Appellants’ Failure to Serve Petition Copies and RP’s Report Non-Submission Leads to Extended Moratorium; Petitions Dismissed
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has upheld the dismissal of insolvency petitions filed by Manish Mahendra Somani against Bank of Baroda, citing procedural lapses that resulted in an unmerited advantage for the appellants. The judgment, passed by Justice N. Seshasayee and Members Mr. Arun Baroka and Mr. Indevar Pandey, confirms the orders of the Adjudicating Authority which found the appellants guilty of not serving copies of their petitions to the Resolution Professional (RP) and the RP’s subsequent failure to file a report under Section 99 of the Insolvency and Bankruptcy Code, 2016 (IBC).
The appellants, who stood as personal guarantors for loans advanced by Bank of Baroda to a corporate debtor, filed petitions under Section 94 of the IBC on October 4, 2023. However, they failed to serve these petitions to the appointed RP as directed by the Adjudicating Authority on January 16, 2024. Over a year later, Bank of Baroda sought directions for the RP to file the requisite report under Section 99 IBC, leading to the eventual dismissal of the petitions on April 17, 2025.
In their appeals, the appellants argued that the petitions should not have been dismissed without the RP’s report and contended that procedural lapses should not penalize them. They claimed a bona fide belief that the NCLT Registry would serve the RP with the petitions, based on common practice. The appellants also cited several precedents to support their case, including Dilip B. Jiwrajka v. Union of India and Bank of Baroda v. Farooq Ali Khan.
However, the counsel for Bank of Baroda countered that the appellants gained a procedural advantage through an extended moratorium lasting 15 months, preventing the enforcement of personal guarantees. The Tribunal agreed, noting that the appellants’ failure to comply with the Adjudicating Authority’s directives unjustly impacted the substantive rights of the financial creditor.
The NCLAT emphasized the distinction between procedural lapses and substantive rights, suggesting that when a procedural lapse confers an advantage in law, it must be viewed seriously. The Tribunal found that the appellants’ failure allowed them to enjoy an extended moratorium, thereby disabling Bank of Baroda from proceeding against them.
Furthermore, the Tribunal upheld the Adjudicating Authority’s use of inherent powers under Rule 11 of the NCLT Rules, affirming that the dismissal met the ends of justice given the circumstances.
In conclusion, the appeals were dismissed, and the Adjudicating Authority’s orders were confirmed, reinforcing the importance of procedural compliance and its impact on the rights of involved parties.
Bottom Line:
Dismissal of petitions under Section 94 IBC - Failure of appellants to serve copies of petitions to Resolution Professional (RP) and RP's failure to file report under Section 99 IBC - Procedural lapses that result in an unmerited advantage or impact substantive rights of parties can be viewed seriously.
Statutory provision(s): Section 94 IBC, Section 99 IBC, Rule 11 NCLT Rules
