2024 (3) TMI 566 - AT - Insolvency and Bankruptcy

Admission of Section 7 petition - time barred debt or not - appellant were not given adequate opportunity to represent itself in respect of the financial statements which were placed by the CA before the Adjudicating Authority - violation of principles of natural justice (audi alterem partem) - HELD THAT - There is force in the contention of the Appellant that it was neither aware regarding what was filed before the Adjudicating Authority by the CA nor was provided an opportunity to rebut and/or place reliance on the said balance sheets. The Appellant clearly did not get the chance to explain the notes of the said balance sheets which allegedly expressed caveats regarding the debt. It is well settled that adherence to principles of natural justice is the essence of fair adjudication and cannot be given a go-by by the Adjudicating Authority or this Tribunal in the discharge of their adjudicatory and appellate responsibilities. Opportunity to hear is a critical limb of this principle of natural justice. The Tribunal must appraise the party of the case he has to meet so as to enable him to make his representation. This opportunity must be real and effective. The right to make representation requires that the person/entity proceeded against must have opportunity to peruse all material relied upon against him - So also in the present matter, to meet the ends of justice, it was the duty of the Adjudicating Authority to have ensured that the balance sheets produced by the CA was shared with the Appellant party since these documents were to constitute the basis on which the impugned order was premised. Thus, justice should not only be done but should manifestly be seen to be done. In the absence of notice and such reasonable opportunity having been given to the Appellant, the impugned order passed has become vitiated. To meet the ends of justice, the Appellant deserves to be given appropriate and adequate opportunity to represent itself in respect of the financial statements which were placed by the CA before the Adjudicating Authority. The impugned order is set aside. The orders passed by the Adjudicating Authority initiating CIRP against the Corporate Debtor and appointing Interim Resolution Professional and all other orders pursuant to the impugned order are set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the debt was time-barred.
2. Whether the unsigned financial statements could be relied upon for acknowledging the debt.
3. Whether principles of natural justice were adhered to by the Adjudicating Authority.

Summary:

Issue 1: Whether the debt was time-barred.

The Appellant argued that the Section 7 application filed by the Respondent No. 2 (UCO Bank) was time-barred since the date of default was 31.05.2014 and no written or signed acknowledgment of the outstanding debt was provided after 2015. However, the Respondent No. 2 contended that the Corporate Debtor acknowledged their debt in the balance sheet as on 31.03.2022, and the Adjudicating Authority correctly applied Section 18 of the Limitation Act, which allows for a fresh period of limitation from the time an acknowledgment of liability is signed.

Issue 2: Whether the unsigned financial statements could be relied upon for acknowledging the debt.

The Appellant asserted that the unsigned financial statements could not be relied upon to acknowledge the debt, referencing the Supreme Court's decision in Asset Reconstruction Company (India) Ltd. Vs. Bishal Jaiswal & Ors. (2021) 6 SCC 366, which requires such entries to be signed by authorized signatories. The Respondent No. 2, however, provided signed financial statements for the years 2020-21 and 2021-22, which were verified by a Chartered Accountant (CA) and submitted to the Adjudicating Authority.

Issue 3: Whether principles of natural justice were adhered to by the Adjudicating Authority.

The Appellant contended that the Adjudicating Authority violated principles of natural justice by not providing them an opportunity to respond to the financial statements submitted by the CA. The Tribunal noted that the Adjudicating Authority should have ensured that the balance sheets produced by the CA were shared with the Appellant, allowing them the opportunity to rebut and present their views. The Tribunal emphasized that adherence to principles of natural justice is essential for fair adjudication.

Conclusion:

The Tribunal allowed the appeal, set aside the impugned order, and remanded the matter back to the Adjudicating Authority to decide afresh in accordance with the law after hearing all parties with respect to the financial statements submitted by the CA. The Tribunal directed the parties to appear before the Adjudicating Authority within ten days from the date of the order and expected the hearing to be completed within two months. No costs were awarded.