Personal Guarantors’ Hearing Rights and Natural Justice in Resolution Professional Report
- REEDLAW
- Sep 13
- 4 min read
REEDLAW Legal News Network reports: In a key ruling, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, held that the Resolution Professional’s report under Section 99 of the IBC is purely recommendatory. The Tribunal clarified that personal guarantors’ hearing rights and principles of natural justice apply only at the adjudication stage under Section 100, making the admission of proceedings valid even if no hearing was granted at the Section 99 stage.
The NCLAT Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a batch of Company Appeals and Interlocutory Applications, emphasised that the Resolution Professional’s report is advisory and does not trigger personal guarantors’ natural justice rights. Such rights become relevant only at the Section 100 adjudication stage, validating the proceedings’ admission even in the absence of a hearing at the Section 99 stage.
The Appellants, who were personal guarantors, challenged the orders of the Adjudicating Authority passed under Section 100 of the Insolvency and Bankruptcy Code, 2016, admitting applications filed under Section 95 and initiating the insolvency resolution process against them. The contention raised was that before accepting the report submitted by the Resolution Professional under Section 99, they ought to have been granted an opportunity of hearing. It was argued that since such an opportunity was denied, the admission of the proceedings was violative of principles of natural justice.
It was noted that the Financial Creditor had initiated proceedings based on earlier loan agreements, personal guarantees, and subsequent defaults. Although settlement arrangements had been entered into at an earlier stage and proceedings before the Debt Recovery Tribunal were withdrawn, the settlement stood terminated on default, and fresh proceedings under Section 95 of the Code were initiated. The Resolution Professional submitted his reports under Section 99, recommending acceptance of the applications, whereupon the Adjudicating Authority passed the impugned orders of admission under Section 100. The Appellants contended that the reports were considered without affording them effective participation in the process and without service of such reports, depriving them of their right to present objections.
Reference was made to the Supreme Court’s decision in Dilip B. Jiwrajka v. Union of India and Others, REEDLAW 2023 SC 11575, where it was clarified that the role of the Resolution Professional under Section 99 is purely recommendatory and not adjudicatory in nature. The Supreme Court had further held that the principles of natural justice apply at the stage of adjudication under Section 100, when the Adjudicating Authority decides whether to admit or reject an application under Section 95. The Resolution Professional merely facilitates the process by collating information and submitting a report, which does not bind either the creditor, the debtor, or the Adjudicating Authority.
The Tribunal observed that the requirement of natural justice at the stage of Section 99 is limited, as no binding adjudication takes place until the Adjudicating Authority passes its order under Section 100. The role of the Resolution Professional was confined to gathering relevant material and making a recommendation. The obligation to provide a hearing arises squarely at the stage of Section 100, before the Adjudicating Authority decides to admit the application. Therefore, the grievance that the Appellants were denied a hearing at the stage of the Resolution Professional’s report could not be sustained in law.
Ultimately, the Tribunal held that the reports under Section 99 were only facilitatory in nature and did not determine any rights. The Appellants’ contention that the impugned orders were vitiated on account of lack of hearing at the Section 99 stage was found untenable, since the principles of natural justice were to be applied only when the Adjudicating Authority proceeded to exercise jurisdiction under Section 100 of the Code. The appeals were accordingly dismissed.
Mr. PH Arvindh Pandian, Senior Advocate for Mr. Avinash Krishnan Ravi, Mr. Mohamed Wasif Khan and Mr. Ujjwal Jain, Advocates, represented the appellant.
Mr. S.K. Sharma & Ms. Dyuti Ghai, Advocates, appeared for the Respondent No. 1/ RP.
Mr. Abhijeet Sinha, Senior Advocate, Mr. Angad Varma, Mr. Prashant Kumar, Ms. Nikita Menon, Mr. Kevin Chadha, Mr. Adithya Devarayan, Ms. Mallika Kamal, Advocates, appeared for the respondent No. 2.
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