NCLT Chennai (2025.09.01) in State Bank of India Vs. Vaddineni Manoj [(2025) ibclaw.in 1722 NCLT, CP(IB)/256(CHE)/2021 Along with IA(IBC)/339/CHE/2024 in CP(IB)/256(CHE)/2021 Along with IA(IBC)/2328/CHE/2024 in CP(IB)/256(CHE)/2021] held that;
As the proceedings under IBC are summary in nature, it is difficult to determine the intent of the Applicant filing an application under Section 7, 9, or 10 of the Code unless shown explicitly by way of documentary evidence. This situation may arise in specific instances where a petition is filed under IBC specifically with a fraudulent or malicious intent.
Simply to put, fraud consists of elements of deceit coupled with injury whereas malice is a wrongful act done without lawful justification.
“Person does a thing fraudulently if he does it with an intent to defraud, and so to constitute fraud two elements are necessary-deceit, and injury and loss to some person.”
The Hon’ble Supreme Court has defined ‘malice’ in (2003) 8 SCC 567 Chairman & MD. BPL Ltd. vs. S.P. Gururaja and Ors. in paragraph 21, in following words: “21. Malice in common law or acceptance means ill will against a person, but in the legal sense it means a wrongful act done intentionally without just cause or excuse.”
The Hon’ble NCLAT in the case of Amour Infrastructure LLP Vs. Digital Integrated Technologies Pvt. Ltd. (Company Appeal (AT) (Ins.) No. 884 of 2022 & I.A. No. 2458 of 2022), held that an Adjudicating Authority cannot make a finding of fraud/malice unless it is specifically pleaded and backed by documentary evidence.
That to attract Section 65, the burden lies on the objecting party to place on record compelling and credible evidence to prove that the Petitioner has approached the Adjudicating Authority with mala fide intent or for purposes extraneous to the resolution process.
The Hon’ble NCLAT, in Monotrone Leasing Pvt. Ltd. v. PM Cold Storage Pvt. Ltd., [2020] ibclaw.in 21 NCLAT, has also stated that Section 65 pertains to applications filed under Sections 7, 9, and 10 of the Code. Hence, the attempt of the Respondent to invoke Section 65 in the present proceedings is legally untenable, as the provision cannot be stretched to apply to insolvency proceedings against personal guarantors.
Excerpts of the order;
# 1. This Petition u/s. 95 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC, 2016″) r/w Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 has been filed by State Bank of India, Stressed Assets Management Branch (“Financial Creditor”) for initiating insolvency resolution process against Vaddineni Manoj, the Personal Guarantor of Victory Electricals Limited (VEL), the Corporate Debtor in respect to Default Amount of Rs.365,36,36,599.58 (Rupees Three Hundred Sixty-Five Crore Thirty-Six Lakh Thirty-Six Thousand Five Hundred Ninety-Nine and Fifty-Eight Paise Only) including interest and penalties. The Date of Default, as specified in Part-III of the Petition, is 09.03.2012 for Cash credit account and 31.05.2012 for Term Loan. The Petitioner has placed Deed of Personal Guarantee executed by the Guarantor Vaddineni Manoj in favour of the Financial Creditor dated 06.09.2005,07.11.2006,31.12.2008 & 16.11.2009, Copy of Sanction letter, Balance Sheet of the CD for FY 2014- 15 dated 02.09.2015, Copy of OTS proposal given by the Corporate Debtor dated 18.05.2016, Copy of OTS sanction letter dated 06.10.2016, Copy of cancellation of the OTS letter dated 03.05.2018 along with acknowledgement and Copy of Demand notice dated 28.06.2013.
# 2. Part – I of the Petition sets out the details of the Petitioner / Financial Creditor i.e. State Bank of India. It has its registered office at D.No.3-4- 1013/A, 1st Floor, CAC, TSRTC Bus station, Kachiguda, Hyderabad – 500027 and is represented by Assistant General Manager, Biswajit Das.
