2019 (3) TMI 1521 - AT - Insolvency and Bankruptcy

Financial Creditor reinitiate the Insolvency Resolution Process under Section 7 against the Corporate Debtor - HELD THAT - A limited notice should have been issued by the Adjudicating Authority and on hearing the parties order of admission or rejection should have been passed. Admittedly, in this case, such procedure was not followed by the Adjudicating Authority and for said reason, the impugned order dated 28th September, 2018 being violative of principle of natural justice, we set aside the said impugned order. In view of the Letter of Settlement, we are not remitting the matter to the Adjudicating Authority. However, on failure to act as per settlement, it will be open to the Financial Creditor to reinitiate the Insolvency Resolution Process under Section 7 against the Corporate Debtor. Order(s) passed by Adjudicating Authority appointing Interim Resolution Professional , declaring moratorium, freezing of account and all other order(s) passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional , including the advertisement, if any, published in the newspaper calling for applications and all such orders and actions are declared illegal and are set aside. The application preferred by Respondent is dismissed. AR will close the proceeding. The Corporate Debtor (Company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect. The Adjudicating Authority will decide the fee of Interim Resolution Professional and the actual expenditure to which he is entitled and the Corporate Debtor will pay the same. The appeal is allowed with aforesaid observations.

Summary

Issues Involved:
Admission of application under Section 7 by the Adjudicating Authority without proper notice to the Corporate Debtor, violation of principle of natural justice, setting aside the impugned order, releasing the Corporate Debtor from legal restrictions, deciding the fee of the Interim Resolution Professional, and allowing the Corporate Debtor to function independently.

Analysis:

1. Admission of Application under Section 7 without Proper Notice:
The appeal was filed by the Director of the Corporate Debtor against the order passed by the Adjudicating Authority admitting the application under Section 7 by the Financial Creditor. The Appellant argued that no notice was served on the Corporate Debtor, and a settlement had been reached between the parties. The Financial Creditor claimed that notice for admission was served upon the Corporate Debtor. The Appellate Tribunal found that no notice was issued or served on the Corporate Debtor, contrary to the procedure mandated by NCLT Rules 2017 and the Companies Act, 2013. Citing the decision in 'Innoventive Industries Ltd. Vs. ICICI Bank & Anr.', the impugned order was set aside as it violated the principle of natural justice.

2. Release of Corporate Debtor and Setting Aside Orders:
The Appellate Tribunal declared the impugned order and all subsequent actions taken by the Adjudicating Authority and the Interim Resolution Professional as illegal and set them aside. The Corporate Debtor was released from all legal restrictions, including the appointment of the Interim Resolution Professional, declaration of moratorium, and freezing of accounts. The Adjudicating Authority was directed to close the proceedings, allowing the Corporate Debtor to function independently through its Board of Directors immediately.

3. Decision on Interim Resolution Professional's Fee:
The Adjudicating Authority was tasked with determining the fee of the Interim Resolution Professional and the actual expenditure to be borne by the Corporate Debtor. It was mandated that the Corporate Debtor would be responsible for paying the determined fee and expenses of the Interim Resolution Professional.

4. Conclusion and Costs:
The appeal was allowed with the specified observations, and no costs were awarded in the circumstances of the case. The Appellate Tribunal emphasized the importance of following due process and ensuring that the rights of the Corporate Debtor are upheld, as demonstrated by the setting aside of the impugned order due to the lack of proper notice and violation of natural justice principles.