2017 (5) TMI 1724 - AT - Insolvency and Bankruptcy

Principles of natural justice - Admission of application for CIRP - appellant, corporate debtor, submitted that the impugned order has been passed by the Adjudicating Authority in violation of principle of natural justice i.e. without giving any notice to the corporate debtor prior to admission of the application - HELD THAT - The appointment of Interim Resolution Professional, order declaring moratorium, freezing of account and all other order passed by Adjudicating Authority pursuant to impugned order and action taken by the Interim Resolution Professional including the advertisement published in the newspaper calling for applications are declared illegal. The Adjudicating Authority is directed to close the proceeding. The appellant is released from the rigour of law and allow the appellant company to function independently through its Board of Directors with immediately effect. Appeal disposed off.

Summary

Issues involved:
Violation of principles of natural justice in passing the order under Section 7 of the Insolvency and Bankruptcy Code, 2016 without prior notice to the corporate debtor. Appellant's contention of being a solvent company and willing to pay the dues. Settlement offer by the appellant to pay the entire sum along with interest. Acceptance by the financial creditor to settle the dispute. Impugned order declared illegal due to violation of natural justice rules and contrary to previous Appellate Tribunal decision. Directions to set aside the impugned order, release the appellant from legal constraints, and allow the company to function independently.

Analysis:
The appeal was filed by the corporate debtor against the order passed by the Adjudicating Authority for the initiation of insolvency resolution process under Section 7 of the Insolvency and Bankruptcy Code, 2016. The appellant argued that the order was passed without giving any notice, violating the principles of natural justice. Reference was made to a previous judgment by the Appellate Tribunal emphasizing the need to follow natural justice rules while passing orders under the I&B Code. The appellant claimed solvency and expressed willingness to pay the dues, highlighting past repayments and a settlement offer to clear the entire sum with interest, subject to TDS deduction.

The respondent, a financial creditor, acknowledged the absence of notice before admitting the application and expressed no objection to settling the dispute with the appellant. Considering the violation of natural justice rules and the earlier Appellate Tribunal decision, the impugned order was set aside, declaring all subsequent actions illegal. The Interim Resolution Professional's appointment, moratorium declaration, freezing of accounts, and other orders were deemed void. The Adjudicating Authority was directed to close the proceedings, releasing the appellant from legal constraints and allowing independent functioning through its Board of Directors.

Following the judgment, the appellant provided two account payee cheques to the respondent as full and final payment of the debt with interest. The appeal was disposed of with these actions. The Adjudicating Authority was tasked with determining the fee of the Interim Resolution Professional, to be paid by the financial creditor for the period of service. The judgment emphasized the importance of adhering to natural justice principles and ensuring fair proceedings under the I&B Code, ultimately protecting the rights and interests of all parties involved.