Part-II of the petition sets out the details of the Personal Guarantor namely Vaddineni Manoj. The address of the Respondent is stated as H.No.7-2-221/18, Ashok Colony, Sanathnagar, Hyderabad -500018.
# 3. It is stated that the Respondent stood as a Personal guarantor in the respect of loans availed by Victory Electricals Limited (VEL), the Corporate Debtor, from State Bank of India. The Personal Guarantor executed Deed of guarantee dated 06.09.2005,07.11.2006,31.12.2008 & 16.11.2009, in favour of State Bank of India (“Guarantee Deed”), providing an irrevocable and continuing guarantee for the repayment of the facilities availed by the Corporate Debtor.
# 4. It is stated that the Corporate Insolvency Resolution Process under section 7 of the IBC, 2016 against the Corporate Debtor (Victory Electricals Limited) was initiated by this Tribunal vide on order dated 13.08.2018 in CP(IB)/872(CHE)2018. Subsequently Liquidation proceedings were initiated against the Corporate Debtor on 19.11.2019.
# 5. It is stated that a Demand Notice under SARFAESI Act, 2002 was issued on 28.06.2013 to the Corporate Debtor, Corporate Guarantor and the Personal Guarantors, including Vaddineni Manoj, seeking repayment of the outstanding debt thereby invoking the personal guarantee.
# 6. It is stated that Demand Notice was issued on 09.09.2020 under Rule 7(1) of the IBBI (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019 to the Personal Guarantor calling him to pay the unpaid debt amount in full within 14 days, however, the Guarantor did not make the payment.
# 7. It is stated that the Corporate Debtor sent revival letters under Form C.6 dated 06.11.2009, 01.06.2012, 03.05.2015 and 04.05.2018 to the Petitioner acknowledging the amount due for the payment of the credit facility availed from the Petitioner.
# 8. It is stated that the One Time Settlement proposal was given by the Corporate Debtor on 18.05.2016 for an amount of Rs.68.0 crores for the amount due. The Petitioner accepted the OTS proposal and sent a sanction letter for the OTS on 06.10.2016 SAMB-II:DS:947. The terms and conditions pertaining payment schedule mentioned in the letter were:
i. Rs 0.50 Cr on handing over of sanction letter.
ii. Rs 39.50 Cr within 3 months from the date of issuing sanction letter to the company.
iii. Rs 10.00 Cr within 6 months from the date of issuing sanction letter to the company.
iv. Rs 10.00 Cr within 9 months from the date of issuing sanction letter to the company.
v. Rs 8.00 Cr within 12 months from the date of issuing sanction letter to the company.
# 9. It is stated that the Petitioner subsequently sent another sanction letter for OTS on 06.10.2016 SAMB-II:DS:948 where the total amount for OTS was changed to Rs.69.5 Crores, increasing the amount by Rs.1.50 Crores from the previous sanction letter. The terms and conditions regarding the payment schedule were slightly changed to:
(a) Rs 4l.00 Cr within three months from the date of conveying sanction instead of Rs 39:50 Cr as mentioned in the previous letter and other payment terms and conditions remained the same.
# 10. It is stated that the OTS proposal was cancelled by a letter dated 03.05.2018 vide SAMB:HYD:BSK:203 on the grounds that the Corporate Debtor did not fulfil the terms and conditions of the OTS proposal and defaulted in making payment, as per the payment schedule even after an ample time given to it.
# 11. It is stated that the Corporate Debtor referred itself to Board for Industrial and Financial Reconstruction (BIFR) u/s/15(1) under SICA, 1985 on 18.01.2013 which was registered as case No. 10/2013 on 06.03.2013. The Petitioner did not consent for the restructuring under the BIFR and resorted to recovery measures including under the SARFAESI Act.
# 12. It is stated that the Petitioner filed a case before Debt Recovery Tribunal, Hyderabad in O.A.No.925/2014 for recovery of an amount of Rs.273,95,41,204.95 (Rupees Two Hundred Seventy-Three Crores Ninety-Five Lakhs Forty-One Thousand Two Hundred Four and Ninety- Five paise only) which was allowed vide an order dated on 28.10.2019.
