Ravi Ajit Kulkarni v. State Bank of India (2021)

This is the working statement of the four-stage scheme of individual insolvency. Where the constitutional challenge explains why the scheme is fair, this decision tells you what actually happens, in order, once a creditor files under s. 95 — including a point students routinely miss, that the debtor is given a limited notice at the outset referring to the interim moratorium. It is the authority to cite when a question asks you to describe the procedure rather than to defend it.

The appeals concerned applications made by a creditor under s. 95 against individual debtors, and what the Adjudicating Authority was required to do with them. The question was whether the Authority could dispose of the matter without following the statutory sequence, and what the debtor was entitled to at each stage.

Once the application is filed as per ss. 95 and 96, the Adjudicating Authority has to act on it and, following the principles of natural justice, give limited notice to the personal guarantor to appear, referring to the interim moratorium that has commenced under s. 96. Thereafter:

• the next stage is the appointment of the resolution professional as per s. 97;
• the third stage is the resolution professional acting in terms of s. 99 and submitting a report; and
• the fourth stage is adjudication of the application under s. 100, which ought to be decided by giving a hearing to the parties, keeping in view the application, the evidence collected, and the report under s. 99.

The sequence is not a matter of practice; it is the order in which the sections are written, and each stage supplies what the next one needs. The application defines the claim; the interim moratorium freezes the position so that the enquiry is not overtaken by other proceedings; the professional is appointed because somebody independent must gather the facts; the report gives the Adjudicating Authority material it could not collect itself; and the hearing at s. 100 is where the Authority weighs the application, the evidence and the report together.

The insistence on limited notice at the first stage is the interesting part, and it is consistent with the constitutional analysis. A full hearing at the outset would duplicate s. 100 and defeat the timetable. But telling the debtor that an application has been filed and that an interim moratorium has commenced costs nothing and secures two things: the debtor knows his position has been frozen, and he can participate in the professional's examination from the beginning rather than meeting the report for the first time at adjudication.

1. Use it as the skeleton for any procedural question on Part III: four stages, named by section, with the interim moratorium attaching at the first.
2. Add the limited-notice point — it distinguishes an answer that has read the case from one that has read only the sections.
3. Combine it with the constitutional decision in this unit: this case gives the steps, that one gives the reason each step is lawful.
4. What it does not decide. It does not decide the grounds on which an application under s. 100 should be accepted or rejected, nor the content of the report under s. 99. It also does not decide whether an application against a personal guarantor is maintainable where no process is on foot against the corporate debtor; on that, one view is that such an application is not maintainable unless a resolution process or liquidation is ongoing against the corporate debtor, since otherwise jurisdiction would be vested in two forums at once.

The first stage has changed. Section 96 now provides that the section shall not apply where an application is filed for initiating an insolvency resolution process in respect of a personal guarantor to a corporate debtor, so in that class of case there is no interim moratorium for the limited notice to refer to. The third stage has also changed: the period for the resolution professional's report under s. 99(1) is now twenty-one days rather than ten, and the report is to be served on the debtor and the creditor. Describe the scheme as this decision sets it out, then state the amended position.