NCLAT Upholds Insolvency Against Mercator Guarantor, Rejects Natural Justice Plea As ‘Dilatory Tactic’

NCLAT Upholds Insolvency Against Mercator Guarantor, Rejects Natural Justice Plea As ‘Dilatory Tactic’

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has upheld the admission of a personal insolvency petition filed by State Bank of India against former Mercator Limited director Harish Kumar Mittal for dues of ₹236.19 crore.

A three-member Bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed Mittal’s appeal against the order of the National Company Law Tribunal Mumbai Bench admitting the petition under Section 95 of the Insolvency and Bankruptcy Code (IBC).

The Tribunal held that the plea of violation of natural justice, based on the alleged non-consideration of a reply affidavit, amounted to a “dilatory tactic” incompatible with the strict timelines under the IBC.

Factual Background

SBI had granted various credit facilities to Mercator Limited. Harish Kumar Mittal executed a deed of guarantee in favour of the bank. Following default and classification of the company’s account as a Non-Performing Asset (NPA), SBI issued a recall notice dated October 31, 2019, and a demand notice dated June 1, 2021. SBI thereafter filed a petition under Section 95(1) of the IBC seeking initiation of insolvency proceedings against Mittal as personal guarantor for ₹236.19 crore.

Procedural Background

The NCLT granted Mittal time to file his reply. The reply was e-filed on March 1, 2024, but was not formally taken on record. The matter was listed multiple times thereafter, and the NCLT ultimately admitted the petition by order dated December 9, 2024. Aggrieved, Mittal approached the NCLAT challenging the admission order.

Issues

1. Whether non-taking of the guarantor’s reply affidavit on record amounted to violation of principles of natural justice.

2. Whether defects in recall and demand notices, stamping of the guarantee deed, and pendency of a commercial suit barred insolvency proceedings.

3. Whether the admission order under Section 95 warranted interference.

Contentions

Mittal argued that the impugned order violated natural justice since his reply affidavit was not considered. He also challenged the validity of recall and demand notices and raised objections regarding insufficient stamping of the guarantee deed. He further contended that a commercial suit pending before the Bombay High Court precluded adverse orders in insolvency proceedings.

SBI opposed the appeal, contending that the reply was belated and never formally taken on record despite several opportunities. It submitted that debt and default were clearly established and that objections regarding disputes, stamping, and quantification were irrelevant in summary insolvency proceedings.

Tribunal’s Observations and Analysis

The NCLAT rejected SBI’s preliminary objection on maintainability, holding that Section 61 of the IBC applies to appeals arising from such proceedings. On merits, the Tribunal noted that the matter had been listed nine times after the reply was e-filed, yet no steps were taken to ensure it was formally brought on record. The Bench observed that the appellant was personally heard and that the grounds raised were substantially similar to those of the corporate debtor.It referred to the Resolution Professional’s report under Section 99, which recorded existence of debt and default and reaffirmed that a guarantor’s liability is co-extensive with that of the principal debtor under Section 128 of the Indian Contract Act, 1872.

The Tribunal held that pre-existing disputes and stamping objections could not defeat a financial creditor’s petition under Section 95. It characterised the natural justice plea as a dilatory tactic inconsistent with the strict timelines prescribed under the IBC.

Decision

The NCLAT dismissed the appeal and upheld the NCLT Mumbai’s order admitting insolvency proceedings against Harish Kumar Mittal as personal guarantor. The Tribunal concluded that no violation of natural justice was established and that the grounds raised did not justify interference with the admission order.