Creditors can file CIRP through a authorized Resolution Professional

Shrenik Ashokbhai Morakhia Vs Reliance Asset Reconstruction Company Ltd. (NCLAT Delhi)

In the case of Shrenik Ashokbhai Morakhia vs. Reliance Asset Reconstruction Company Ltd., the appeal revolves around the admission of a Section 95 application by the Adjudicating Authority (National Company Law Tribunal) against the appellant, a personal guarantor of M/s Morakhia Metals and Alloy Pvt. Ltd. Here’s a detailed summary of the case:

Background and Facts

• Credit Facility and Guarantee: Dena Bank sanctioned a credit facility of Rs. 32.15 crore to M/s Morakhia Metals and Alloy Pvt. Ltd., for which the appellant and another individual provided a joint guarantee on July 25, 2012.
• Default and Invocation: The Corporate Debtor’s account was declared a Non-Performing Asset (NPA) on May 31, 2015. Dena Bank invoked the personal guarantee on March 4, 2016, demanding repayment of Rs. 26.68 crore within 15 days.
• Assignment to Reliance ARC: In January 2018, the appellant issued a Declaration-cum-Undertaking acknowledging the debt in favor of Dena Bank, which subsequently assigned the loan facility to Reliance Asset Reconstruction Company Ltd.
• Insolvency Proceedings: Reliance ARC, as a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Corporate Debtor, leading to the initiation of Corporate Insolvency Resolution Process (CIRP) in February 2020.
• Section 95 Application: Subsequently, Reliance ARC filed a Section 95 application against the appellant, seeking recovery of Rs. 27.81 crore under the personal guarantee. The appellant challenged this application on grounds including limitation and procedural irregularities.

Arguments and Court’s Decision

• Limitation: The appellant argued that the application under Section 95, filed in August 2021, was time-barred as the three-year limitation period from the date of default (March 4, 2016) expired in March 2019. However, the court considered the appellant’s Declaration-cum-Undertaking in January 2018 as an acknowledgment of the debt, extending the limitation period under Section 18 of the Limitation Act. Furthermore, the period from March 15, 2020, to February 28, 2022, was excluded due to a Supreme Court order, making the August 2021 filing timely.
• Authorization of Resolution Professional: The appellant argued that the Resolution Professional who signed the Section 95 application was not authorized. However, the court upheld the validity of the application, citing Section 95(1) of the IBC, which allows creditors to file through a Resolution Professional.
• Validity of Guarantee and Assignment: The appellant questioned the validity of the guarantee and the assignment agreement. The court ruled that the acknowledgment of debt in the Declaration-cum-Undertaking validated the claim under the guarantee. It also affirmed the validity of the assignment from Dena Bank to Reliance ARC, as the latter was already recognized as a financial creditor in the CIRP against the Corporate Debtor.

Conclusion