Pendency of One Time Settlement Proposal is not A Ground to Reject Application u/s 95: NCLAT [Read Order]

The New Delhi bench of National Company Law Appellate Tribunal ( NCLAT ) has held that pendency of One Time Settlement Proposal ( OTS ) which is not yet accepted, cannot be a ground to refuse initiation of insolvency process against the personal guarantors.

Mohit Dewan, the appellant challenged the order passed by National Company Law Tribunal (NCLT), Chandigarh Bench by which Section 95 application filed by the appellant who was the personal guarantors have been admitted.

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It was submitted that there was an OTS proposal submitted by principal borrower which was approved by the bank for total payment of Rs. 7 crores and out of said Rs.7 crores, amount of Rs.1.75 was already paid which was recorded in the OTS entered between the parties which was subject to consent by the DRT where application was pending.

The borrower has already filed a writ petition before the Punjab & Haryana High Court challenging the action of the bank from back tracking of the OTS which is under consideration. It was stated that the personal insolvency against the appellant would not be allowed to continue.

It was evident that there is no dispute to the preposition that in event bank accepts the OTS against the principal borrower and the entire amount is satisfied the liability of the guarantor shall also come to an end.

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The  bench of Mr. Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member)observed that just because the OTS proposal is pending that itself cannot be a ground to refuse the initiation of the insolvency process against the personal guarantors.

While dismissing the appeal, it was held that there is no error in initiation of personal insolvency against the appellant, however, it shall always be open for the appellant to place such material before the Adjudicating Authority in event any order of the High Court favourable to the principal borrower is passed which shall be taken due consideration in the personal insolvency of the guarantors also.

To Read the full text of the Order CLICK HERE

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