2017 (11) TMI 943 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - authorization to advocate/lawyer for issuing notice - Held that - In the present case as an advocate/lawyer has given notice under Section 8 and there is nothing on record to suggest that the Advocate/lawyer has been authorised by Board of Directors of the Respondent - Sunflag Iron & Steel Co. Ltd. to do so, and there is nothing on record to suggest that the Advocate/lawyer hold any position with or in relation with the Respondent, we hold that the notice issued by the Advocate/lawyer on behalf of the Respondent cannot be treated as a notice under section 8 of the I&B Code. For the said reason, the petition under section 9 at the instance of the Respondent against the Appellant was not maintainable. In view of the fact that notice under sub-section (1) of Section 8 was issued by an advocate and not by the Respondent and that the appellant was not given a proper opportunity by the Adjudicating Authority before passing of the impugned order and the impugned order was passed in violation of the rules of natural justice, the impugned order cannot be upheld. In the result, the appointment of Interim Resolution Professional, order declaring moratorium, freezing of account and all other order (s) passed by the Adjudicating Authority pursuant to impugned order(s) and action taken by the Interim Resolution Professional including the advertisement published in the newspaper calling for applications are declared illegal.

Summary

Issues:
1. Challenge to order admitting Corporate Insolvency Resolution Process under I&B Code.
2. Validity of notice under Section 8 of I&B Code issued by an advocate/lawyer.
3. Lack of proper notice and violation of natural justice by Adjudicating Authority.

Issue 1: Challenge to order admitting Corporate Insolvency Resolution Process under I&B Code

The appellant challenged the order passed by the Adjudicating Authority, which treated the Transfer Petition under Section 434(1)(a) as a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Adjudicating Authority admitted the application, initiated Corporate Insolvency Resolution Process, declared moratorium, and appointed an Interim Resolution Professional in accordance with the I&B Code.

Issue 2: Validity of notice under Section 8 of I&B Code issued by an advocate/lawyer

The respondent, an operational creditor, issued a notice under Section 8 to the appellant, a corporate debtor, through an advocate/lawyer. The Appellate Tribunal referred to a previous judgment regarding the issuance of such notices. It was held that only a person authorized to act on behalf of the operational creditor, holding a position with or in relation to the operational creditor, can issue a notice under Section 8. In this case, as the advocate/lawyer was not authorized by the Board of Directors and did not hold any position with the respondent, the notice issued by the advocate/lawyer could not be considered a valid notice under Section 8. Consequently, the petition under Section 9 against the appellant was deemed not maintainable.

Issue 3: Lack of proper notice and violation of natural justice by Adjudicating Authority

The Adjudicating Authority failed to serve a notice on the appellant before passing the impugned order. The respondent claimed to have issued a notice, but it was found that the notice was sent by the operational creditor and not the Adjudicating Authority. Another order highlighted limited notice requirements before admitting a case. The Appellate Tribunal emphasized the importance of adherence to principles of natural justice and providing a proper opportunity to the corporate debtor before passing orders. As the notice under Section 8 was not valid, and the appellant was not given a fair opportunity, the impugned order was set aside. Consequently, all actions taken based on the impugned order were declared illegal, and the appellant was released to function independently through its Board of Directors.

In conclusion, the Appellate Tribunal allowed the appeal, dismissed the petition by the operational creditor, declared all related actions illegal, and released the appellant from the imposed restrictions. The Adjudicating Authority was directed to determine the fee of the Interim Resolution Professional, to be paid by the appellant. Additionally, the appellant expressed intent to settle the dispute with the operational creditor to prevent further actions.