NCLT Kochi Holds Non-Submission of Repayment Plan by Personal Guarantor Equivalent to Rejection, Permits Bankruptcy Proceedings

NCLT Kochi Holds Non-Submission of Repayment Plan by Personal Guarantor Equivalent to Rejection, Permits Bankruptcy Proceedings

Introduction

The NCLT Kochi Bench held that failure of a personal guarantor to submit a repayment plan despite sufficient opportunities is tantamount to rejection of such plan, thereby enabling creditors to initiate bankruptcy proceedings under the Insolvency and Bankruptcy Code, 2016.

Factual Background

In insolvency proceedings initiated against a personal guarantor to Tata Capital Limited, claims aggregating to over ₹37.56 crore were admitted and a Committee of Creditors (CoC) was constituted. The personal guarantor was required to submit a repayment plan under Section 105 of the Code. However, despite repeated communications, reminders, and extensions granted by creditors, no compliant repayment plan was submitted. The guarantor only furnished a tentative proposal that failed to meet statutory requirements and did not meaningfully participate in creditor meetings.

Procedural Background

The Resolution Professional, upon noting the continued non-compliance by the personal guarantor, refrained from convening a meeting of creditors and instead submitted a report stating that no repayment plan had been filed. The CoC, taking note of the situation, unanimously resolved to initiate bankruptcy proceedings and authorised the Resolution Professional to approach the Tribunal for appropriate relief.

Issues

1. Whether failure of a personal guarantor to submit a repayment plan can be treated as equivalent to rejection of such plan.

2. Whether such failure entitles creditors to initiate bankruptcy proceedings under the IBC.

Contentions of Parties

The Resolution Professional submitted that the personal guarantor had failed to comply with statutory obligations under the Code by not submitting a valid repayment plan despite being given multiple opportunities and extensions. It was argued that in the absence of a compliant plan, the process could not proceed further, and therefore bankruptcy proceedings were warranted. There was no effective compliance or substantive defence from the personal guarantor, as only a tentative and non-compliant proposal had been furnished.

Reasoning and Analysis

The Tribunal observed that under Section 106 of the Insolvency and Bankruptcy Code, the submission of a repayment plan by the debtor is a mandatory step, which is to be examined by the Resolution Professional and placed before the Adjudicating Authority. It held that where no repayment plan is submitted, the Resolution Professional has no option but to refrain from convening a meeting of creditors and instead report the non-compliance. Relying on the decision in Swatantra Kumar Singh v. Amul Gabrani, the Tribunal held that failure to submit a repayment plan despite adequate opportunities has the same legal consequence as rejection of a repayment plan. It further noted that in such circumstances, creditors are entitled to initiate bankruptcy proceedings, as the statutory process cannot be indefinitely stalled due to inaction of the debtor.

Decision

The NCLT Kochi allowed the application and granted liberty to the creditors to initiate bankruptcy proceedings against the personal guarantor in accordance with law.

In this case the appellant was represented by Advocate Shweta Pandey.