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Creditor's Right to Initiate Bankruptcy Triggered by Non-Compliance with Repayment Timeline U/S 118 of IBC

NCLAT affirmed that the creditor's right to initiate bankruptcy is triggered by non-compliance with the repayment timeline as stipulated under Section 118 of the Insolvency and Bankruptcy Code (IBC).


The National Company Law Appellate Tribunal (NCLAT), Chennai Bench led by Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member) reviewed a bunch of Appeals and observed that non-compliance with the repayment timeline under Section 118(3) of the IBC terminates the approved repayment plan, entitling the financial creditor to initiate bankruptcy proceedings under Section 121, irrespective of partial payments or leniency extended to other guarantors, as statutory mandates take precedence over equitable considerations.


In a series of connected appeals—Comp App (AT) (CH) (Ins) Nos. 315, 316, 319, 320, and 321 of 2024—the NCLAT addressed challenges against a common order issued by the NCLT, Hyderabad on 19.07.2024. The appeals arose from the rejection of applications filed by the appellants, personal guarantors for Chadalvada Infratech Limited, contesting the outcome of their repayment plans and related orders. These personal guarantors had executed guarantee agreements to secure the obligations of the company, which defaulted on its loans, triggering a Corporate Insolvency Resolution Process (CIRP) on 23.09.2021. After the borrower’s default, the financial creditor initiated proceedings under Section 95 of the Insolvency and Bankruptcy Code (IBC), leading to the admission of petitions by the NCLT on 20.04.2022, along with an interim moratorium.


The appellants submitted repayment plans that received approval from the NCLT on 13.09.2023. However, the Resolution Professional (RP) reported non-compliance with the repayment schedules. On 07.02.2024, the NCLT invoked Section 118(3) of the IBC, formally recording the failure of the repayment plans and granting the creditor liberty to initiate bankruptcy proceedings. The appellants subsequently filed fresh applications seeking to recall the 07.02.2024 order, citing procedural lapses such as delayed communication, defective notices, and insufficient opportunities to respond to the RP’s findings. However, these applications were rejected by the NCLT through the common impugned order dated 19.07.2024, leading to the present appeals.


The appellants contended that their offer to remit repayment amounts demonstrated bona fide intent, and they alleged discriminatory treatment by the financial creditor, who had accepted delayed payments from other guarantors. They argued that their partial payment of 25% on 27.10.2023 should be seen as evidence of their good faith, but the NCLAT held that initial compliance did not mitigate subsequent defaults. The tribunal emphasized that under Section 118 of the IBC, the failure to adhere to the repayment schedule rendered the plan void, and the creditor was lawfully entitled to initiate bankruptcy proceedings under Section 121.


The NCLAT dismissed the appellants' claim that judicial parity warranted the same leniency afforded to other guarantors, clarifying that statutory mandates under the IBC override such considerations. It upheld the NCLT’s 07.02.2024 and 19.07.2024 orders, finding no legal flaws to warrant appellate interference. The tribunal affirmed that the RP acted within his authority by reporting the non-compliance under Section 118(2) and that the NCLT was correct in declaring the repayment plans failed. Consequently, the NCLAT dismissed the appeals—Comp App (AT) (CH) (Ins) Nos. 315, 316, 319, 320 & 321 of 2024—and disposed of all pending applications, directing that copies of the judgment be placed on the related appeals.


Mr. P.H. Arvindh Pandian, Senior Advocate for Mr. C.V. Shailandhran & Mr. Ujjwal Jain, Advocates represented the Appellant.


Mr. Pranava Charan, the Advocate appeared for Respondent No. 1 and Mr. Maligi Madhudhana Reddy, RP represented Respondent No. 2.

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