjudicating Authority. The Resolution Professional did not make binding decisions but only recommended whether to accept or reject the application.

The Court concluded that the Resolution Professional’s role was not adjudicatory and that the final decision to admit or reject the application was for the Adjudicating Authority, which had to pass a reasoned order.

The Apex Court highlighted the importance of natural justice in both judicial and administrative actions. In the Dilip B. Jiwrajka case, it was clarified that there was no violation of natural justice under Sections 95 to 100 of the IBC, 2016. During these stages, the debtor had the opportunity to participate in the process, and no final decision was made until the Adjudicating Authority decided whether to accept or reject the application under Section 95. The Resolution Professional’s report was only recommendatory.

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The Adjudicating Authority noted that the Appellants were given several chances to submit replies and information but did not use them. Their right to respond was forfeited after multiple extensions. The Appellants’ counsel claimed they were not heard, but the records showed they had enough time to reply.

The Appellate Authority found no violation of natural justice. The Appellants’ objections, such as issues with guarantees and jurisdiction, were not raised in time and could not be considered. The Court concluded that the strict timelines of the IBC were followed, and the Appellants had been given adequate opportunities to present their case.

Justice Sharad Kumar Sharma(Judicial Member) and Jatindranath Swain(Technical Member) after hearing the counsels and reviewing the impugned order, agreed that the Adjudicating Authority followed the principles of natural justice. The appellant were given enough opportunities, and their rights were protected by ensuring adherence to Sections 108, 109, 110, and 111 of the IBC, 2016. As a result, the tribunal found no reason to interfere with the impugned orders at this stage.

To Read the full text of the Order CLICK HERE

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