2024 (1) TMI 47 - AT - Insolvency and Bankruptcy

Admission of application u/s 9 of IBC - non-service of notice - Adjudicating Authority did not issue any notice to the Appellant and without issuance of any notice to the Appellant, direction to proceed ex-parte was passed - violation of principles of natural justice - HELD THAT - Service of notice prior to filing of the Application is requirement of the NCLT Rules and even if the advance notice was served by the Operational Creditor the requirement of rule 37 is not dispensed with unless the party itself appears before the Adjudicating Authority and in event the corporate debtor itself appears there is no requirement of any notice under Rule 37 but when a party does not appear notice has to be issued to show cause and fix the date for appearance in NCLT Form 5. The present is a case where no notice was issued by the Adjudicating Authority and only on the statement of Learned Counsel for the Operational Creditor that Corporate Debtor has not appeared despite service, the Adjudicating Authority proceeded to direct ex-parte hearing. When notice required under Section 37 which was not issued and the Adjudicating Authority proceeded against the Corporate Debtor, it is opined that the Order admitting section 9 Application suffers from error and need to be interfered with - the Order impugned is set aside - appeal allowed.

Summary

Issues Involved:
The issues involved in the judgment are related to the admission of a Section 9 Application by the Adjudicating Authority, the lack of notice to the Appellant-Corporate Debtor, the ex-parte proceeding, compliance with NCLT Rules, and the subsequent appeal challenging the Order.

Admission of Section 9 Application:
The appeal was filed against the Order passed by the Adjudicating Authority admitting the Section 9 Application filed by the Operational Creditor. The Appellant challenged the Order on the grounds of lack of notice and the ex-parte nature of the proceeding. The Respondent contended that advance notice was sent to the Appellant, and an Application to recall the ex-parte order was dismissed. The Tribunal considered the submissions and records.

Lack of Notice and Ex-parte Proceeding:
The Adjudicating Authority did not issue any notice to the Appellant-Corporate Debtor before directing to proceed ex-parte. The Adjudicating Authority granted time to file Reply and Vakalatnama based on the Operational Creditor's counsel's statement of non-appearance. The Appellant argued that Rule 37 of the NCLT Rules, 2016 mandates the issuance of notice to the opposite party, emphasizing the importance of notice before proceeding ex-parte.

Compliance with NCLT Rules:
The Appellant relied on Rule 37 of the NCLT Rules, 2016, which requires notice to the respondent to show cause against the application or petition. The rule specifies the procedure if the respondent does not appear, emphasizing the need for notice even if advance notice was served. The Tribunal highlighted that the absence of notice and proceeding ex-parte without proper adherence to Rule 37 raised procedural concerns.

Appeal and Setting Aside of Order:
The Appellant filed the appeal before the Order rejecting the application to recall the ex-parte was issued. The Tribunal found errors in the Order admitting the Section 9 Application due to the lack of notice. Despite the Appellant depositing the required amount, the Order was set aside, allowing time for a Reply and directing a fresh hearing on the Section 9 Application. The Resolution Professional was instructed to hand over records and assets subject to further orders.

Conclusion:
The judgment highlighted the procedural irregularities in the admission of the Section 9 Application, emphasizing the importance of notice and proper adherence to NCLT Rules. The Appellant was granted relief, the Order was set aside, and a fresh hearing was directed. The Resolution Professional was given instructions regarding payments, and the appeal was disposed of accordingly.