NCLAT Allows Admission of Insolvency Proceedings Against Personal Guarantor: Debt and Default Established Through NeSL Records [Read Order]

The National Company Law Appellate Tribunal (NCLAT) in a recent case, upheld the admission of insolvency proceedings against Bhavik Bhimjyani, a personal guarantor to Neelkanth Township and Construction Pvt. Ltd. The Tribunal confirmed that the debt was established through authenticated records maintained by the National e-Governance Services Ltd. (NeSL) and that the default was not disputed.

The appeal arose from an order passed by the NCLAT Mumbai Bench of the National Company Law Tribunal (NCLT), which admitted an application under Section 95(1) of the Insolvency and Bankruptcy Code (IBC) filed by financial creditor Mr. Uday Vinodchandra Shah. The application sought initiation of the Corporate Insolvency Resolution Process (CIRP) against Bhimjyani in his capacity as personal guarantor.

Challenging the said order, Bhimjyani argued that the NCLT had admitted the application without granting him an adequate opportunity to respond, thereby violating the principles of natural justice. He also questioned the process followed by the Resolution Professional (RP), who had submitted a report recommending admission.

The Tribunal, however, found no merit in the objections. It held that both the debt and default were substantiated by records registered with NeSL. The Tribunal noted that the appellant had not denied executing the personal guarantee nor disputed the underlying debt or the default.

One of the significant issues in the appeal was whether the record of default with NeSL could be relied upon to admit an application under Section 95. The NCLAT made it clear that authenticated information available with NeSL constitutes valid and admissible proof of debt and default under Section 95, read with Section 99 of the IBC, and Rule 10 of the Personal Guarantors Rules, 2019.

The Tribunal emphasised that the Insolvency Resolution Process against personal guarantors has been structured to be efficient and minimally litigious. The Resolution Professional’s role, unlike in the CIRP of corporate debtors, is procedural, that is, to examine the application, verify records, and submit a report recommending admission or rejection. The adjudicating authority then acts on that report.

In this case, the RP submitted the report recommending admission, citing undisputed loan agreements, guarantee deeds, and registration of the debt with NeSL. The NCLT accepted the report and admitted the application accordingly.

The NCLAT observed that the appellant had been served notice and had sufficient opportunity to participate in the proceedings. It noted that the procedural steps were carried out by the law, and there was no denial of participation or withholding of material from the appellant. Mere dissatisfaction with the RP’s conclusion did not amount to a procedural irregularity.

The NCLAT bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Naresh Salecha (Judicial Member) also observed that the appellant could not demonstrate any prejudice suffered due to the admission of the application. In the absence of any genuine dispute over the debt or evidence of procedural lapses, the Tribunal saw no reason to interfere with the NCLT’s order. As a result, the appeal was dismissed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates