The New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) held that petition filed under section 94 of the Insolvency Bankruptcy Code ( IBC ), 2016 by personal guarantor through Resolution Professional (RP) does not preclude the financial creditor from filing the application under section 98 seeking replacement of the RP.
Vinay Rai , the Personal Guarantor of the Corporate Debtor challenged the order passed by the NCLT. The Adjudicating Authority while passing order on application under Section 98 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has partly allowed application filed by the Financial Creditor for replacement of Resolution Professional (“RP”) – Mr. Prabhat Ranjan Singh. Prayer (B) made in the application was rejected.
The Appellant through Mr. Prabhat Ranjan Singh herein filed an application under Section 94 (1) of the IBC for insolvency resolution process of the Appellant. The NCLT issued notice to IBBI and after obtaining confirmation from the IBBI, the Adjudicating Authority appointed Prabhat Ranjan Singh as RP and by order dated 06.12.2023, directed the RP to submit a Report in terms of Section 99 of IBC. A Report was submitted by the RP. An Application was filed by the Financial Creditor in which replacement of the RP was sought. The Adjudicating Authority allowed the application for replacement of the RP by the impugned order. Challenging the order passed by the Adjudicating Authority, the Appeal has been filed by the Personal Guarantor.
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The appellant submitted that Personal Guarantor has been granted a vested right to file a Section 94 petition through a RP and that there is no material to indicate that RP is not an independent or a biased. The RP, who was proposed by the Appellant and appointed by the NCLT is fully eligible in terms of Regulation 4 of IBBI (Insolvency Resolution Process for Personal Guarantors of Corporate Debtors) Regulations, 2019. The RP is not an associate of the guarantor, nor related party. Hence, no eligibility is attached to Respondent No.2.
Based on the above law, the tribunal observed that formation of opinion by the Financial Creditor on the ground that RP, who has represented the Corporate Debtor and the Personal Guarantor in the dispute between parties arising out of the same debt, cannot be said to be an irrational ground, to form an opinion under Section 98 therefore the Financial Creditor was right in filing an application for replacement of the RP. The scheme of Section 98, does not require that a particular ground has to be proved by debtor or creditor seeking replacement of the RP.
The bench of Justices Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) observed that the debtor is fully entitled to initiate the insolvency resolution process, either personally or through RP.
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The fact that application was filed by the Appellant through RP under Section 94, does not give any indefensible right to the Appellant to claim that said RP cannot be replaced. Under the scheme of the IBC, replacement of RP is at a different stage, which comes subsequent to appointment of RP under Section 97. The fact that application was filed by the Appellant through RP is immaterial for the purpose of Section 98(1).
While dismissing the appeal, the tribunal held that the Adjudicating Authority did not commit any error in allowing the application filed by the Financial Creditor for replacement of the RP.
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