Suspended Management Of Jay Polypack ... vs Sgvfoils Pvt Ltd

IN THE MATTER OF: SUSPENDED MANAGEMENT OF JAY POLYPACK PVT. LTD. A Company registered under the Companies Act, 1956 And having its registered office at 16 GIDC, Waghodia, Vadodara, Gujrat - 390760 Through its Authorised Signatory Mr. Nimmagada Doraprasad ...Appellant Vs. 1.SGV FOILS PVT. LTD. A Company Registered under the Companies Act, 1956 And having its registered office at 17/6 Mathura Road, Faridabad, Haryana - 121007 Through its Director and Authorised Signatory Mr. Vikas Aggarwal. ... Respondent No. 1 2. JAY POLYPACK PVT. LTD. Through, RP, Mr. Pradeep Kabra Having his office at M-19-20-21 Metro Tower, Ring Road, Surat - 395002 Email ippradeep.jay@gmail.com M: 9374081166 ...Respondent No. 2 Present: For Appellant: Dr. Anshul Shah, Mr. Rishabh Parikh, Advocates For Respondent: Mr. Vikas Aggarwal (Director, Party in person) R1

Company Appeal (AT) (Ins) No. 362 of 2021 2

Mr. Ravi Raghunath, Advocate for RP, R2

JUDGMENT

Jarat Kumar Jain: J.

The Appellant "Suspended Management of Jay Polypack Pvt. Ltd." has

filed this Appeal against the order dated 23.03.2021 passed by the

Adjudicating Authority (National Company Law Tribunal, Ahmedabad, Court

No. I) in I.A. No. 780 of 2020 in CP (IB) 587/NCLT/AHM/2018 with I.A./05

(AHM)/2021 and I.A./19(AHM)/2021 whereby Application for setting aside

the ex-parte order filed by the Corporate Debtor under Section 424 (1) of the

Companies Act, 2013 r/w Rule 11 of the National Company Law Tribunal,

Rules, 2016 was disposed of on the ground that at belated stage the

Adjudicating Authority is unable to use power under Rule 49 of National

Company Law Tribunal Rules, 2016.

2. Brief facts of this case are that SGV Foils Pvt. Ltd. (Operational Creditor)

filed an Application under Section 9 of the Insolvency and Bankruptcy Code,

2016 (IBC) against the Corporate Debtor Jay Polypack Pvt. Ltd. The

Adjudicating Authority vide ex-parte order dated 27.05.2020 admitted the

Application and initiated Corporate Insolvency Resolution Process (CIRP)

against the Corporate Debtor. On 06.11.2020 the Corporate Debtor has filed

an Application I.A. No. 780 of 2020 under Section 424 (1) of the Act r/w rule

11 of NCLT, Rules stating that the Applicant (Corporate Debtor) could not

remain present before the Adjudicating Authority due to non-receipt of

notices. The Applicant came to know of the ex-parte order dated 27.05.2020

only during a conversation with a bank employee on 06.10.2020, thereafter

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the Applicant immediately contacted the IRP and sent an email on 09.11.2020

requesting him not to proceed further with the CIRP and also informed him

about the intention to approach the Adjudicating Authority for setting aside

the ex-parte order. The Appellant (Corporate Debtor) on 19.11.2020 again

sent an email to the IRP requesting to hold back on the proceedings during

pendency of the Application I.A. No. 780 of 2020. On the date of Application

I.A. No. 780 of 2020 the Committee of Creditors (CoC) was not constituted.

On 15.12.2020 the IRP was directed to file Reply of the said Application within

two weeks. The IRP instead of filing his reply and awaiting the outcome of the

Application proceeded with unnecessary haste in constituting the CoC during

the pendency of the Application. The IRP issued notice on 13.11.2020 and

kept the first meeting on 20.11.2020 despite being informed that the matter

was already settled on 19.11.2020. The Application was kept pending for long

period by the Adjudicating Authority and ultimately by the impugned order

dated 23.03.2021 the Adjudicating Authority has disposed of the Application

with the following order:

"Application is filed for setting aside ex-parte order. However, at this stage we are unable to use our power under Rule 49 of NCLT, Rules so belatedly.

Matter stands adjourned to 27.04.2021 Corporate Debtor may file Appeal."

3. Being aggrieved with this order, the Appellant "Suspended Management

of Jay Polypack Pvt. Ltd." has filed this Appeal.

4. Ld. Counsel for the Appellant submitted that the Appellant has filed

Application for setting aside the ex-parte order on 06.11.2020 and Ld.

Adjudicating Authority kept pending the Application for long period and

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ultimately after lapsed of more than four months the Application has been

disposed of without assigning any reason on the ground that they are unable

to exercise the power under Rule 49 of the NCLT Rules so belatedly and

directed the Appellant may file Appeal.

5. It is submitted that the Application for setting aside ex-parte order was

filed on 06.11.2020 and on 19.11.2020 settlement is arrived at between the

Corporate Debtor and the Operational Creditor. Thereafter, on 20.11.2020 the

CoC was constituted and the first meeting has taken place where the CoC was

informed about the pendency of the application as well as settlement.

