NCLAT Quashes Bankruptcy Trigger for Guarantors — Grants Time to File Repayment Plan; Proceedings Referred to Section 106
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REEDLAW Legal News Network reports: In a significant appellate intervention, it was clarified that bankruptcy proceedings against a personal guarantor cannot automatically continue where the guarantor fails to file a repayment plan within the initially stipulated time. The tribunal held that, when both sides mutually agree to extend time for submission of a compliant repayment proposal, such a process must be considered afresh, and any earlier admission of bankruptcy ought to be set aside. The appellate authority, therefore, directed restoration of the statutory stage under Section 106 of the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal, Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a batch of Company Appeals and connected interlocutory proceedings, held that mere non-submission of a repayment plan does not automatically justify admission of bankruptcy under Section 123 IBC. The tribunal emphasised that, where parties express consensus to extend time for submission of a compliant repayment plan, the adjudication must revert to the stage prescribed under Section 106 so that the repayment plan can be considered on merits in accordance with the statutory framework.
The appeals had arisen from orders passed under the insolvency framework applicable to personal guarantors. Insolvency resolution process was initiated against the Appellants, who were personal guarantors to the Corporate Debtor, pursuant to applications filed by a Financial Creditor under Section 95 of the Code. The applications were admitted, and an IRP was appointed, who subsequently assumed charge as Resolution Professional. A public announcement was issued, and claims were collated. Despite several notices and deliberations, no Appellant submitted a repayment plan as required under Section 105 of the Code.
The Resolution Professional submitted his report under Section 112, noting failure of the Appellants to file repayment plans, thereby triggering the consequence contemplated under Section 115(2), enabling either debtor or creditor to seek initiation of bankruptcy. Based on this report, the Adjudicating Authority treated non-submission of repayment plans as equivalent to rejection, ceased the moratorium and permitted initiation of bankruptcy proceedings. Aggrieved by this outcome, the Appellants preferred appeals.
During the pendency of the appeals, the Financial Creditor sought intervention, asserting that it had originally initiated proceedings under Sections 7 and 95 against the Corporate Debtor and the personal guarantors, respectively, and that failure to submit repayment plans had delayed recovery. Since the creditor was directly affected by the outcome, its intervention applications were allowed. During the hearing, the Financial Creditor extended an oral proposal to grant additional time to the Appellants to submit repayment plans, subject to consideration under Section 106. This proposal was subsequently placed on record through a formal memorandum, offering an additional period of 30 days and undertaking to process such plans before the Resolution Professional and CoC.
The Appellants accepted the proposal, and consent was recorded. In view of this consensual arrangement, the impugned order that had treated non-submission as rejection and permitted bankruptcy proceedings was quashed. The Appellants were granted extended time to file revised repayment plans, after which the Resolution Professional was directed to proceed strictly in terms of Section 106 and the applicable procedure. All connected interlocutory applications were disposed of.
Two further appeals related to orders admitting bankruptcy proceedings under Section 123 were also examined. Since the primary order leading to the initiation of bankruptcy was quashed, and owing to the undertaking of the Financial Creditor to withdraw pending bankruptcy applications while reserving its rights under law, those orders were also set aside. The appeals were accordingly allowed, subject to compliance with directions relating to the filing and processing of repayment plans within the extended window granted through the order.
Mr. Pawan Jhabakh, Advocate, represent the Appellant.
Mr. Vinod P.V., Advocate, appeared in IA No. 1210/2025, IA No.1214/2025, IA No.1215/2025, IA No.1226/2025 for the Appellant.
Ms. D. Reetha, Advocate, represented the Respondent.
Mr. Vinod PV, Advocate, appeared in Company Appeal (AT) (CH) (Ins.) No.114/2024 (IA No.309/2024), for the Respondent.
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