2019 (9) TMI 843 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor - existence of dispute or not - HELD THAT - Once an application under Sections 7 or 9 is filed by the Adjudicating Authority, it is not necessary for the Adjudicating Authority to await hearing of the parties for passing order of Moratorium under Section 14 of the I B Code . To ensure that one or other party may not abuse the process of the Tribunal or for meeting the ends of justice, it is always open to the Tribunal to pass appropriate interim order. The Appellant having not given any undertaking or made any specific reply and refused to say that they have no such intention, we are of the view that it is always open to the Adjudicating Authority to pass ad-interim order before admitting any application under Sections 7 or 9 or 10 of the I B Code - if application under Sections 7 or 9 or 10 is rejected, the interim order will automatically stands vacated. Appeal dismissed.

Summary

Issues:
1. Jurisdiction of Adjudicating Authority to pass interim orders restraining Corporate Debtor from alienating assets.
2. Interpretation of Rule 11 of the National Company Law Tribunal Rules, 2016 regarding inherent powers.
3. Validity of passing ad-interim orders before admitting applications under Sections 7 or 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis:
1. The case involved a dispute where the Operational Creditor filed an application under Section 9 of the Insolvency and Bankruptcy Code against the Corporate Debtor. The Adjudicating Authority passed an interim order restraining the Corporate Debtor and its Directors from alienating assets until further orders. The Appellant argued that the Authority had no jurisdiction to pass such orders before admission of the application, emphasizing that Rule 11 of the NCLT Rules does not confer such power.

2. The Respondent, representing the Operational Creditor, contended that there was a legitimate apprehension that the Corporate Debtor intended to sell assets to defeat the purpose of the I&B Code. The Respondent argued that the Adjudicating Authority had the inherent power under Rule 11 to prevent abuse of process or meet the ends of justice. The Authority can pass interim orders to safeguard creditors' rights.

3. The Tribunal analyzed Rule 11 of the NCLT Rules, emphasizing that the Authority can make necessary orders to meet the ends of justice or prevent process abuse. It clarified that the Authority can pass interim orders before hearing parties to prevent abuse of the Tribunal's process. The Operational Creditor's actions, including issuing a Demand Notice and filing the application under Section 9, justified the interim order to prevent any potential harm to creditors' rights.

4. The Tribunal concluded that the Adjudicating Authority was justified in passing the interim order to prevent any abuse of the I&B Code process. It noted that once an application is admitted, the Moratorium under Section 14 would apply, restricting the Corporate Debtor's actions. The Tribunal dismissed the appeal, upholding the validity of the interim order. The decision highlighted the importance of preventing potential harm to creditors' rights and maintaining the integrity of the insolvency process.