Anmol Tekriwal vs M.N. Auxichem & Anr

Mr. Anmol Tekriwal ...Appellant

Vs.

M/s. M.N. Auxichem & Anr. ...Respondents

Present: For Appellant: - Mr. P. Nagesh and Mr. Dhruv Gupta, Advocates. Mr. Videh Vaish and Mr. Shashank K. Lal, Advocates.

For Respondents: -Mr. Ankit Jain (PCS) for R.P. Mr. Anmol Vyas, Advocate for R.P Mr. Satyendra, R.P

Mr. Naresh Kumar Sejvani, Advocate for Intervenor.

ORDER

22.01.2019─ This appeal has been preferred by the Appellant

against the order dated 8th June, 2018 passed by the Adjudicating

Authority (National Company Law Tribunal), New Delhi, Court-III,

whereby and whereunder, the application under Section 9 of the

Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short) preferred

by 'M/s. M.N. Auxichem' ('1st Respondent' herein) for initiation of

'Corporate Insolvency Resolution Process' against 'M/s. BTM Industries

Limited' ('Corporate Debtor') has been admitted.

2. The appeal has been filed after some delay which has been

explained by the Appellant- Mr. Anmol Tekriwal, Shareholder of 'M/s.

BTM Industries Limited' ('Corporate Debtor'). Company Appeal (AT) (Insolvency) No. 570 of 2018 2

3. On 20th September, 2018, we noticed the submissions made on

behalf of the Appellant both with regard to application for condonation of

delay and on merit, as quoted below:

"20.09.2018: Learned counsel for the Appellant

(shareholder of the Corporate Debtor) submits that the

Shareholder came to know of the impugned order

dated 8th June, 2018 on 12th August, 2018, when the

Operational Creditor forwarded the same to the

Appellant. The Corporate Debtor - 'M/s BTM

Industries Ltd.' had no knowledge of the filing of the

application under Section 9 of the I&B Code, no notice

having issued by the Adjudicating Authority (National

Company Law Tribunal) New Delhi Bench, Court No.

III. He further submitted that notice under section

8(1) was properly served on the Corporate Debtor on

the address as shown in the application filed under

Section 9 but the impugned order shows that notice

retuned as Appellant 'left', which is incorrect. In fact,

the Corporate Debtor having come to know of the

same is willing to settle the matter with the

Operational Creditors.

Let notice be issued on Respondents by speed

post. Requisites alongwith process fee, if not already

Company Appeal (AT) (Insolvency) No. 570 of 2018 3

filed, be file by 24th September, 2018. If the Appellant

provides email address of the Respondents, let notice

be also issued through email.

Place the case 'for admission' on 9th October,

2018."

4. On notice, the Respondents- 'Operational Creditor' has appeared

and taken plea that the parties have settled and the 'Settlement Deed'

dated 11th January, 2019 along with copy of the Demand Draft and

Certificate dated 12th February, 2018 has been enclosed with the

supplementary affidavit.

5. It has not been disputed that the Appellant came to know of the

impugned order when the 'Operational Creditor' forwarded the impugned

order. The certified copy has not been forwarded. The appeal was

thereafter filed on 13th September, 2018 and thereby delay of about 6

days in preferring the appeal. Taking into consideration the stand taken

by the parties and being satisfied with the grounds, we condone the delay

of 6 days in preferring the appeal.

6. The Appellant has pleaded and brought to our notice that the

notice under Section 8(1) was properly served on the 'Corporate Debtor'

in the address shown in the application under Section 9 but when notice

was issued to the 'Corporate Debtor', it was returned with note 'left',

which according to him is incorrect. However, it is not in dispute that no

Company Appeal (AT) (Insolvency) No. 570 of 2018 4

notice before admission of application under Section 9 was served by the

Adjudicating Authority on the 'Corporate Debtor'.

7. An Intervention Application has been filed by 'Samarpan

Synthetics Private Limited' who claimed to have some settlement with the

'Corporate Debtor'.

8. Learned counsel appearing on behalf of the Intervener submits that

during the 'Moratorium' two 'Memorandum of Understanding(s)' have

been entered and, therefore, the Appellant has wrongly stated that he

came to know of the order subsequently. However, such submission

cannot be accepted for the reason that the Intervener has no locus at the

stage of admission to make any objection and, therefore, he cannot file

Intervention Application, if any appeal is preferred against the order of

admission.