Therefore, a direction was given to RP to file Application for withdrawal of CIRP

by the CoC.

6. Ld. Counsel for the Appellant submitted that Ld. Adjudicating Authority

has erroneously refused to set aside ex-parte order though notice was not duly

served on the Applicant (Corporate Debtor), therefore, the Adjudicating

Authority in exercise of power under Rule 49 (2) of NCLT Rules can set aside

the ex-parte order passed against the Applicant (Corporate Debtor). For this

purpose cited the Judgment passed by this Appellate Tribunal in the case of

M/s AKJ Fincap Ltd. Through Authorized Representative Vs. Bank of India in

CA (AT)(Ins) NO. 178 of 2021.

7. Ld. Counsel for the Appellant submitted that the Respondent No. 1

(Operational Creditor) himself stated that there was failure to inform the

Applicant (Corporate Debtor) about next date of hearing despite there being

orders of the Adjudicating Authority to inform the date of hearing to the

Applicant. Notice has to be served only through a procedure prescribed in Rule

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6 (2) of the NCLT Rules. The Operational Creditor was aware of these facts and

chose to serve Form-3 through email. The Appellant replied with the notice of

dispute dated 15.06.2018. The Operational Creditor has conveniently omitted

to place the notice of dispute on record which amounts to gross suppression

of material facts.

8. Ld. Counsel for the Appellant further submitted that this Appellate

Tribunal in the case of Mr. Anmol Takriwal (Shareholder of Corporate Debtor)

Vs. M/s Auxichem & Anr. CA (AT) (Ins) No. 570 of 2018 held that since the

notice was not served upon the Corporate Debtor, the ex-pare order is liable

to be set aside. It is also submitted that the IRP has incorrectly added the

Union Bank of India which is nothing but a lender to M/s Jay Agro, a sister

concern of the Corporate Debtor. The Appellant was only a guarantor in the

financial transaction between the M/s Jay Agro and the Union Bank of India.

The Hon'ble Supreme Court in Civil Appeal Nos. 8512-8527 of 2019, in IRP

for Jaypee Infratech Vs. Axis Bank Ltd. has held that a third-party security is

not a financial debt.

9. Lastly, it is submitted that the ex-parte order of admission to initiate

CIRP is harsh order. This order would result in serious and grave

consequences since the Corporate Debtor is a going concern. Thus, the

impugned order may be set aside.

10. The Respondent No. 1 (Operational Creditor) present in person on

28.06.2021 and submitted that he has filed the Reply Affidavit in response to

the Appeal. However, such Reply Affidavit is not available on e-portal and no

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physical copy is available in the file. Therefore, we have no occasion to

consider such Reply Affidavit of Respondent No. 1.

11. Per Contra, Ld. Counsel for the Respondent No. 2 (RP) submitted that

the IBC or Regulations do not confer any power on the Adjudicating Authority

to recall or review or set aside the order of admission of CIRP passed under

Section 9 of the IBC. Thus, there is no error committed by the Adjudicating

Authority while passing the impugned order. For this proposition, placed

reliance on the Judgment passed by the NCLT Jaipur in the case of M/s Forts

Biotech Pvt. Ltd. Vs. DCB Bank Ltd. I.A. No. 109/JPR/2019 in IB No.

81/07/JPR/2018 order dated 07.06.2019 and in the case of Union Bank of

Inida Vs. Mansi Oils Grains Pvt. Ltd. 2019 SCC Online NCLT 7624. The Rule

49 of NCLT Rules, 2016 only permits to set aside the ex-parte hearing and not

a final order of admission of CIRP as after passing of the impugned order

numerous subsequent events and actions have been taken under the IBC.

Presently the CIRP is stage of consideration of revised Resolution Plan,

therefore, at this stage the order of admission may not be set aside.

12. Ld. Counsel for the Respondent No. 2 (RP) submitted that notice of the

Application was sent to Registered Address of the Corporate Debtor the same

is returned with remark left, the notice is deemed to have been served on the

Corporate Debtor. For this proposition cited the Judgment of Hon'ble supreme

Court in the Case of State Trading Corporation of India Ltd. Vs. Spacevision

Impax Pvt. Ltd. 2019 SCC Online NCLT 9770. It is also submitted that once

the CoC has been constituted then the Operational Creditor and Corporate

Debtor are bound by the procedure prescribed under Section 12A of the IBC

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r/w Regulation 30 A of Insolvency and Bankruptcy Board of India (Insolvency

Resolution Process for Corporate persons) Regulations, 2016 (Regulations) as

held by the Hon'ble Supreme Court in the case of Swiss Ribbons Pvt. Ltd. Vs.

Union of India 2019 (4) SCC 17 Para (82). Therefore, it is requested that there

is no merits in this Appeal and the Appeal may be dismissed.