# 13. It is stated that the Managing Director of the Corporate Debtor filed a case OS/137/2018 in the Civil Court of Medchal against the cancellation of the OTS proposal and the case is still pending.
# 14. It is stated that the Petitioner has also filed a case under section 7 against the Corporate guarantor, Hackbridge Hewittic and Easun Ltd of the Corporate Debtor. The NCLT passed an order dismissing the petition on 06.01.2021 on the ground that the petition is barred by limitation. It went in appeal vide case no. Company Appeal (AT) (CH) (Ins.) No. 05 of 2021 & I.A. No. 614 of 2021 where the Hon’ble NCLAT set aside the order of NCLT stating that the petition was filed well within limitation and the case was remanded back to Adjudicating Authority (NCLT).
# 15. It is stated that the Respondent has filed an application I.A(IBC)/2328/2024 under Section 65(1) of IBC on 26.11.2024 to declare that the Petition CP(IB)No.256/2021 filed by the Financial Creditor as malicious and fraudulent and consequentially dismiss the Petition by imposing penalty.
PROCEEDING OF THE TRIBUNAL
# 16. This Tribunal vide an order dated 05.01.2024 in CP(IBC)/256(CHE)/2021 appointed Mr. Kasi Srinivas, as Insolvency Resolution Professional and directed the Insolvency Resolution Professional to collate all the facts relevant to the examination of the Petition for the commencement of the Insolvency Resolution Process in respect of the Personal Guarantor. He in terms of the order of this Tribunal filed his report vide SR No.0362 on 17.01.2024.
# 17. The IRP in his Report, after due examination of the Petition, documents filed along with the Petition, and the Reply filed by the Respondent, in addition to the requirements as mandated under clauses (1), (2), (3), (4), (5), (6), (7), (8), (9) and (10) of Section 99 of the IBC, 2016, recommended for the admission of the present petition against the Personal Guarantor u/s. 95 of IBC, 2016.
FINDINGS OF THE TRIBUNAL
# 69. We have heard Ld. Counsels for the parties, perused the documents, the reply, the report of the IRP and the written synopsis filed.
# 70. In the present case, the Corporate Debtor, i.e., Victory Electrical Limited had availed credit facility from the Petitioner i.e. State bank of India. The Respondent has executed a personal guarantee dated 06.09.2005, 07.11.2006, 31.12.2008 & 16.11.2009 undertaking to make payment in case of default by the Corporate Debtor. The account of corporate Debtor was declared NPA and Demand Notice under the SARFAESI Act was issued to both the Corporate Debtor and the Personal Guarantor 28.06.2013, thereby invoking the guarantee provided by the Respondent. A case was filed before the Debt Recovery Tribunal, Hyderabad in O.A.No.925/2014 for recovery of an amount of Rs.273,95,41,204.95 which was allowed vide an order dated 28.10.2019. An OTS proposal was made on 18.05.2016 by the Corporate Debtor for an amount of Rs.68.0 Crores but was later changed to Rs. 69.5 Crores. The OTS was agreed by both the Petitioner and the Corporate Debtor. The OTS was cancelled on 03.05.2018 due to non-payment of the default amount according to the terms and conditions of the OTS agreement. Subsequently a Legal notice under Form B was sent on 09.09.2020 to the Corporate Debtor and the Respondent for the repayment of the default amount. The present Petition has been filed on 08.05.2021, which is well within the prescribed limitation period of three years considering the covid period as there was continued acknowledgment of debt due, by the Corporate Debtor.
