PR Report, NCLAT, Debtor Company, State Bank of India

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The National Company Law Appeal Tribunal (“NCLAT / Tribunal”) in its recent judgment in Kanchan Nanubhai Desai Personal Guarantor (Anoushka Medicare & Diagnostics Pvt. Ltd.) v. Finequest Financial Solutions Pvt. ltd[1] reiterated that in an application filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“Coded”) the National Court of Company Law (“NCLT”) should not record findings regarding “default” until the resolution professional’s report, as required by Article 99 of the Code, is submitted.

Facts:

The resolution professional for Anoushka Medicare & Diagnostics Pvt. ltd. (“debtor company”) filed a petition under Article 95 of the Code against the personal guarantors of the corporate debtor (“Callers”). The NCLT ordered the resolution professional to submit its recommendations with reasons in writing for accepting or rejecting the application, pursuant to Section 99 of the Code, while finding that there was no doubt in the mind from the bench that there had been a ‘default’ by the Appellants. It was further stated that Resolution Professional’s request had been “authorized”.

The order made by the NCLT was challenged before the NCLAT on two grounds. First of allthat the NCLT should have sought confirmation of the appointment of the resolution professional from the Insolvency and Bankruptcy Board of India (“Plank”) as provided for in Article 97 of the Code and Secondlythat it was not necessary to register a finding of default at the stage where the resolution professional’s report had not yet been submitted.

Findings of the Appeals Tribunal:

The NCLAT briefly reviewed the two submissions in light of the provisions set out in the Code.

(I) Board Confirmation

The NCLAT held that the statutory regime under Section 97 required that where an application is filed by the resolution professional under Section 95, the NCLT directs the Board within seven days to confirm whether a disciplinary proceedings are in progress against the resolution professional or not and the Board is required to communicate in writing, within seven days, either the confirmation of the appointment of the resolution professional, or its rejection and the appointment of a other resolution professional.

However, in this case, the NCLAT was of the view that, since the Appellants were not aware that disciplinary proceedings were pending against the resolution professional, it would not be helpful to order the NCLT to seek the board’s recommendation for confirmation from the resolution practitioner. Therefore, the order of the NCLT was not disturbed at this point.

(ii) Recording of the report on ‘defect’

The NCLAT, while relying on the judgment in Mr. Ravi Ajit Kulkarni v. State Bank of India[2] in which it was held that the stage of review of default would come when the matter would be reviewed under Section 100 of the Code, ruled that the NCLT should not have made any findings of default, which would have had to leave the review to the resolution professional and submit a report.

It was argued on behalf of the respondent that the finding of default was only a At first glance observation, but this assertion was rejected by the Tribunal. Therefore, it was ordered that the recordings in this regard be removed from the NCLT’s order to avoid prejudice to either party. It was also noted that Resolution Professional was free to make a reasoned recommendation in writing for the acceptance or rejection of the application.

This judgment is in line with the previous judgment of the NCLAT in the case of Mr. Ravi Ajit Kulkarni v. State Bank of India. Even if given the facts and circumstances of the case, the IBBI recommendation requirement has been waived, it was clearly stated that the Code provided that the NCLT must direct the Board to confirm the expectation of any disciplinary proceedings within the time limit. Most importantly, it was recapitulated that any finding regarding the defect should only be recorded by the NCLT after the report of the Resolution Professional is submitted as required by the Code.

Authors: Deepak Deshmukh – Associate Partner and Jahan Chokshi – Manager, Naik Naik & Co. Views are personal.


[1] Comp. App. (AT) (Ins.) No. 1089 of 2021

[2] Company Appeal (AT) (Ins.) No. 316 of 2021- NCLAT – Principal Bench, New Delhi.

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