13. After hearing Ld. Counsel for the parties, we have gone through the

record.

14. The issue arises before our consideration is whether the Ld.

Adjudicating Authority in exercise of power under rule 49(2) of the NCLT Rules

2016 can set aside the ex-parte order for initiating a Corporate Insolvency

Resolution Process under Section 9 of the IBC.

15. So far as the service of notice on Appellant (Corporate Debtor) is

concerned, Ld. Counsel for the Appellant has produced the order sheet of the

Ld. Adjudicating Authority dated 09.01.2019 in which it is mentioned that the

notice sent to the Appellant returned with postal remarks as left. In the order

sheets date dated 17.07.2019 and 09.10.2019 it is mentioned that the

Respondent No. 1 Operational Creditor (Petitioner) is directed to inform the

date of hearing to the Corporate Debtor. There is nothing on record that the

notice has been duly served on the Appellant (Corporate Debtor).

16. Admittedly, the Ld. Adjudicating Authority has vide order dated

27.05.2020 admitted the application under Section 9 of the IBC filed by the

Operational Creditor Respondent No. 1 and the Appellant has filed the

Application for setting aside the ex-parte order on 06.11.2020 under Section

424 (1) of the Act r/w Rule 11 of NCLT Rules, 2016 stating that the Corporate

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Debtor has not received the notice. It is also an admitted fact that CoC has

been constituted on 20.11.2020 i.e. after filing of the aforesaid Application for

setting aside ex-parte order of admission.

17. It is useful to reproduce the Rule 49(2) of NCLT Rules, 2016:

"49. Ex-parte hearing and disposal:-

1...

(2) Where a petition or an application has been heard ex-parte against a respondent or respondents, such respondent or respondents may apply to the Tribunal for an order to set it aside and if such respondent or respondents satisfies the Tribunal that the notice was not duly served, or that he or they were prevented by any sufficient cause from appearing (when the petition or the application was called) for hearing, the Tribunal may make an order setting aside the ex-parte hearing as against him or them upon such terms as it thinks fit."

18. Now, we have considered whether the Ld. Adjudicating Authority while

exercising the power under Rule 49(2) can set aside ex-parte order for

initiating a CIRP.

19. Hon'ble Supreme court in the case of Swiss Ribbons Pvt. Ltd. Vs. Union

of India (2019) 4 SCC 17 at para 82 held that what is the effect after admission

of the Application under Section 7 or 9 of the IBC:

"82. It is clear that once the Code gets triggered by admission of a creditor's petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement.

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This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case."

20. With the aforesaid preposition of law, it is settled that once the

Application under Section 7 or 9 is admitted and CIRP initiated, such

proceeding is in rem. Being a proceeding in rem, it is necessary that the body

which is to oversee the resolution process must be consulted before any

individual corporate debtor is allowed to settle its claim. Before a CoC is

constituted, a party can approach the Adjudicating Authority directly and the

Adjudicating Authority may in exercise of its powers under Section 12A of the

IBC r/w Regulation 30A of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons) Regulations, 2016 allow

or disallow an application for withdrawal or settlement. Similarly, before

constitution of CoC if the Adjudicating Authority is satisfied that the notice

was not duly served on the Corporate Debtor the Adjudicating Authority may

make an order for setting aside the ex-parte order for initiating CIRP upon

such terms as it thinks fit. However, after constitution of CoC the Adjudicating

Authority cannot set aside even ex-parte admission order and in such a

situation the Corporate Debtor has to file the Appeal under Section 61 of the

IBC.

21. Now, we have considered the facts of this case, the Application under

Section 9 was admitted on 27.05.2020 and the Appellant (Corporate Debtor)

has filed the Application for setting aside the ex-parte admission order on

06.11.2020 whereas the CoC has been constituted thereafter on 20.11.2020.

In such a situation before constitution of CoC the Ld. Adjudicating Authority

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can consider the Application for setting aside ex-parte admission order but

after constitution of the CoC the Ld. Adjudicating Authority cannot in exercise

of power under Rule 49(2) of the NCLT Rules, 2016 set aside the ex-parte

admission order. Ld. Adjudicating Authority has passed the impugned order

after constitution of CoC i.e. on 23.03.2021, therefore, we find no illegality in

the impugned order.

22. It is submitted on behalf of the Appellant that the Corporate Debtor and

Operational Creditor have settled the dispute and they have informed the

decision to CoC and the CoC has directed the IRP to file the Application for

withdrawal of CIRP. Thus, if the matter is settled between parties, the

Operational Creditor (Respondent No. 1) may file the Application for

withdrawal under Section 12A of the IBC r/w Regulation 30A of the Insolvency

and Bankruptcy Board of India (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016.

23. With the aforesaid, no interference is called for in the impugned order.

Thus, the Appeal is dismissed, no order as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

[Dr. Ashok Kumar Mishra] Member (Technical)

New Delhi 20th September, 2021 SC

Company Appeal (AT) (Ins) No. 362 of 2021