BRIEF FACTS

 Union Bank of India (erstwhile Andhra Bank) (“Appellant”) has assailed the order passed by the National Company Law Tribunal, Chennai (“Adjudicating Authority”) whereby the application filed by the Appellant under Section 95 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking initiation of process of insolvency against the Personal Guarantor of a Corporate Debtor (“Section 95 Application”) was dismissed by the Adjudicating Authority on the ground that a similar Section 95 Application against the same Personal Guarantor has already been filed. Further, the Adjudicating Authority noted that on filing of a Section 95 Application, an interim moratorium commences against the Personal Guarantor and therefore, no further Section 95 Application can be filed against the same Personal Guarantor.

The primary grievance of the Appellant before the National Company Law Appellate Tribunal, Chennai (“NCLAT”) is that the Section 95 Application of the Appellant was filed 3 (three) days prior to the Section 95 Application of the order creditor, i.e., State Bank of India (“SBI”) against the same Personal Guarantor; however, the registry of the Adjudicating Authority registered the Section 95 Application of the Appellant subsequent to the Section 95 Application of SBI without any reasonable justification.

The Appellant has relied on settled law that the date of filing an application/ petition shall be the date on which actual filing was made and not the date on which such application/ petition was registered / numbered by the registry of the concerned court.

On the other hand, SBI contended before the NCLAT that the Appellant has not raised any challenge to the Section 95 Application of SBI before the Adjudicating Authority. Further, in the Section 95 Application of SBI, the Interim Resolution Professional (“IRP”) has already filed its report and the Adjudicating Authority is now required to pass an order admitting or rejecting the Section 95 Application. SBI has also averred before the NCLAT that the ‘date of filing’ of the Section 95 Application is the date when all defects in the filing are removed and the same is registered/ numbered.

OBSERVATIONS AND ORDER BY THE NCLAT

The NCLAT has observed that the Section 95 Application of the Appellant has been dismissed by the Adjudicating Authority on the premise that the in the Section 95 Application of SBI, IRP has been appointed and a report from the IRP has been called for. The NCLAT also observes that the Section 95 Application of SBI is yet to be either admitted or rejected by the Adjudicating Authority.

The NCLAT has dealt with the fact that the IBC does not define the ‘date of filing’. In this context, the NCLAT has held that the date of filing is the date of presentation of the Section 95 Application and even if there is any defect in the said Section 95 Application, the date of presentation shall remain the same and shall not be dependent on the date when such defects are cured or when the Section 95 Application has been numbered/ registered by the registry.

Despite holding that the Section 95 Application of the Appellant was filed prior to the Section 95 Application of SBI; the NCLAT has held that it is not inclined to set the clock back as no prejudice would be caused to the Appellant in case the Section 95 Application of SBI is allowed, as the Appellant is at liberty to file its claims before the Resolution Professional (“RP”). The NCLAT has also observed that all the creditors of the Personal Guarantor are taken care of in the proceedings initiated under the IBC against such Personal Guarantor.

Further, the NCLAT has also pointed out that an interim moratorium against the Personal Guarantor shall commence on the date of filing of a Section 95 Application in relation to all the debts. It has also been observed by the NCLAT that Section 96 of IBC sets out that during the interim moratorium, all legal proceedings in respect of any debt shall be deemed to have been stayed and that the creditors shall not initiate any legal proceedings in relation to any debt.

Therefore, the NCLAT has upheld the order passed by the Adjudicating Authority observing that on filing of a Section 95 Application, an interim moratorium commences against the Personal Guarantor and therefore, no further Section 95 Application can be filed against the same Personal Guarantor.

OUR ANALYSIS

The NCLAT judgment is in the right direction and correctly sets out the position of law. Firstly, the NCLAT rightly observes that on filing of a Section 95 Application by one creditor, the interest of all other creditors is also taken care of as the other creditors shall be at liberty to file their claims at the appropriate stage. Secondly, the NCLAT judgment also correctly observed that though the Section 95 Application of the Appellant was filed prior in time, however, it would be a futile exercise to set the clock back, as in the Section 95 Application of SBI, IRP has already filed its report.

Moreover, the NCLAT has gone one step forward and has explained the effect of filing of a Section 95 Application by one of the creditors. NCLAT has correctly observed that on filing of a Section 95 Application, an interim moratorium comes into play and no creditor is entitled to initiate any proceedings against the Personal Guarantor. This observation is in complete harmony with the objective of IBC and also avoids multiple Section 95 Applications being filed against one Personal Guarantor.

Further, the NCLAT judgment also clarifies the position that the interim moratorium under Section 96 of IBC shall commence on the ‘date of filing’ of the Section 95 Application and not on the date when such Section 95 Application is registered/ numbered. Such a clarification, in our understanding, is a welcome step as the same shall ensure that there are no controversies in relation to the ‘date of filing’ or commencement of interim moratorium.

Footnote:

Union Bank of India vs. P.K. Balasubramanian – Company Appeal (AT) (CH) (Insolvency) No.293 of 2022 passed by the National Company Law Appellate Tribunal, Chennai on March 29, 2023.