2017 (8) TMI 1571 - AT - Insolvency and Bankruptcy

Tribunal overturns insolvency order due to lack of notice, parties settle during appeal

Andhra Bank Versus Brian Lau And Anr.

The Tribunal set aside the impugned order admitting the application under Section 7 of the Insolvency and Bankruptcy Code without notice to the Corporate ... Maintainability of application - initiation of Corporate Insolvency Resolution Process - Corporate debtor - HELD THAT:- During the pendency of the appeal, the parties have settled their dispute and amount as claimed by the respondent has been satisfied by issuing cheque(s) in his favor. However, we are not going into such question in this appeal. Fees payable to Interim Resolution Professional - HELD THAT:- Learned Adjudicating Authority will fix the fee of 'Interim Resolution Professional', if appointed and the appellant-'Corporate Debtor' will pay the fees of the Interim Resolution Professional, for the period he has functioned. Appeal allowed. Issues Involved:1. Admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 without notice to the Corporate Debtor.2. Challenge by Andhra Bank regarding the default of the Corporate Debtor.3. Grounds of challenge by the Corporate Debtor against the impugned judgment.4. Dispute settlement between the parties during the appeal process.Issue 1: Admission of application under Section 7 without notice to the Corporate DebtorThe respondent, claiming to be an 'Operational Creditor,' filed an application under Section 7 of the Insolvency and Bankruptcy Code against the Corporate Debtor. The Adjudicating Authority admitted the application, declared a 'Moratorium,' and appointed an Insolvency Resolution Professional without providing notice to the Corporate Debtor. The appellant challenged this on the grounds of violation of natural justice. The respondent failed to produce specified records of default, and the order was deemed to be passed in violation of natural justice. The Tribunal set aside the impugned order, declaring all subsequent actions illegal and dismissing the application under Section 7.Issue 2: Challenge by Andhra Bank regarding the default of the Corporate DebtorAndhra Bank, as the banker of the Corporate Debtor, challenged the impugned judgment, stating that there was no default in the account and expressing satisfaction with the Corporate Debtor's performance. This challenge was part of a connected appeal, emphasizing the lack of default and questioning the basis for initiating insolvency proceedings against the Corporate Debtor.Issue 3: Grounds of challenge by the Corporate Debtor against the impugned judgmentThe Corporate Debtor challenged the impugned judgment on various grounds, including the lack of notice before the order, the respondent's failure to meet the definition of a 'Financial Creditor' under the Code, and the absence of specified default records. The Corporate Debtor also objected to the notice being issued by the respondent's lawyer instead of the respondent directly. The Tribunal found merit in these grounds, setting aside the impugned order and releasing the Corporate Debtor from the legal constraints imposed by the order.Issue 4: Dispute settlement between the parties during the appeal processDuring the pendency of the appeal, the parties settled their dispute, with the respondent's claimed amount being satisfied through issued cheques. However, the Tribunal did not delve into this settlement during the appeal process, focusing instead on the legal issues raised by the parties. The Tribunal allowed the appeals, set aside the impugned order, and directed the closure of proceedings, emphasizing that the Corporate Debtor could function independently through its Board of Directors. The Tribunal also addressed the fee payment for the Interim Resolution Professional, if appointed, by the Corporate Debtor.