# 71. It is a settled principle that before admitting a case under section 100 of IBC, the adjudicating authority should be satisfied with the essential conditions. At the threshold, the existence of a debt and a corresponding default are foundational. The Hon’ble Supreme Court in Swiss Ribbons (P) Ltd. v. Union of India [(2019) 4 SCC 17] emphasized that the IBC requires a real default and not merely a claim. Similarly, in Innoventive Industries Ltd. v. ICICI Bank [(2018) 1 SCC 407], the Hon’ble Court underscored that the existence of a “debt” and “default” must be clearly established before any insolvency proceeding can be admitted. These principles apply with equal force in the context of personal guarantors under Part III of the Code. Further, the application must be based on a valid and enforceable personal guarantee executed in accordance with law. In State Bank of India v. V. Ramakrishnan [(2018) 17 SCC 394], the Hon’ble Supreme Court held that a personal guarantor’s liability is co- extensive with that of the principal debtor under Section 128 of the Indian Contract Act, and the commencement of CIRP does not absolve the guarantor of liability. The Hon’ble NCLAT, in R. Srinivasan v. SBI & Ors. [Company Appeal (AT) (Insolvency) No. 305 of 2021], reiterated that a Section 95 application must be premised upon an enforceable guarantee deed that evidences the guarantor’s liability.
# 72. Additionally, the law mandates that there must be invocation of the personal guarantee prior to the filing of an application under Section 95. In State Bank of India v. Mahendra Kumar Jajodia [Company Appeal (AT) (Insolvency) No. 120 of 2021], the Hon’ble NCLAT held that a notice invoking the guarantee, coupled with a notice of demand, is a necessary pre-condition. The obligation of the personal guarantor does not arise in abstract but only upon invocation of the guarantee by the creditor. The application must be filed within the period of limitation, as prescribed under the Limitation Act, 1963. In B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates [(2019) 11 SCC 633], the Hon’ble Supreme Court held that the limitation period for initiating insolvency proceedings under the IBC is three years from the date of default. Further, Manasi Indrajit Wadkar v. Union Bank of India [NCLAT, 2023] clarified that acknowledgments of debt, whether through One Time Settlement (OTS) proposals, balance sheets, or correspondence—can extend the limitation period under Section 18 of the Limitation Act. These acknowledgments must be clear, unambiguous, and made before the expiry of the original limitation.
# 73. In the present case, the Petitioner has placed on record sufficient material to establish the existence of a financial debt and the occurrence of default. The Petitioner has relied upon the audited balance sheet of the Corporate Debtor, which discloses the outstanding liability, as well as an order passed by the DRT directing both the Corporate Debtor and the Personal Guarantor to repay the dues. The existence of a legally valid and enforceable deed of guarantee executed by the Personal Guarantor has also been substantiated. Furthermore, the Petitioner had issued a demand notice invoking the guarantee, thereby crystallizing the liability of the guarantor in accordance with law. In addition, the record contains several documents evidencing acknowledgment of debt, including One Time Settlement (OTS) proposals, signed balance sheets, and revival letters, all of which further reinforce the continuity of liability and extend the period of limitation under Section 18 of the Limitation Act, 1963. Taken together, these documents sufficiently demonstrate that the statutory prerequisites under Section 95 have been met.
# 74. The Personal Guarantor has raised a contention that the present Petition has been initiated with fraudulent and malicious intent, thereby attracting Section 65 of the Insolvency and Bankruptcy Code, 2016, and warrants consequences under Section 75 of the Code. For Section 65 to be attracted, the threshold requirement is that the insolvency proceedings must have been initiated with fraudulent or malicious intent, or for a purpose other than the resolution of insolvency or liquidation.
# 75. Section 65 of IBC, 2016 reads as:
Fraudulent or malicious initiation of proceedings.
(1) If, any person initiates the insolvency resolution process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution of insolvency, or liquidation, as the case may be, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.
(2) If, any person initiates voluntary liquidation proceedings with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees but may extend to one crore rupees.
(3) If any person initiates the pre-packaged insolvency resolution process
(a) fraudulently or with malicious intent for any purpose other than for the resolution of insolvency; or
(b) with the intent to defraud any person, the Adjudicating Authority may impose upon such person a penalty which shall not be less than one lakh rupees, but may extend to one crore rupees.
