Ashwin Smith's Appeal Dismissed; Tribunal Recognizes Personal Guarantor's Locus Standi and Allows Application for Alleged Malicious Filing
In a significant decision, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed the appeal filed by Ashwin Smith, the former director and personal guarantor of CM Smith & Sons Limited, challenging the admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016. The appeal was against the order of the National Company Law Tribunal (NCLT), Ahmedabad Bench, admitting an application filed by Invent Assets Securitisation and Reconstruction Pvt. Ltd., the financial creditor.
The bench, comprising Justice Ashok Bhushan and Member Barun Mitra, upheld the NCLT's decision, which found debt and default established based on documentary evidence, including NeSL Certificate and balance sheets. However, the tribunal granted liberty to Ashwin Smith to file an application under Section 65 of the IBC, alleging malicious or fraudulent filing of the Section 7 application.
In addressing the appeal, the NCLAT examined the locus standi of Ashwin Smith, who participated in the proceedings as an ex-director and personal guarantor. The tribunal recognized his right to appeal under Section 61 of the IBC, emphasizing that any aggrieved person, including personal guarantors, can challenge orders related to insolvency proceedings.
Ashwin Smith's primary contention was that the Section 7 application was filed at the behest of Mahendra Lodha, the majority shareholder, with malicious intent rather than for the resolution of insolvency. The tribunal acknowledged that the appellant had raised issues of round-tripping of funds and fraudulent filing, which could be examined under Section 65 by the adjudicating authority.
The NCLAT's judgment affirms the scope for personal guarantors to challenge insolvency proceedings and emphasizes the possibility of addressing allegations of malicious intent through Section 65 applications. The tribunal's decision allows Ashwin Smith to pursue further legal recourse, providing a mechanism to scrutinize the motives behind insolvency applications.
The dismissal of the appeal, coupled with the liberty granted to file under Section 65, underscores the tribunal's balanced approach in ensuring justice while maintaining the integrity of insolvency proceedings.
Bottom Line:
Insolvency and Bankruptcy Code - Appeal against admission of Section 7 application - Locus standi of appellant as personal guarantor and ex-director acknowledged - Liberty granted to appellant to file application under Section 65 of IBC to allege malicious or fraudulent intent behind filing Section 7 application.
Statutory provision(s): Sections 7, 61, 65 of the Insolvency and Bankruptcy Code, 2016
