2017 (9) TMI 1565 - AT - Insolvency and Bankruptcy

Corporate Debtor locus to prefer appeal under sub-section (1) of Section 61 through its Board of Directors or authorise person or its officers except through the Interim Resolution Professional - Held that - The Role of Interim Resolution Professional starts after initiation of Corporate Insolvency Resolution Process against the Corporate Debtor . The Interim Resolution Professional once given consent to function directly or indirectly he cannot challenge his own appointment, except in case where he has not given consent. If the Corporate Debtor is left in the hands of Interim Resolution Professional to raise his grievance by filing an appeal under Section 61, it will be futile, as no Interim Resolution Professional will challenge the initiation of Insolvency Resolution Process which ultimately result into the challenge of his appointment. For example, if an application under Section 7 or 9 is admitted and at the stage of admission, the Interim Resolution Professional is not appointed and such appointment is made later on within 14 days of admission under Section 16, then in case of appointment of an ineligible Interim Resolution Professional against whom a Departmental proceeding is pending, can the Corporate Debtor prefer appeal under Section 61 challenging the appointment of Interim Resolution Professional , if the Corporate Debtor is asked to be represented through the same very Interim Resolution Professional ? The answer will be in negative means a Corporate Debtor in such case cannot be represented to the Interim Resolution Professional , whose appointment is under challenge and for all purpose to be represented through the person who represented the Corporate Debtor at the stage of admission before the Adjudicating Authority. At this stage, it is desirable to notice that though pursuant to Section 17, the Board of Directors of a Corporate Debtor stand suspended (for a limited period of Corporate Resolution Process maximum 180 days or extended period of 90 days i.e. 270 days), but they continued to remain as Directors and members of the Board of Directors for all purpose in the records of Registrar of Companies under the Companies Act 2013. For the reasons aforesaid, we also reject the plea taken by Learned Counsel for the appellant that the Corporate Debtor has no locus to prefer appeal under sub-section (1) of Section 61 through its Board of Directors or authorise person or its officers except through the Interim Resolution Professional .

Issues Involved:
1. Violation of natural justice principles.
2. Validity of notice under Rule 4(3) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
3. Requirement of record of default or evidence of default.
4. Locus standi of the Corporate Debtor to file an appeal through its Board of Directors.

Detailed Analysis:

1. Violation of Natural Justice Principles:
The appellant argued that the impugned order was passed without giving any notice, violating the principles of natural justice. The tribunal referred to its previous judgment in "M/s Innoventive Industries Ltd. Vs ICICI Bank & Ann" where exceptions to the principles of natural justice were discussed, including situations where prompt action is needed or where procedural defects would not affect the outcome. It was observed that the appellant was present and heard during the proceedings before the Adjudicating Authority, making the lack of notice inconsequential. Thus, the tribunal held that the principles of natural justice were not violated in this case.

2. Validity of Notice under Rule 4(3):
The appellant contended that the notice served was a pre-filing notice with an incorrect date of hearing. The tribunal noted that the respondent issued a post-filing notice under Rule 4(3) along with the application under Section 7 of the I & B Code. Although the date of hearing mentioned was incorrect, the matter was adjourned and the appellant was present and represented by counsel during the actual hearing. Therefore, the tribunal concluded that there was no violation of Rule 4(3) and the principles of natural justice were upheld.

3. Requirement of Record of Default or Evidence of Default:
The appellant argued that the necessary records of default, as required under Form I read with Rule 4 of the Adjudicating Authority Rules and Section 7(3) of the I & B Code, were not filed. The tribunal referred to its judgment in "Neelkanth Township and Construction Pvt. Limited. Vs. Urban Infrastructure Trustees Limited," which clarified that procedural rules should not obstruct the substantive obligations under the law. It was held that the documents, records, and evidence of default prescribed in Part V of Form-1 of the Adjudicating Authority Rules, 2016, are sufficient to decide the default of debt. Thus, the tribunal rejected the appellant's contention regarding the requirement of records of default.

4. Locus Standi of the Corporate Debtor to File an Appeal:
The respondent argued that the appellant had no locus to file the appeal after the appointment of the Interim Resolution Professional, as the powers of the Board of Directors were suspended under Section 17(1)(a) & (b) of the I & B Code. The tribunal clarified that while the management of the Corporate Debtor vests with the Interim Resolution Professional, this does not extend to the power to sue on behalf of the Corporate Debtor. The tribunal emphasized that the Corporate Debtor, represented by its Board of Directors or authorized persons, has the right to appeal under Section 61 of the I & B Code. It was noted that the Interim Resolution Professional's role starts after the initiation of the Corporate Insolvency Resolution Process, and allowing them to represent the Corporate Debtor in an appeal would be futile as they would not challenge their own appointment. Therefore, the tribunal held that the Corporate Debtor has the locus to file an appeal through its Board of Directors.

Conclusion:
The tribunal found no merit in the appeal and dismissed it, holding that the principles of natural justice were not violated, the notice under Rule 4(3) was valid, the requirement of records of default was met, and the Corporate Debtor had the locus to file the appeal through its Board of Directors. The parties were directed to bear their respective costs.

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