9. This apart, there is nothing on the record to suggest that the copy

of the impugned order was forwarded to the Appellant by the Adjudicating

Authority or by the 'Resolution Professional'. Even if it is accepted that

certified copy is not sent to all the shareholders, but the date of

knowledge is to be taken into consideration counting the period of

limitation. It is not disputed by the 'Operational Creditor' that he

forwarded the copy of the impugned order to the Appellant and therefore,

we have accepted the period of the date of knowledge as pleaded by the

Appellant, and condone the delay.

Company Appeal (AT) (Insolvency) No. 570 of 2018 5

10. There is nothing on the record to suggest that the Adjudicating

Authority has issued notice to the 'Corporate Debtor' and it was served

on them.

11. Learned counsel for the 'Resolution Professional' submits that the

notice for admission was issued by the Adjudicating Authority on 28th

November, 2017. However, none of the Respondents have enclosed the

copy of the order dated 28th November, 2017 nor anything on the record

to suggest that it was served on the 'Corporate Debtor'.

12. Similar issue fell for consideration before this Appellate Tribunal in

'M/s. Starlog Enterprises Limited vs. ICICI Bank Limited - 2017 SCC

Online NCLAT 13', wherein this Appellate Tribunal held as follows:

"5. The aforesaid issue now stands decided by

decision of the Appellate Tribunal in "M/s.

Innoventive Industries Limited vs ICICI Bank &

Anr. in CA (AT) (Insolvency) No. 1 & 2 of 2017"

wherein the Appellate Tribunal observed and

held :-

"43. There is no specific provision under the

I&B Code, 2016 to provide hearing to

Corporate debtor in a petition under

Section 7 or 9 of the I&B Code, 2016."

"53. In view of the discussion above, we are of

the view and hold that the Adjudicating

Company Appeal (AT) (Insolvency) No. 570 of 2018 6

Authority is bound to issue a limited notice

to the corporate debtor before admitting a

case for ascertainment of existence of

default based on material submitted by

the corporate debtor and to find out

whether the application is complete and or

there is any other defect required to be

removed. Adherence to Principles of

natural justice would not mean that in

every situation the adjudicating authority

is required to afford reasonable

opportunity of hearing to the corporate

debtor before passing its order."

In this connection we may state that the vires of

Section 7 of I&B Code was considered by

Hon'ble Calcutta High Court in " Sree Metaliks

Limited & Ann" in writ petition 7144 (W) of 2017,

wherein Hon'ble High Court by its judgment

dated 7th April, 2017 held as follows:-

"......However, it is to apply the principles

of natural justice in the proceedings before it. It

can regulate it own procedure, however, subject

to the other provisions of the Act of 2013 or the

Insolvency and Bankruptcy Code of 2016 and

any Rules made thereunder. The Code of 2016 Company Appeal (AT) (Insolvency) No. 570 of 2018 7

read with the Rules 2016 is silent on the

procedure to be adopted at the hearing of an

application under section 7 presented before the

NCLT, that is to say, it is silent whether a party

respondent has a right of hearing before the

adjudicating authority or not.

Section 424 of the Companies Act, 2013 requires

the NCLT and NCLAT to adhere to the principles

of the natural justice above anything else. It also

allows the NCLT and NCLAT the power to

regulate their own procedure. Fetters of the Code

of Civil Procedure, 1908 does not bind it.

However, it is required to apply its principles.

Principles of natural justice require an authority

to hear the other party. In an application under

Section 7 of the Code of 2016, the financial

creditor is the applicant while the corporate

debtor is the respondent. A proceeding for

declaration of insolvency of a company has

drastic consequences for a company. Such

proceeding may end up in its liquidation. A

person cannot be condemned unheard. Where a

statute is silent on the right of hearing and it

does not in express terms, oust the principles of

natural justice, the same can and should be read Company Appeal (AT) (Insolvency) No. 570 of 2018 8

into in. When the NCLT receives an application

under Section 7 of the Code of 2016, therefore, it

must afford a reasonable opportunity of hearing

to the corporate debtor as Section 424 of the

Companies Act, 2013 mandates it to ascertain

the existence of default as claimed by the

financial creditor in the application. The NCLT is,

therefore, obliged to afford a reasonable

opportunity to the financial debtor to contest

such claim of default by filing a written objection

or any other written document as the NCLT may

direct and provide a reasonable opportunity of

hearing to the corporate debtor prior to admitting

the petition filed under Section 7 of the Code of

2016. Section 7(4) of the Code of 2016 requires

the NCLT to ascertain the default of the

corporate debtor. Such ascertainment of default

must necessarily involve the consideration of the

documentary claim of the financial creditor. This

statutory requirement of ascertainment of

default brings within its wake the extension of a

reasonable opportunity to the corporate debtor to

substantiate by document or otherwise, that

there does not exist a default as claimed against

it. The proceedings before the NCLT are Company Appeal (AT) (Insolvency) No. 570 of 2018 9

adversarial in nature. Both the sides are,

therefore, entitled to a reasonable opportunity of

hearing.

