2022 (11) TMI 1468 - AT - Insolvency and Bankruptcy

Admission of the application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Operational Creditor - validity of the impugned order challenged on the ground that it has been passed by a single member (Judicial Member) though the entire matter was heard by two members (Judicial Member and Technical Member) - whether the application filed either under section 7, 9 or 10 of the Code is heard by a bench comprising of two members of the Tribunal till the date it was reserved by a single bench who ultimately pronounced the order is in violation of the provisions of Section 419(3) of the Act? HELD THAT - A bare reading of Section 419(3) of the Act provides that the powers of the Tribunal is to be exercised by benches having strength of two members out of whom one shall be a Judicial Member and the other a Technical Member. However, in order to meet the exigency, there is a proviso to this section which says that, a member of the Tribunal, who is authorized by the President to function as a bench, consisting of single Judicial Member bench, in order to exercise the powers of the Tribunal in respect of a particular class of cases or particular matters pertaining to such class of cases. In so far as, Rule 151 of NCLT Rules, 2016 is concerned, it provides that any member of the bench may pronounce the order for and on behalf of the Bench and when an order is pronounced in terms of Rule 151, the Court Master shall make a note in the order sheet, that the order of the Bench consisting of President and Members was pronounced in open court on behalf of the Bench. There is no such note even in the impugned order at the instance of the Court master in compliance with Rule 151 of the NCLT Rules - Rule 152 deals with the situation where the member who had heard the matter is not available or ceased to be member of the Tribunal then with the authority conferred by the President any other member of the Tribunal may pronounce the order on his behalf after being satisfied that the order has been duly prepared and signed by all the members who heard the case. There is no other alternative but to set aside the order because the order passed is nonest in the eyes of law and cannot be followed in any Court. Consequently, the appeal is allowed and the impugned order is set aside. The application filed under Section 9 of the Code is restored to its original number. The matter is remanded back to the concerned Adjudicating Authority to decide it again in accordance with law.

Summary

Issues Involved:
Violation of Section 419(3) of the Companies Act, 2013 and Rule 152(4) of NCLT Rules, 2016 in passing an order by a single member bench instead of a two-member bench.

Detailed Analysis:
1. The appeal challenges the validity of an order admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, filed by a director of the suspended board of directors of the Corporate Debtor. The argument is based on the fact that the matter was heard by a bench comprising a Judicial Member and a Technical Member, but the order was reserved and pronounced by the Judicial Member alone, which is contested as against the law.

2. The appellant's counsel contends that the constitution of benches is clearly provided in Section 419(3) of the Companies Act, 2013, requiring a bench to consist of two members, one being a Judicial Member and the other a Technical Member. The absence of a special order by the President of the Tribunal allowing a single-member bench to function is highlighted as a violation of the law.

3. It is argued that the rules for NCLT, 2016 do not specify the procedure of a single member hearing arguments and pronouncing the order after a matter was heard by a bench comprising both Judicial and Technical Members. A previous decision cited in a similar context supported the contention that the matter should be decided by a two-member bench as per the statutory requirements.

4. The Respondent does not dispute the factual sequence where the application was heard by a two-member bench but the order was reserved and pronounced by a single member. The Tribunal, after hearing both parties, examines the provisions of Section 419 of the Act, emphasizing the requirement for a bench to consist of two members, unless authorized otherwise by the President through a general or special order.

5. The Tribunal concludes that the order passed by a single member is nonest in the eyes of the law, as it does not comply with the statutory provisions. Consequently, the impugned order is set aside, and the matter is remanded back to the Adjudicating Authority for a fresh decision in accordance with the law. The appeal is allowed, and the parties are directed to appear before the Adjudicating Authority on a specified date.

6. It is clarified that the decision to set aside the order does not touch upon the merits of the case but solely addresses the procedural irregularity in passing the order by a single member bench instead of a two-member bench as required by law.