2020 (8) TMI 544 - AT - Insolvency and Bankruptcy

Claim of damages and compensation - CIRP process - Appellant comes out with a plea that since the Company had failed to perform its obligations as per Agreement, the Appellant was perforced to initiate Arbitration proceedings against the company - HELD THAT - The very observations of the Adjudicating Authority in the impugned order that the Liquidator had not given reasons in detail but that does not mean that reasons are not given etc., will go to show that the same is not a valid and correct one. In this regard, as per Section 40 of the Code a Liquidator being an Authority decides the matter in a quasi-judicial manner and his decision is open to challenge u/s 42 of the I B Code. An unreasoned order may be just and valid from the point of view of an authority who passes the same. But to the affected, the said order is not a valid one . A Reasoned order will have an appearance of Justice . A decision by judicial or quasi-judicial Authority not informed of reasons provides room for arbitrariness and such decision cannot be supported. In terms of the ingredients of Section 40 of the I B Code, reasons are to be spelt out for rejecting the claims, which in the present case was not followed by the Liquidator . An Adjudicating Authority can interfere when a Liquidator had not exercised its discretion in a bonafide manner or he had proposed a thing which no reasonable person would act. A Liquidator as an Officer of the Adjudicating Authority / Tribunal is expected to perform his duties fairly, justly and honorably in dealing with the claims of persons. It cannot be forgotten that Interest due on damages sought for violation of contract gives rise to a legal right to claim payment. It also qualifies as an actionable claim . Apart from that, considering the fact that the Appellant stakes a claim for interest which can be awarded on equitable grounds and further it had submitted a surveyor s report along with the claim and the said report is based on bills provided by the Appellant and there being rejection of these claims, this Tribunal without any haziness holds that the impugned order of the Adjudicating Authority is liable to be set aside. Appeal allowed.

Issues Involved:
1. Entitlement to claim damages and compensation.
2. Reasons for rejection of claims by the Liquidator.
3. Applicability of interest on the claimed amount.
4. Limitation and maintainability of the appeal.
5. Validity of the Liquidator's decision and adherence to Section 40 of the I&B Code.

Detailed Analysis:

1. Entitlement to Claim Damages and Compensation:
The primary issue was whether the Appellant was entitled to claim damages and compensation amounting to ?2.35 Crores and interest of ?2.90 Crores. The Adjudicating Authority observed that the Corporate Debtor never agreed to pay these amounts, and the claims were not crystallized in any agreement between the parties. Consequently, the Liquidator rightly rejected these claims.

2. Reasons for Rejection of Claims by the Liquidator:
The Appellant contended that the Liquidator failed to provide detailed reasons for rejecting the claims as required under Section 40 of the I&B Code. The Adjudicating Authority acknowledged that while the Liquidator did not provide detailed reasons, it did not imply that no reasons were given. However, the Tribunal found that the Liquidator's failure to provide detailed reasoning was incorrect and legally untenable, emphasizing that a reasoned order is essential to avoid arbitrariness.

3. Applicability of Interest on the Claimed Amount:
The Appellant argued that interest could be awarded on equitable grounds, citing the Supreme Court's decision in Sovintorg (India) v. State Bank of India. The Respondent countered that there was no provision for interest in the agreement between the parties, and hence the Liquidator's rejection of the interest claim was tenable. The Tribunal, however, highlighted that interest due on damages for contract violations gives rise to a legal right to claim payment and qualifies as an actionable claim.

4. Limitation and Maintainability of the Appeal:
The Respondent argued that the appeal was not maintainable as the claim was hit by limitation and was partly accepted due to pending arbitration proceedings. The Tribunal noted that the pendency of arbitration was enough to exhibit a dispute, which justified the Liquidator's rejection of the claim. However, the Tribunal found that the Liquidator's decision lacked detailed reasoning, which was a procedural lapse.

5. Validity of the Liquidator's Decision and Adherence to Section 40 of the I&B Code:
The Tribunal emphasized that the Liquidator, acting as a quasi-judicial authority, must provide detailed reasons for rejecting claims. The failure to do so in this case was a significant procedural lapse. The Tribunal held that the Adjudicating Authority's observation that reasons were not required in detail was incorrect. The Tribunal set aside the impugned order and directed the Adjudicating Authority to restore the application and pass a fresh order on merits, ensuring adherence to the principles of natural justice and providing detailed reasons for any rejection of claims.

Conclusion:
The appeal was allowed, and the impugned order dated 26.08.2019 was set aside. The case was remanded to the Adjudicating Authority (NCLT), Chennai, to pass a fresh order on merits after providing adequate opportunities to both parties to present their factual and legal arguments. The Tribunal stressed the importance of detailed reasoning in orders to ensure transparency and fairness in quasi-judicial decisions.

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