The requirement of NCLT and NCLAT to adhere

to the principles of natural justice and the fact

that, the principles of natural justice are not

ousted by the Code of 2016 can be found from

Section 7(4) of the Code of 2016 and Rule 4 of

the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016. Rule 4

deals with an application made by a financial

creditor under Section 7 of the Code of 2016.

Sub-rule (3) of Rule 4 requires such financial

creditor to despatch a copy of the application

filed with the adjudicating authority, by

registered post or speed post to the registered

office of the corporate debtor. Rule 10 of the

Rules of 2016 states that, till such time the Rules

of procedure for conduct of proceedings under

the Code of 2016 are notified, an application

made under Sub-section (1) of Section 7 of the

Code of 2017 is required to be filed before the

adjudicating authority in accordance with Rules

20, 21, 22, 23, 24 and 26 or Part-HI of the

National Company Law Tribunal Rules, 2016. Company Appeal (AT) (Insolvency) No. 570 of 2018 10

Adherence to the principles of natural justice by

NCLT or NCLAT would not mean that in every

situation, NCLT or NCLAT is required to afford a

reasonable opportunity of hearing to the

respondent before passing its order.

In a given case, a situation may arise which may

require NCLT to pass an ex-parte ad interim

order against a respondent. Therefore, in such

situation NCLT, it may proceed to pass an ex-

parte ad interim order, however, after recording

the reasons for grant of such an order and why

it has chosen not to adhere to the principles of

natural justice at that stage. It must, thereafter

proceed to afford the party respondent an

opportunity of hearing before confirming such

ex-parte ad interim order.

In the facts of the present case, the learned

senior advocate for the petitioner submits that,

orders have been passed by the NCLT without

adherence to the principles of natural justice.

The respondent was not heard by the NCLT

before passing the order.

It would be open to the parties to agitate their

respective grievances with regard to any order

of NCLT or NCLAT as the case may be in Company Appeal (AT) (Insolvency) No. 570 of 2018 11

accordance with law. It is also open to the

parties to point out that the NCLT and the NCLAT

are bound to follow the principles of natural

justice while disposing of proceedings before

them.

In such circumstances, the challenge to the vires

to Section 7 of the Code of 201 6 fails."

6. Therefore, it is clear that before admitting an

application under Section 9 of the MB Code it is

mandatory duty of the 'adjudicating authority' to

issue notice."

13. In the present case, as nothing on the record to suggest that notice

was served on the 'Corporate Debtor' and the impugned order has been

passed in violation of natural justice, we set aside the order dated 8th

June, 2018.

14. In effect, order (s), passed by the Adjudicating Authority appointing

'Interim Resolution Professional', declaring moratorium, freezing of

account, and all other order (s) passed by the Adjudicating Authority

pursuant to impugned order and action, if any, taken by the 'Interim

Resolution Professional', including the advertisement published in the

newspaper calling for applications all such orders and actions are

declared illegal and are set aside. The application preferred by

Respondent under Section 9 of the 'I&B Code' is dismissed. Learned

Adjudicating Authority will now close the proceeding. The 'Corporate Company Appeal (AT) (Insolvency) No. 570 of 2018 12

Debtor' (company) is released from all the rigour of law and is allowed to

function independently through its Board of Directors from immediate

effect.

15. The Adjudicating Authority will fix the fee of 'Interim Resolution

Professional' and the 'Corporate Debtor' will pay the fees of the 'Interim

Resolution Professional', for the period he has functioned. The appeal is

allowed with aforesaid observation. However, in the facts and

circumstances of the case, there shall be no order as to cost.

(Justice S.J. Mukhopadhaya) Chairperson

(Justice Bansi Lal Bhat) Member(Judicial) Ar/uk

Company Appeal (AT) (Insolvency) No. 570 of 2018