# 76. Section 65(1) of the Code provides that if any person initiates the insolvency resolution process or liquidation proceedings with a fraudulent or malicious intent, the Adjudicating Authority may impose a penalty upon such person. The Hon’ble National Company Law Appellate Tribunal (NCLAT) in Monotrone Leasing Pvt. Ltd. Vs. PM Cold Storage Pvt. Ltd., [2020] ibclaw.in 21 NCLAT, reaffirmed this principle, holding that a petition under Sections 7, 9, or 10 of the IBC cannot be rejected solely on the ground of lack of intent for resolution, unless there is explicit documentary proof of fraudulent or malicious intent.
“34. Section 65 of the Code provides for penal action for initiating Insolvency Resolution Process with a fraudulent or malicious intent or for any purpose other than the resolution. However, the same cannot be construed to mean that if a petition is filed under Section 7, 9, or 10 of the Code without any malicious or fraudulent intent, then also such a petition can be rejected by the Adjudicating Authority on the ground that the intent of the Applicant/Petitioner was not resolution for Corporate Insolvency Resolution Process. As the proceedings under IBC are summary in nature, it is difficult to determine the intent of the Applicant filing an application under Section 7, 9, or 10 of the Code unless shown explicitly by way of documentary evidence. This situation may arise in specific instances where a petition is filed under IBC specifically with a fraudulent or malicious intent.”
# 77. The Hon’ble NCLAT in the case of Getz Cables Pvt. Ltd. v. State Bank of India and Anr. Company Appeal (AT) (Insolvency) No.1953 of 2024 considered the scope of the terms fraudulent and malicious intent. Simply to put, fraud consists of elements of deceit coupled with injury whereas malice is a wrongful act done without lawful justification. The relevant paragraphs of the order are extracted hereunder,
“16. Necessary ingredients, which required to be proved under Section 65, sub-section (1) are that proceedings are initiated fraudulently or with malicious intent for any purpose other than for the resolution of insolvency. Both expression – fraudulent and malicious has definite connotation. The expression ‘fraudulently’ has been explained in Advanced Law Lexicon by P Ramanatha Aiyar 6th Edition in following words:
“Person does a thing fraudulently if he does it with an intent to defraud, and so to constitute fraud two elements are necessary-deceit, and injury and loss to some person.”
17. Another expression which occurs in Section 65 is ‘malicious intent’. Advanced Law Lexicon by P Ramanatha Aiyar define the world ‘malice’ in the legal sense in following words:
“1. The intent, without justification or excuse, to commit a wrongful act. 2. Reckless disregard of the law or of a person’s legal rights.”
There is also a second definition, which is as follows:
“Malice in the legal sense imports (1) the absence of all elements of justifications, excuse or recognized mitigation, and (2) the presence of either (a) an actual intent to cause to particular harm which is produced or harm of the same general nature, or (b) the wanton and wilful doing of an act with awareness of a plain and strong likelihood that such harm may result….
18. The Hon’ble Supreme Court has defined ‘malice’ in (2003) 8 SCC 567 Chairman & MD. BPL Ltd. vs. S.P. Gururaja and Ors. in paragraph 21, in following words: “21. Malice in common law or acceptance means ill will against a person, but in the legal sense it means a wrongful act done intentionally without just cause or excuse.”
