2021 (10) TMI 241 - HC - Insolvency and Bankruptcy

Maintainability of application - application was opposed by the petitioner on the ground that petitioner had already assigned the entire loan to J.M.Finance - petitioner contended that resolution professional has no power to decide the issue and therefore, before proceeding further Tribunal should decide on maintainability of the application to initiate insolvency resolution process - HELD THAT - From an analysis of the provisions contained in sections 95 to 100 of IBC, it is found that a definite time-line has been provided at each stage of the proceeding. That apart, the interim moratorium in terms of section 96 which commences from the date of the application remains in force till the date of admission of such application under section 100. Though time-lines have been prescribed at each stage of the proceeding leading to acceptance or rejection of the application under section 100, it is found that no such time-line has been prescribed for submission of report by the resolution professional though section 100 provides that the adjudicating authority shall take a decision either admitting or rejecting the application within 14 days from the date of submission of the report. That apart on a careful examination of section 100, before the adjudicating authority takes a decision to either admit or reject the application upon receipt of report from the resolution professional, the parties to the insolvency resolution process are required to be heard. Though the legislature itself has provided in section 99(10) that a copy of the report of the resolution professional be furnished to the debtor or to the creditor thus complying with the requirement of the principles of natural justice, it would be in the fitness of things and in furtherance of the principles of natural justice that the parties are also heard before the decision is taken by the adjudicating authority one way or the other under section (1) of section 100. There are no good ground to interfere with the impugned orders save and except that the resolution professional should submit the report within a definite time period. This is because under sub-section (1) of section 96 the interim moratorium automatically commences from the date of the application and continues till the date of admission of such application (or rejection as the case may be). The legislative intent which is discernible is that such interim moratorium should be for a limited duration. Therefore, the resolution professional should expedite preparation and submission of report but at the same time complying with the requirements of section 99 of IBC. The resolution professional shall submit his report within a period of six weeks from the date of receipt of a copy of this order, whereafter the Tribunal shall decide the application within 14 days thereafter in terms of section 100 of IBC after giving due opportunity of hearing to the parties - Petition disposed off.

Summary

Issues Involved:
1. Maintainability of the insolvency application under section 95 of the Insolvency and Bankruptcy Code (IBC).
2. Jurisdiction of the Tribunal to proceed with the insolvency application.
3. The necessity of hearing the petitioner before appointing a resolution professional and the impact on the petitioner's rights.
4. Compliance with the principles of natural justice.

Issue-wise Detailed Analysis:

1. Maintainability of the Insolvency Application:
The petitioner opposed the insolvency application on the grounds that the entire loan had been assigned to J.M. Finance, rendering the application under section 95 of IBC not maintainable. The Tribunal, however, held that objections to the maintainability of the application could not be entertained at the initial stage. According to the Tribunal, as per sections 95 to 100 of IBC, objections could only be considered after the resolution professional submits a report.

2. Jurisdiction of the Tribunal:
The petitioner argued that the Tribunal lacked jurisdiction to proceed with the insolvency application because the loan had been assigned to another entity. The Tribunal rejected this argument, stating that jurisdictional objections could not be addressed until the resolution professional's report was received. The High Court concurred, noting that the Tribunal's jurisdiction to proceed with the application was not contingent upon resolving the assignment issue at the preliminary stage.

3. Necessity of Hearing the Petitioner:
The petitioner contended that not being heard before the appointment of a resolution professional prejudiced their rights and standing in the market. They argued that interim moratoriums commencing upon application filing caused serious prejudice. The High Court acknowledged the petitioner's concerns but emphasized that the IBC's scheme, particularly sections 95 to 100, did not necessitate a hearing before appointing a resolution professional. The Court noted that the legislative intent was for the interim moratorium to be of limited duration and that the resolution professional's report should be expedited.

4. Compliance with Principles of Natural Justice:
The petitioner claimed that the Tribunal's decision violated the principles of natural justice by not affording them a hearing. The High Court observed that while the IBC provided for interim moratoriums and the appointment of resolution professionals without initial hearings, it also mandated that the resolution professional's report be shared with the debtor and creditor, ensuring compliance with natural justice principles. The Court further directed that the resolution professional should submit the report within six weeks, and the Tribunal should decide the application within 14 days thereafter, after hearing the parties.

Conclusion:
The High Court did not find grounds to interfere with the Tribunal's orders but emphasized the need for the resolution professional to submit the report within a definite timeframe. The Court directed the resolution professional to submit the report within six weeks and the Tribunal to decide the application within 14 days thereafter, ensuring that the parties are heard. The writ petitions were disposed of accordingly.