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2022 (3) TMI 579 - AT - Insolvency and BankruptcyRejection of application - recalling of ex-parte order - application were not served on the Corporate Debtor nor Demand Notice under Section 8 was served on the Corporate Debtor - principles of natural justice - HELD THAT - The present is a case where Corporate Debtor was asking for recall of the order dated 8th February, 2019 and 10th April, 2019. Both the orders were passed ex-parte and no notices were served. The Adjudicating Authority committed error in holding that the Appellant was asking for review of the admission order. In the impugned judgment dated 30 th November, 2021, learned Adjudicating Authority have relied on a judgment of Allahabad High Court in the matter of Khan Enterprises vs. National Company Law Tribunal Ors. 2018 (9) TMI 1908 - ALLAHABAD HIGH COURT for forming an opinion that Rule 11 of NCLT Rules cannot be used seeking recall/ review of the orders. It is noticed that what Corporate Debtor was seeking, was to recall the ex-parte order, which power was specifically conferred on the Adjudicating Authority under Rule 49, sub-rule (2). When power is specifically conferred under the Rule, there was no question of exercising any review jurisdiction in the facts of the present case. The Adjudicating Authority was fully competent to recall ex-parte order in exercise of its jurisdiction under Rule 49, sub-rule (2). This Tribunal was not called to consider the case for recall of ex-parte order, which was passed without service of notice on the Corporate Debtor. In the present case, the Adjudicating Authority has not rejected the Application of the Corporate Debtor on the ground that it has been passed after constitution of CoC. In the facts of the present case, the Appellant has clearly pleaded that although admission order under Section 9 was passed on 10th April, 2019, but CoC was constituted only in March 2021 that is much after filing of CA 405 of 2019 - the present is a case where Application to recall of order was filed much before the constitution of CoC. The amount having withdrawn by the Directors to their accounts, from the account of the Corporate Debtor, the Directors may deposit back the said amount into the account of the Corporate Debtor. Let the aforesaid deposit be made within 30 days from today by the Appellants - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Jurisdiction to recall/review ex-parte orders. 2. Service of notice to the Corporate Debtor. 3. Procedural defects and their impact on the proceedings. 4. Constitution of Committee of Creditors (CoC) and its implications. 5. Allegations of malafide conduct by the Operational Creditor. 6. Withdrawal of funds by Corporate Debtor’s Directors post-CIRP initiation. Detailed Analysis: 1. Jurisdiction to Recall/Review Ex-Parte Orders: The Appellant argued that the Adjudicating Authority erred in observing it had no jurisdiction to recall/review the ex-parte orders dated 8th February 2019 and 10th April 2019. The Appellant cited Rule 49 of the NCLT Rules, 2016, which allows for the recall of ex-parte orders if the notice was not duly served or if the respondent was prevented by sufficient cause from appearing. The Tribunal agreed, noting that the power to recall ex-parte orders is explicitly conferred under Rule 49(2), and thus, the Adjudicating Authority was competent to recall the orders. 2. Service of Notice to the Corporate Debtor: The Corporate Debtor contended that notices under Section 8 and Section 9 of the Insolvency and Bankruptcy Code (IBC) were not served. The Adjudicating Authority had noted that notices sent by Speed Post were returned unserved with the endorsement “addressee left without instruction.” The Tribunal found that the registered email IDs were no longer in operation after September 2018 due to the expiration of the domain service. The Tribunal concluded that the orders were passed without proper service of notice, thus warranting recall. 3. Procedural Defects and Their Impact on the Proceedings: The Tribunal emphasized that procedural defects, such as non-service of notice, are grounds for setting aside ex-parte orders. It referenced the Allahabad High Court's judgment in Khan Enterprises vs. National Company Law Tribunal & Ors., which allows for procedural review in cases of procedural defects. The Tribunal concluded that the ex-parte orders were passed without serving any notice on the Corporate Debtor, thus constituting a procedural defect. 4. Constitution of Committee of Creditors (CoC) and Its Implications: The Respondent argued that after the constitution of the CoC, the Adjudicating Authority could not set aside the ex-parte admission order. The Tribunal noted that the CoC was constituted in March 2021, much after the filing of the recall application in June 2019. The Tribunal distinguished the present case from the precedent cited by the Respondent, asserting that the application to recall the order was filed before the CoC's constitution. 5. Allegations of Malafide Conduct by the Operational Creditor: The Corporate Debtor alleged that the Operational Creditor deliberately rendered the proceedings ex-parte by not sending notices to the personal email IDs of the Directors, despite being aware of them. The Tribunal acknowledged these allegations and found that the Operational Creditor's conduct raised questions about the service of notices. 6. Withdrawal of Funds by Corporate Debtor’s Directors Post-CIRP Initiation: The Respondent claimed that the Corporate Debtor's Directors withdrew ?56 lakhs from the Corporate Debtor’s account after the CIRP initiation. The Tribunal directed the Directors to deposit the amount back into the Corporate Debtor's account within 30 days, acknowledging the withdrawal but allowing the Directors to rectify it. Conclusion: The Tribunal set aside the orders dated 8th February 2019 and 10th April 2019, revived the application IB-195(ND)/2019 before the Adjudicating Authority, and allowed the Appellants 30 days to file a reply to the Section 9 application. The Adjudicating Authority was directed to decide the application on merits after hearing the parties. The appeal was allowed with no order as to costs.
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