# 78. The Hon’ble NCLAT in the case of Amour Infrastructure LLP Vs. Digital Integrated Technologies Pvt. Ltd. (Company Appeal (AT) (Ins.) No. 884 of 2022 & I.A. No. 2458 of 2022), held that an Adjudicating Authority cannot make a finding of fraud/malice unless it is specifically pleaded and backed by documentary evidence. The relevant paragraphs are extracted hereunder
“5. Learned Counsel for the respondent has referred to the findings in paragraph 26 of the order which is to the following effect:
“From these facts, we have got reasonable basis to reach to a conclusion that application filed under Section 7 is a mechanism whereby financial creditor is trying to settle personal scores and put undue pressure on the corporate debtor. hence, we have no hesitation in holding that this application has been filed with malicious intent and for purposes other than the Resolution of Insolvency of the Corporate Debtor. We further find that corporate debtor is a solvent company” 8. Observations made in paragraph 26 is that Financial Creditor is trying to settle personal scores and put undue pressure on the Corporate Debtor. We are of the view that for proving the ingredient of Section 65 there has to be adequate pleadings and findings. Observations made in paragraph 26 does not fulfil the requirement of Section 65 so as to reject the Section 7 application.”
# 79. This principle has also been reinforced in the case of M/s. Flycreative Online Private Limited v. GO Airlines (India) Limited (Int. Petition No. 68/2023), the Hon’ble National Company Law Tribunal (NCLT), New Delhi, wherein the Tribunal examined the allegations of fraudulent and malicious intent in insolvency proceedings. The Tribunal emphasized that for an application to be considered malicious under Section 65, there must be substantial and corroborative evidence proving fraudulent intent. It was observed that merely failing to inform creditors about the intention to file for insolvency, does not, by itself, establish malice unless supported by concrete evidence.
“10. In terms of Section 65 of the Insolvency and Bankruptcy Code, 2016, there must be substantial and corroborative evidence to explicitly prove ‘fraudulent intent’, ‘malice’ and ‘mens rea’ on part of the CD by way of specific documentary evidence and also that the Applicant approached with malicious intent for any purpose other than for the resolution of insolvency.”
# 80. In light of the above legal position, it is evident that to attract Section 65, the burden lies on the objecting party to place on record compelling and credible evidence to prove that the Petitioner has approached the Adjudicating Authority with mala fide intent or for purposes extraneous to the resolution process. In the present case, the Personal Guarantor has failed to produce any such substantial or corroborative material that would support the allegation of fraud or malice.
# 81. The Respondent has alleged that the Liquidator/Resolution Professional failed to pursue the actionable claims of the Corporate Debtor. However, the said Liquidator/Resolution Professional, Mr. Chinnam Poorna Chandra Rao, has not been made a party to the application. It is further noted that while the ex-promoters have challenged the forensic audit report, they have not sought any relief either in respect of the alleged dereliction of duty or for recovery of the sum of Rs. 649,47,03,194/-.
# 82. On a consideration of the reply filed by the Financial Creditor and the documents, we do not find substance in the application filed by the Respondent/Personal Guarantor. In the instant case, the account of the Corporate Debtor was declared NPA in the year 2012. This CIRP petition was filed in 2019. The Corporate Debtor was not in operation even prior to its accounts was declared NPA. The OTS proposal was given in 2016. It was approved on certain terms and conditions. The Corporate Debtor failed to honour the OTS as per the terms and the Financial Creditor cancelled the OTS in 2018. It was only thereafter the petition was filed. The order for initiating CIRP against the Corporate Debtor was passed in 2019. It may be true that the maximum supply of the Corporate Debtor was to the Electricity Boards and there could be trade receivables / book debts but there is no document showing the effort put in by the Corporate Debtor to recover the debts from the Electricity Boards before the initiation of CIRP. As per the tally data, referred in para-65 & 66 supra, Vaddineni Mahindra Kumar vide his mail dated 17.07.2019, had informed the Liquidator that it is better to write off the debts of the other debtors as not recoverable. Although the Liquidator sought the details from the erstwhile management of the Corporate Debtor of above accounts so that he could independently examine the recoverability of the amounts but the management informed that all the records were lying in the factory. The Liquidator did not find any record pertaining to the debtors and thereafter, the management affirmed that no further records pertaining to the matter are available with them and these debts should be written off as non-recoverables. Further, in the Balance Sheet as on 09.04.2019 i.e. insolvency commencement date, the trade receivables were shown as Rs.5,62,19.563/-.
