NCLAT Dismisses Appeal by Personal Guarantor in Bank of Maharashtra Case: Criticizes Casual Approach to IBC Proceedings [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has upheld the decision of the National Company Law Tribunal (NCLT), which had dismissed the Section 94 insolvency application filed by Nilanjana Ghosh a personal guarantor, for non-prosecution. The appellate tribunal also rejected her restoration plea, observing that the petitioner’s conduct reflected a deliberate misuse of the IBC moratorium to stall SARFAESI proceedings initiated by Bank of Maharashtra.

The case arose from insolvency applications filed separately by Nilanjana Ghosh and her husband, Suprio Ghosh, under Section 94 of the Insolvency and Bankruptcy Code, 2016, in December 2022. They sought initiation of an individual insolvency resolution process. An interim moratorium under Section 96 came into effect immediately upon filing, temporarily protecting them from enforcement actions including ongoing recovery attempts under the SARFAESI Act.

Despite multiple opportunities, however, the NCLT found that the petitioners had failed to pursue their case diligently. In July 2024, the NCLT dismissed the petitions for non-appearance across three consecutive hearings: April 3, May 20, and July 8, 2024. Restoration applications filed thereafter were also rejected, with the tribunal describing the applicants’ conduct as a “clear abuse of process.”

While the petitioners claimed they had attended earlier hearings and were only absent on July 8 due to overlapping court appearances, the NCLT pointed out discrepancies in the attendance record. The restoration order noted that the petitioners’ claim of being present on April 3 and May 20 was unsupported by the official record. Moreover, no affidavit or corrective action was initiated to amend the record at the time, weakening their claim.

On the day the NCLT finally dismissed the petition, the petitioners’ counsel failed to appear, citing internet issues and parallel hearings in other courts. The tribunal rejected these grounds as insufficient and emphasized that neither the counsel nor the petitioners made any attempt to join proceedings virtually or seek adjournment. The NCLT observed that the petitioners had consistently appeared in the restoration proceedings, suggesting selective attention only when it suited them.

The NCLAT agreed with the lower court’s findings. The appellate bench, consisting, Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) held that the petitioners had shown no sufficient cause for restoration under Rule 48(2) of the NCLT Rules, 2016, which governs restoration of cases dismissed for default.

The tribunal highlighted that the IBC’s Section 96 provides an automatic interim moratorium as soon as an application under Section 94 is filed, which protects debtors from legal action in rem, including recovery proceedings. However, it asserted that this protection cannot be allowed to be “weaponized” by applicants who fail to follow through with their petitions in good faith.

The NCLAT also observed that despite repeated directions, the petitioners failed to assist the Resolution Professional (RP) in preparing the required report under Section 99. The RP had filed a compliance affidavit indicating that crucial documents including net worth statements, were not submitted by the debtors. Consequently, discrepancies remained unresolved, and the petition was left incomplete.

Bank of Maharashtra, the respondent creditor, had initiated recovery under SARFAESI and had already obtained directions from the Punjab and Haryana High Court to take possession of the mortgaged property. The bank argued that the insolvency filings were a strategic ploy to obstruct these recovery efforts by triggering the Section 96 moratorium which was a concern the NCLT and NCLAT both found valid.

The NCLAT noted that the debtor’s failure to participate meaningfully in proceedings, especially after securing interim relief, undermined the very purpose of the personal insolvency regime under the IBC. As a result the appeal was dismissed and the NCLAT held that that interim protections under the IBC are contingent on active and bona fide prosecution of the insolvency case.

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