2019 (10) TMI 1352 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - violation of principles of natural justice - HELD THAT - In the present case, there is nothing on the record to suggest that a prima facie opinion was formed by the Adjudicating Authority about the allegation levelled against the Appellant and without giving opportunity to the Appellants/ Directors to explain such allegation. The impugned order was passed in violation of Rules of Natural Justice. The procedure as prescribed under Section 424 of the Companies Act, 2013 was not followed. Further, all the records were made available with the 'Resolution Professional' otherwise there was no occasion to prepare the Information Memorandum or to call for Expression of Interest or filing of a 'Resolution Plan' which have been followed in the present case. If it is alleged that no co-operation was made by the Promoters and Director, how Information Memorandum was issued for filing 'Resolution Plans'. The Adjudicating Authority has failed to discuss the aforesaid facts. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Violation of Rules of Natural Justice in passing the impugned order.
2. Allegation of non-assistance by the management of the Corporate Debtor.
3. Completion of Corporate Insolvency Resolution Process and approval of Resolution Plan.
4. Failure to follow the procedure under Section 424 of the Companies Act, 2013.
5. Availability of records with the Resolution Professional.

Analysis:

1. The Appellants contended that the impugned order was passed in violation of Rules of Natural Justice as no prima facie charges were framed, and they were not given an opportunity to be heard. They cited a previous decision by the Appellate Tribunal to support their argument. The Tribunal agreed that there was no evidence of a prima facie opinion formed by the Adjudicating Authority against the Appellants, and the order indeed violated the Rules of Natural Justice. Additionally, the procedure under Section 424 of the Companies Act, 2013 was not followed, further strengthening the argument of procedural irregularity.

2. The Resolution Professional filed an application alleging non-assistance by the management of the Corporate Debtor, leading to the application under various sections of the Insolvency and Bankruptcy Code. The Adjudicating Authority had determined default against the Appellants and others. However, the Tribunal found that there was no evidence to suggest lack of cooperation, as all records were available with the Resolution Professional. The Tribunal highlighted the issuance of Information Memorandum and the call for Expression of Interest as evidence of cooperation, indicating a failure on the part of the Adjudicating Authority to consider these crucial facts.

3. During the pendency of the appeal, the Corporate Insolvency Resolution Process was completed, and the Resolution Plan was approved by the Committee of Creditors. The Resolution Plan was awaiting consideration before the Adjudicating Authority for an order under Section 31 of the Insolvency and Bankruptcy Code. This development was noted for its relevance to the overall proceedings and potential impact on the resolution of the case.

4. The Tribunal emphasized the importance of following the prescribed procedure under Section 424 of the Companies Act, 2013. The failure to adhere to this procedure was highlighted as a critical flaw in the proceedings, contributing to the decision to set aside the impugned order. The Tribunal's emphasis on procedural compliance underscored the significance of legal processes in insolvency cases.

5. The Tribunal noted that all records were available with the Resolution Professional, indicating cooperation from the Promoters and Directors. The availability of records was crucial in the preparation of the Information Memorandum and the subsequent steps in the resolution process. This observation further supported the Tribunal's decision to set aside the impugned order, as it pointed to a lack of justification for the allegations of non-assistance by the management of the Corporate Debtor.