NCLAT disagrees with Kerala High Court on effective date of insolvency application against personal guarantor

The National Company Law Appellate Tribunal (NCLAT) at Delhi recently disagreed with a Kerala High Court judgment on a key aspect concerning applications to initiate the corporate insolvency resolution process (CIRP) against personal guarantors..The issue in focus concerned the effective date of such an application under Section 95 of the Insolvency and Bankruptcy Code (IBC), to determine when an interim moratorium under Section 96 IBC kicks in.In a July 2 ruling, a coram of Chairperson, Justice (retired) Ashok Bhushan and Technical Member Arun Baroka held that the effective date of such an application is the date on which it is filed, and not the date on which it is registered..A similar view had been taken by the NCLAT in 2022, in the case of Krishan Kumar Basia v. State Bank of India. However, in 2023, the Kerala High Court expressed a contrary view in the case of Kerala High Court in Jeny Thankachan v. Union of India. In the Jeny Thankachan case, the High Court had opined that a moratorium would commence only after an application filed for initiating CIRP is defect-free and complete in all respects, and not necessarily on the date of filing such an application.The NCLAT has now opined that it is bound to follow its earlier 2022 ruling and not the Kerala High Court's later 2023 judgment. The Appellate Tribunal reasoned that the National Company Law Tribunal Rules (NCLT Rules) of 2016 itself indicated that it is the date of filing of an application that was relevant. It added that this aspect and the 2022 ruling of the NCLAT may not have been brought to the notice of the Kerala High Court when it passed the Jeny Thankachan judgment. "We may notice that observations made by Kerala High Court that interim moratorium shall commence only when Application is defect free and has been registered, has been made without noticing the statutory scheme as delineated in NCLT Rules, 2016. The date of filing the Application has to be determined as per statutory Rules governing for filing of Application under Section 95. We have already noticed the judgment of three Member Bench of this Tribunal in Krishan Kumar Basia decided on 14.07.2022, i.e. much before the judgment delivered by the Kerala High Court on 16.11.2023. There being three Members’ Bench judgment of this Tribunal covering the issue, we see ourselves bound by the said judgment and we are not persuaded to accept the view of the Kerala High Court in Jeny Thankachan’s case as noted above.".The NCLAT made the observation while dismissing an appeal by a personal guarantor who had challenged a May 1 NCLT order to appoint a resolution professional (RP).By this order, the NCLT had asked the RP to examine an application to initiate CIRP against a personal guarantor of Supertech Limited, which had defaulted on some loans. The RP was ordered to submit a report on the matter under Section 99 of the IBC.This May 1 order was passed on an application under Section 95 (application by creditor to initiate insolvency resolution process, in respect of personal guarantors) of the IBC by a financial creditor, IFCI Bank Ltd. The application was filed on June 2, 2021, and registered on August 9, 2021.Notably, another financial creditor, PNB Housing Finance Limited (PNBHFL), filed a similar application about a month later, on July 14, 2021. However, this application was registered on August 2, 2021, which was before IFCI's application was registered.On May 1 this year, the NCLT appointed an RP to examine if the insolvency proceedings against the personal guarantor should be taken forward..The personal guarantor challenged this May 1 order before the NCLAT on the ground that an interim moratorium under Section 96 IBC barring any such proceedings - which was triggered by PNBHFL's application - was still in force.This appeal before NCLAT was contested by IFCI, which argued that even if PNBHFL's application was registered first, IFCI's application was filed much earlier. The moratorium period referred to in Section 96 thus began from the date on which IFCI's application was filed (June 2), it was argued. The prior registration of PNBHFL's application or its pendency was of no consequence, IFCI contended.The fate of the appeal thus hinged on when an interim moratorium under Section 96 IBC would start - whether it is the date from which an application for initiating CIRP is filed or the date from which such an application is registered..The NCLAT eventually agreed with IFCI's stance, relying on previous verdicts which held that the date of "filing" of an application under Section 95 is the date when it is e-filed and not when it is numbered and registered by the registry. "Applying the above ratio in the present case, we have to hold that filing of the Application by IFCI, was prior in time and the mere fact that Application filed by PNBHFL was registered earlier is inconsequential and moratorium shall commence on filing of the Application by IFCI," the NCLAT held, before proceeding to dismiss the appeal. .Advocates Gaurav Mitra, Lokesh Malik and Adit Singh represented the personal guarantor (appellant). Advocates Amish Tandon and Anushree Kulkarni represented IFCI Limited..[Read Judgment]