2019 (12) TMI 1023 - HC - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Conduct of NCLT - passing an order in illegal member - principles of natural justice and the procedure established by law - Retiring Judicial member of NCLT is going to be appointed as member of NCLAT - HELD THAT - When the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 were notified, the legislature was aware that it will have to frame and notify separate rules enabling filing of application under section 7(1), section 9(1) and section 10(1) of the IBC. If they are not notified as yet, then, Rule 10 allows filing of application under the NCLT Rules, 2016 and particularly Rules 20 to 26. However, that does not mean that the rest of the NCLT Rules already notified and governing procedural aspects and guiding the NCLT would cease to apply. That is not the mandate flowing from the language of Rule 10. We, therefore, do not find any merit in the argument of Mr.Kadam in this behalf. Clause (a) of sub-section (5) enables admission of the application on the necessary satisfaction being recorded with regard to the default. Further, the disciplinary proceedings should not be pending against the proposed resolution professional. If the satisfaction is recorded on this ground, the order of admission can be made, whereas, the rejection is contemplated by clause (b) of sub-section (5) of section 7. Before rejection of the application, the applicant has to be given an opportunity to rectify the defect and within the time stipulated in the proviso below clause (b). The CIRP shall commence from the date of application under sub-section (5) and that is what subsection (6) of section 7 contemplates, whereas, the communication of the order to the Financial Creditor and the Corporate Debtor is an aspect covered by sub-section (7) of section 7 of the IBC. The legislature says by sub-section (1) of section 7 that an application can be made and by other sub-sections of section 7, how the application should be dealt with is enumerated. Pertinently, sub-section (5) of section 7 requires the satisfaction to be recorded in terms thereof. If that satisfaction is recorded, there is an admission of the application. The admission of the application has to be intimated or communicated. The order of admission or rejection of the application is required to be passed and that has to be intimated or communicated. By that alone, we cannot conclude, as desired by Mr.Kadam, that there is no mandate or requirement of pronouncement of the order. The intimation or communication of admission of the application presupposes or predicates the passing of an order. Such an order of the adjudication authority is to be declared by the NCLT. A perusal of the sub-rules of Rule 150 and 151 so also 152 would enable us to hold that the tribunal, after hearing the applicant and respondent, shall make and pronounce the order either at once or, as soon as thereafter, as may be practicable, but not late than thirty days from the final hearing. Apart from the fact that there is a limit set out for everything, that by itself does not mean that rule makers intended total dispensation of the requirement of pronouncement of the order. The pronouncement is necessary. It could be either at once or as soon as thereafter, as may be practicable, but not later than 30 days from the final hearing. We are not concerned in this case with a situation where this time limit is not adhered to. However, by sub-rule (2), what is indicated is that every order of the tribunal shall be in writing and shall be signed and dated by the President or Member or Members constituting the Bench which heard the case and pronounced the order. Sub-rule (3) of Rule 150 says that a certified copy of every order passed by the tribunal shall be given to the parties and then sub-rule (4) says that the tribunal may transmit order made by it to any court for enforcement, on application made by either of the parties to the order or suo motu. There is enlargement of time permissible by Rule 153. The rectification of order is provided under Rule 154 and by Rule 155, there is a general power to amend conferred in the tribunal. These ancillary and incidental powers enable the tribunal to render complete justice. The requirement of making entries by Court Master would play a very vital role in the conduct of judicial proceedings is contemplated by Rule 156 and by Rule 157, there is a transmission of order by the Court Master. There is a transmission of the order with the case file to the Deputy Registrar by Rule 157(1) and thereafter, the duty of the Deputy Registrar is to make scrutiny and record the satisfaction that the provisions of these rules have been duly complied with and in token thereof affix his initials with date on the outer cover of the order. Everything depends upon the facts and circumstances in each case. Nobody should be allowed to manipulate the judicial process and secure favourable relief or judgment by deft management. Judges ought to be aware of the modern trends and tendencies in instituting and prosecuting litigation before a court of law. They must maintain absolute integrity and autonomy, independence of the judiciary cannot be compromised. At all costs, that should be maintained. If the functioning of the tribunal is monitored and supervised by a particular department of the Central Government, then, that departmental staff is appointed to assist the tribunal. Effective work cannot be done unless the Registrar, Superintendent and other staff members are drawn from the courts already functioning and discharging judicial functions. The trained staff of such courts can be deployed as a temporary measure and thereafter, by a proper selection process, the staff to assist and support the Judicial Members and the President should be selected and appointed. The staff ought to be drawn from legal field. If any administrative staff or departmental member is appointed or deputed to work in the tribunals, he may not have any experience of working in a court. We have have noticed in this case that the NCLT lacks such a staff. It is on account of the staff members that in this case both the judicial Members have been embarrassed. The litigants suffer by a requirement to hold the proceedings afresh. The present writ petition is maintainable - the impugned order is set aside on the ground that the same is a nullity.

