2022 (7) TMI 1371 - AT - Insolvency and Bankruptcy

Principles of natural justice - refusal of grant of time for filing reply on the first date of hearing - whether a Corporate Debtor can pray for time for filing the reply on the first date of hearing? - HELD THAT - Even though Rules are silent on whether a Corporate Debtor can pray for time for filing the reply on the first date of hearing, the Court has to adopt a procedure with the consonance of principles of natural justice. The order passed by Adjudicating Authority on the first date of hearing, rejecting the request of the Appellant to grant some time to file reply, is in violation of the principles of natural justice and deserves to be set-aside. Order of Adjudicating Authority admitting the Application has serious consequences, hence, the Tribunal ought to have given opportunity to the Corporate Debtor to file a reply. The procedure, which is to be adopted by the Tribunal has to be in consonance with the rules of natural justice and equity as required by the rules itself. Unless, it is held that due to non-filing of the reply before the date of hearing by the Corporate Debtor, the Adjudicating Authority is obliged to decide the application under Section 7, the Adjudicating Authority has ample jurisdiction to consider any request for reasonable time by a Corporate Debtor for filing a reply. The Tribunal is fully entitle to grant time for filing a reply asked for by the Corporate Debtor on the first date of hearing. Rejecting the request of the Corporate Debtor on the very first day for grant of time to file a reply, cannot be said to be in consonance with the principles of natural justice. There can be no dispute that in appropriate case, if the Adjudicating Authority is satisfied that the Corporate Debtor is deliberately delaying the matter, the request for grant of any further time to file a reply can be refused - But present is not a case where it can be said that Corporate Debtor was delaying the disposal of the case, since 29.03.2022 was the first date of hearing as indicated in the notice served on the Corporate Debtor on 07.03.2022. Whether fourteen days time prescribed for the Adjudicating Authority to pass the order is directory or mandatory ? - HELD THAT - The Appellate Tribunal has held the said provision as directory . However, Appellate Tribunal held proviso to sub-section (5) of Section 7 or proviso to sub-section (5) of Section 9 and Section 10 (4) to remove the defect within seven days as mandatory, and on failure, application is fit to be rejected - Adjudicating Authority did not grant reasonable opportunity to the Corporate Debtor to file its reply as is envisaged by Rule 37 of the NCLT Rules and rejecting the request of the Corporate Debtor for time to file reply on the very first day of hearing is denial of principles of natural justice. We, thus, are of the view that order impugned cannot be sustained. Appellant Corporate Debtor should be allowed time to file a reply, so as to obviate any further delay in proceedings before the Adjudicating Authority. We, thus, allow two weeks time to the Appellant to file a reply before the Adjudicating Authority. The Financial Creditor shall also be entitled to file its rejoinder within two weeks thereafter, if so advised. Appeal allowed.

Issues Involved:
1. Denial of natural justice due to refusal to grant time for filing a reply.
2. Interpretation and application of Rule 37 of the National Company Law Tribunal Rules, 2016.
3. Procedural fairness and the principles of natural justice in insolvency proceedings.

Issue-wise Detailed Analysis:

1. Denial of Natural Justice Due to Refusal to Grant Time for Filing a Reply:

The appellant argued that the Adjudicating Authority's refusal to grant time to file a reply on the first date of hearing violated the principles of natural justice. The appellant contended that not even one opportunity was granted to file a reply, which was essential for a fair hearing. The appellant emphasized that procedural rules should align with the principles of natural justice, and the refusal to grant time on the first hearing date was unjust. The tribunal acknowledged that the order passed by the Adjudicating Authority on the first date of hearing, rejecting the request of the appellant to grant time to file a reply, violated the principles of natural justice. The tribunal noted that the order admitting the application had serious consequences, and thus, the appellant should have been given an opportunity to file a reply.

2. Interpretation and Application of Rule 37 of the National Company Law Tribunal Rules, 2016:

The appellant referred to Rule 37 of the National Company Law Tribunal Rules, 2016, which envisages that if the respondent does not appear on the date specified in the notice, the tribunal shall proceed ex-parte after according reasonable opportunity to the respondent. The appellant argued that this rule does not imply that no reasonable opportunity should be given if the respondent appears on the first date of hearing. The tribunal agreed, stating that Rule 37, sub-rule (3), which requires the corporate debtor to file a reply before the date of hearing, is procedural and does not provide for any consequence if the reply is not filed before the hearing date. The tribunal emphasized that procedural rules are meant to assist in adjudicating disputes and should not be interpreted to deny a party the opportunity to present their case. The tribunal concluded that the Adjudicating Authority has the jurisdiction to consider requests for reasonable time to file a reply and that denying such a request on the first hearing date is not in consonance with the principles of natural justice.

3. Procedural Fairness and the Principles of Natural Justice in Insolvency Proceedings:

The tribunal highlighted that the procedure adopted by the tribunal must align with the principles of natural justice and equity, as required by the rules. It noted that unless it is held that non-filing of a reply before the hearing date obliges the Adjudicating Authority to decide the application, the authority has ample jurisdiction to grant reasonable time for filing a reply. The tribunal pointed out that rejecting the request for time to file a reply on the first hearing date cannot be said to be in consonance with the principles of natural justice. The tribunal also referred to the Supreme Court's judgment in Surendra Trading Company vs. Juggilal Kamlapat Jute Mills Company Ltd. and Ors., which held that procedural provisions are generally 'directory' and not mandatory. The tribunal emphasized that procedural fairness requires that a corporate debtor who appears on the first date of hearing should not be in a worse position than one who does not appear.

Conclusion:

The tribunal concluded that the Adjudicating Authority did not grant reasonable opportunity to the corporate debtor to file its reply, as envisaged by Rule 37 of the NCLT Rules. The tribunal set aside the impugned order dated 29.03.2022 and allowed the appellant two weeks to file a reply before the Adjudicating Authority. The Financial Creditor was also entitled to file a rejoinder within two weeks thereafter. The application under Section 7 was revived before the Adjudicating Authority and listed for further proceedings in accordance with the law. No order as to costs was made.

← Previous Next →