# 83. As regards OTS, the bank had approved the OTS for Rs.69.50 Crores vide dated 06.10.2016. Since the Principal Borrower did not comply with the terms of OTS, the bank cancelled the OTS on 03.05.2018. It is not the case that the bank did not sympathetically consider the proposal given by the Corporate Debtor including the Respondent. As seen from the record, the Liquidator got conducted the valuation of the assets of the Corporate Debtor and after getting the fair value and the liquidation value, he conducted the auction of the assets of the Corporate Debtors VEL and VTSL and realized the amounts. The RP/Liquidator has also been pursuing the cases instituted by the Corporate Debtor as referred in para- 67 supra. As regards the land mortgaged with the Financial Creditor, the Liquidator also initiated the action.
# 84. There is no material to indicate that RP/Liquidator was not vigilant or diligent in recovering the actionable claims of the Corporate Debtor. He informed the CoC/SCC from time to time about the action taken. Since most of the actionable claims had become time-barred even prior to initiation of CIRP, no blame can be put on the RP/Liquidator that he did not make any effort to recover the actionable claim of the Corporate Debtor to maximise the assets of the Corporate Debtor.
# 85. As regards the arbitral proceedings, it has been explained by the Liquidator that he discussed cost-benefit analysis and the chances of recovery of actionable claims with the bank. The bank voted for the abandonment in view of the reasons supra. There is no quarrel on the legal proposition that fraud vitiates the judicial acts whether in rem or in personal but in the instant case, we do not find any material showing that any fraud was played by the RP/Liquidator or the Financial Creditor. Further, there is no material to indicate that the RP/Liquidator conveniently abandoned the claims against the debtors.
# 86. It is pertinent to mention that the bank also got conducted the forensic audit of the accounts of the Corporate Debtor and reported the matter to CBI. Against conducting of the forensic audit, the Financial Creditor filed the writ petitions before the Hon’ble Telangana High Court which are pending.
# 87. In the instant case, the objections are mere assertions unsupported by material evidence. No supporting forensic or statutory material has been produced as envisaged in Amour Infrastructure (supra), and thereby, the allegations of the Personal Guarantor remain unsubstantiated. There is no material to show that the financial creditor has initiated the insolvency resolution process fraudulently or with malicious intent for any purpose other than for the resolution of insolvency of the Corporate Debtor which are the sine qua non for taking action under Section 65 of IBC. We find that the objections raised in the present petition when measured against the precedents, fall short of the standard required.
# 88. Further, Section 65 of the Code falls under Chapter VI titled “Adjudicating Authority for Corporate Persons” in Part II of the IBC, whereas Section 95 is located in Part III, Chapter III, which specifically deals with the Insolvency Resolution Process for Individuals and Partnership Firms. The scheme of the Code, therefore, makes it evident that Section 65 is not intended to apply to proceedings initiated under Section 95. The Hon’ble NCLAT, in Monotrone Leasing Pvt. Ltd. v. PM Cold Storage Pvt. Ltd., [2020] ibclaw.in 21 NCLAT, has also stated that Section 65 pertains to applications filed under Sections 7, 9, and 10 of the Code. Hence, the attempt of the Respondent to invoke Section 65 in the present proceedings is legally untenable, as the provision cannot be stretched to apply to insolvency proceedings against personal guarantors. The application filed by the Respondent vide IA/2328/2024 is accordingly dismissed.