Summary

Issues Involved:
1. Legality and validity of the NCLT order dated 22nd October 2019.
2. Compliance with procedural rules, particularly Rules 150 and 152 of the NCLT Rules, 2016.
3. Maintainability of the writ petition under Article 226 of the Constitution of India.
4. Pronouncement and communication of judicial orders by the NCLT.

Detailed Analysis:

1. Legality and Validity of the NCLT Order Dated 22nd October 2019:
The petitioner challenged the order passed by the NCLT on 22nd October 2019, arguing that it was non est and had no force in law. The petitioner alleged that the order was not pronounced in open court and was not listed in the cause list for pronouncement on the said date. The order was communicated to the petitioner only on 8th November 2019, which was after the judicial member had demitted office. The court found that there was no evidence of the order being pronounced, making the order a nullity.

2. Compliance with Procedural Rules, Particularly Rules 150 and 152 of the NCLT Rules, 2016:
The court emphasized the importance of compliance with procedural rules, particularly Rules 150 and 152 of the NCLT Rules, 2016, which mandate the pronouncement of orders. Rule 150(1) states that the tribunal shall make and pronounce an order either at once or as soon as practicable but not later than thirty days from the final hearing. Rule 151 allows any member of the bench to pronounce the order on behalf of the bench. The court found that the NCLT did not comply with these rules, as there was no record of the order being pronounced.

3. Maintainability of the Writ Petition Under Article 226 of the Constitution of India:
The respondents argued that the writ petition was not maintainable as the petitioner had an alternate and equally efficacious remedy of appeal to the NCLAT. The court, however, held that the writ petition was maintainable as it raised serious issues concerning the legality and validity of the NCLT's order and the sanctity of judicial proceedings. The court noted that the principles laid down in various Supreme Court judgments allow for the issuance of a writ of certiorari to quash orders passed in violation of procedural rules and principles of natural justice.

4. Pronouncement and Communication of Judicial Orders by the NCLT:
The court highlighted the importance of pronouncing judicial orders in open court to ensure transparency and fairness in judicial proceedings. The court referred to the judgments of the Supreme Court in Surendra Singh and Ors. vs. State of Uttar Pradesh and State of Uttar Pradesh vs. Lakshmi Ice Factory and Ors., which emphasize that pronouncement of orders is a judicial act that must be performed in a judicial way. The court found that the NCLT's failure to pronounce the order in open court and communicate it to the parties in a timely manner violated the principles of natural justice and procedural fairness.

Conclusion:
The court quashed the NCLT's order dated 22nd October 2019, declaring it a nullity due to non-compliance with the procedural rules mandating pronouncement of orders. The court directed that the application made by the financial creditor under Section 7 of the IBC be heard afresh on merits and in accordance with law. The court also emphasized the need for tribunals to adhere to procedural rules to maintain the sanctity and credibility of judicial proceedings.