No Mechanical Admission Under IBC Section 95: NCLAT Mandates Independent Judicial Assessment Against Personal Guarantors
- REEDLAW
- Sep 12
- 3 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, clarified that insolvency applications filed under Section 95 of the Insolvency and Bankruptcy Code (IBC) cannot be mechanically admitted against personal guarantors. The Tribunal emphasised that the Adjudicating Authority must independently evaluate the existence of debt, the quantum of recoveries, and the objections raised by the guarantors before admission.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a batch of Company Appeals and connected Interlocutory Application, held that the Adjudicating Authority was duty-bound to exercise independent judicial assessment under Section 95 of the IBC. It was observed that the process of admission could not be a mere formality, as the rights of personal guarantors are substantially affected, necessitating a careful scrutiny of debt obligations and recovery details.
The National Company Law Appellate Tribunal (NCLAT), New Delhi, considered a batch of appeals filed by personal guarantors of M/s. Metrix Healthcare Private Limited is challenging the order of the Adjudicating Authority dated 3 October 2024, which had admitted the applications filed under Section 95 of the Insolvency and Bankruptcy Code, 2016, by Indian Bank. The appellants contended that the admission was mechanical and solely based on the Resolution Professional’s (RP) report without proper adjudication of the debt or consideration of material facts.
The Tribunal noted that the corporate debtor’s accounts were declared NPA in July 2019, and Indian Bank had already initiated recovery proceedings before the DRT as well as under SARFAESI, where substantial amounts had been realised through the auction of secured properties. It was also recorded that one property worth ₹1.66 crore remained in the possession of the Bank, which, when combined with earlier recoveries of nearly ₹6 crore, was sufficient to satisfy the claimed dues of ₹7.52 crore. The appellants argued that without proper ascertainment of debt and consideration of these realisations, the personal insolvency proceedings could not be sustained.
The NCLAT referred to the Supreme Court’s judgment in Dilip B. Jiwrajka v. Union of India and Others, REEDLAW 2023 SC 11575, which clarified that the adjudicating authority was required to independently assess the Section 95 application and could not mechanically rely upon the RP’s report. In the present case, the Adjudicating Authority had failed to consider critical issues, including the realisation of assets under SARFAESI, the objections raised by the guarantors, and the incomplete adjudication of the debt in earlier Section 7 proceedings that had been withdrawn by the Bank.
Holding that the impugned order was unsustainable, the NCLAT set aside the admission of the Section 95 applications. It directed that the personal guarantors be given an opportunity to file objections to the RP’s report within 30 days, and the Adjudicating Authority was instructed to pass a fresh order under Section 100 after independently considering all relevant materials. Consequently, all appeals were allowed, and the applications under Section 95(1) were revived for fresh adjudication in accordance with law.
Mr. Manu Aggarwal, Ms. Ishita Pandey and Mr. Shubham Bhudiraja, Advocates, represented the Appellant.
Mr. Ritesh D. Patadia, Advocate, appeared for the Respondent.
Mr. Rathin Majumdar, Advocate, appeared for Resolution Professional.
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