2019 (5) TMI 819 - AT - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Corporate Debtor - Section 9 of the Insolvency and Bankruptcy Code, 2016 - there is nothing on the record to suggest that the Adjudicating Authority has issued notice to the Corporate Debtor and it was served on them - HELD THAT - In the present case, as nothing on the record to suggest that notice was served on the Corporate Debtor and the impugned order has been passed in violation of natural justice, we set aside the order dated 8th June, 2018. In effect, order (s), passed by the Adjudicating Authority appointing Interim Resolution Professional , declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional , including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. Appeal allowed.

Summary

Issues:
1. Delay in filing the appeal explained by the Appellant.
2. Service of notice on the Corporate Debtor under Section 8(1) disputed.
3. Intervention Application by a third party claiming settlement with the Corporate Debtor.
4. Compliance with principles of natural justice before admitting an application under Section 9 of the Insolvency and Bankruptcy Code.

Analysis:
1. The appeal was filed by the Appellant against the order admitting the application for Corporate Insolvency Resolution Process. The delay in filing the appeal was explained by the Appellant, and after considering the explanation, the delay of 6 days was condoned.

2. Dispute arose regarding the service of notice under Section 8(1) on the Corporate Debtor. The Appellant claimed that the notice was returned with a note 'left', which was contested. It was noted that no notice was served before the admission of the application under Section 9 by the Adjudicating Authority.

3. An Intervention Application was filed by a third party claiming to have a settlement with the Corporate Debtor. However, the third party's locus standi at the stage of admission to make any objection was questioned, leading to the dismissal of the Intervention Application.

4. The judgment highlighted the importance of adhering to the principles of natural justice before admitting an application under Section 9 of the Insolvency and Bankruptcy Code. Citing previous judgments, it was emphasized that the adjudicating authority is bound to issue a limited notice to the corporate debtor before admitting a case to ascertain the existence of default. As the notice was not served on the Corporate Debtor in the present case, the impugned order was set aside, and all related actions were declared illegal.

In conclusion, the appeal was allowed, setting aside the impugned order and actions taken by the Adjudicating Authority. The Corporate Debtor was released from the proceedings, allowed to function independently, and directed to pay the fee of the Interim Resolution Professional. The judgment underscored the necessity of following principles of natural justice in insolvency proceedings to ensure fairness and compliance with legal requirements.