# 89. In light of the aforesaid discussions, the present Petition i.e. CP(IB)/256(CHE)/2021 is admitted and the Insolvency Resolution Process stands initiated against the Personal Guarantor, Vaddeneni Manoj viz. the Respondent herein. We hereby;
I. Initiate Insolvency Resolution Process against the Personal Guarantor/Respondent, Vaddineni Manoj. The moratorium in relation to all the debts is declared, from today i.e. date of admission of the petition, and shall cease to have effect at the end of the period of 180 days, or this Tribunal passes order on the repayment plan under Section 114 whichever is earlier as provided under Sec 101 of 1BC, 2016. During the moratorium period,
a. Any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed, and
b. The creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt; and
c. The debtor shall not transfer, alienate, encumber, or dispose of any of his assets or his legal rights or beneficial interest therein:
d. The provisions of this section shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
II. The Resolution Professional viz. Mr. Kasi Srinivas, IBBI/IPA- 003/IPA-ICAI-N-00237/2019-2020/12840, (AFA Valid upto – 31.12.2025), Insolvency Resolution Professional is appointed as the RP. He is directed to cause a public notice published on behalf of the Adjudicating Authority within 7 days of passing this Order on the website of the NCLT Chennai Bench, inviting claims from all Creditors, within 21 days of such issue The notice under Sub Section (1) of Section 102(2) shall include: –
a. details of the order admitting the petition;
b. particulars of the resolution professional with whom the claims are to be registered; and
c. the last date for submission of claims.
III. The publication of notice shall be made in two newspapers, one in English and other in Vernacular, which have wide circulation in the State where the Corporate Debtor and Personal Guarantor resides. The Resolution Professional shall furnish two spare copies of the notice to the Registry for the record.
IV. The Resolution Professional, in exercise of the powers conferred under Section 104, shall prepare a list of creditors on the basis of:
a. the information disclosed in the petition filed by the debtor under Sections 94 or 95 as the case may be, and
b. claims received by the Resolution Professional under Section 102 within 30 days from the date of the notice. The debtor shall prepare a repayment plan under Section 105, in consultation with the Resolution Professional, containing a proposal to the Creditors for restructuring of his debts or affairs.
The repayment plan may authorize or require the Resolution Professional to:
a. carry on the debtor, business or trade on his behalf or in his name: or
b. realise the assets of the debtor; or c. administers or dispose of any funds of the debtor.
The repayment plan shall include the following, namely;
a. justification for preparation of such repayment plan and reasons based on which the creditors may agree upon the plan;
b. provision for payment of fee to the Resolution Professional;
c. such other matters as may be specified.
V. The Resolution Professional shall submit the repayment plan along with his report on the plan to this Authority within a period of 21 days from the last date of submission of claims, as provided under Section 106.
VI. In case the Resolution Professional recommends that a meeting of the creditors is not required to be called, he shall record the reasons thereof. If the Resolution Professional is of the opinion that a meeting of the creditors should be summoned, he shall specify the details as provided under Section 106(3) of IBC, 2016. The date of meeting should not be less than 14 days or more than 28 days from the date of submission of the Report under subsection (1) of Section 106 of IBC, 2016, for which at least 14 days’ notice to the creditors (as per the list prepared) shall be issued by all modes. Such notice must contain the details as provided under the provisions of Section 107 of IBC, 2016.
VII. The meeting of the creditors shall be conducted in accordance with Sections 108, 109, 110 & 111 of IBC, 2016. The Resolution Professional shall prepare a report of the meeting of the creditors on repayment plan with all details as provided under Section 112 of IBC, 2016 and submit the same to this Tribunal, copies of which shall be provided to the Debtor and the Creditors. It is made clear that the Resolution Professional shall perform his functions and duties in compliance with the Code of Conduct provided under Section 208 of IBC, 2016.
VIII. The Resolution Professional shall submit his periodic reports before this Tribunal, every 30 days.
IX. The Petitioner is directed to deposit INR 3,00,000/- (Indian Rupees Two lakhs) to the bank account of the Resolution Professional within one week, towards his expenses. This shall be subjected to the rules and regulations under the provisions of the Insolvency and Bankruptcy Code, 2016.
X. The Registry is directed to communicate a copy of order, report and petition to the concerned parties within seven working days and upload the same on the website immediately after the pronouncement of order.
# 90. Accordingly, the report of the RP filed in IA/IBC/339/CHE/2024 is taken on record, IA/IBC/2328/CHE/2024 is dismissed and CP/IB/256/CHE/2021 stands admitted.
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