2019 (6) TMI 1464 - Tri - Companies Law

Tribunal dismisses Corporate Debtor's bid to undo CIRP order due to address notification lapse

The Tribunal dismissed the Corporate Debtor's application seeking restoration of the Company Petition and setting aside the ex-parte CIRP order. The ... Power of adjudicating authority to review or recall admission orders under IBC - Procedural review versus substantive review - Obligation of corporate debtor to intimate change of registered office - Availability of appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 - Timelines under the Insolvency and Bankruptcy Code and necessity for expeditionPower of adjudicating authority to review or recall admission orders under IBC - Procedural review versus substantive review - Availability of appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 - Whether the Tribunal could set aside or review its order admitting the Company Petition initiating CIRP. - HELD THAT: - The Tribunal held that it lacked jurisdiction to exercise a substantive review or recall of its admission order under the IBC, 2016 and that the statutory scheme contemplates an appeal under Section 61 as the remedy for an aggrieved corporate debtor. Reliance was placed on precedents holding that the adjudicating authority has no power to review or recall an admission order absent statutory provision, and that recall (or procedural review) is permissible only where a procedural defect or fraud on the Tribunal is shown. The applicant did not allege any fraud or point to a procedural irregularity in the admission process sufficient to invoke a recall; accordingly, the present application sought effectively to review the merits of admission and could not be entertained by the Tribunal. [Paras 5, 7, 9, 12, 14]Tribunal cannot exercise substantive review or recall of the admission order under IBC; the corporate debtor's remedy is by appeal under Section 61.Obligation of corporate debtor to intimate change of registered office - Procedural review versus substantive review - Whether non-receipt of notice due to change of the corporate debtor's registered office amounted to a procedural lapse by the Tribunal or the financial creditor justifying recall. - HELD THAT: - The Tribunal found as a fact that the corporate debtor had changed its registered office earlier but had not intimated the Registrar of Companies or other stakeholders of that change. The duty to notify statutory authorities of change of registered office rests on the company under the Companies Act; failure to inform the ROC or creditors could not be attributed to the Tribunal or the financial creditor. On these facts, non-receipt of notice did not constitute a procedural irregularity warranting review or recall of the admission order. [Paras 3, 13]Failure of the corporate debtor to intimate change of registered office does not amount to a procedural lapse by the Tribunal or the financial creditor and does not justify recall of the admission order.Timelines under the Insolvency and Bankruptcy Code and necessity for expedition - Whether the application was maintainable or was an attempt to frustrate the CIRP process. - HELD THAT: - Invoking the Supreme Court's observations on the strict timelines and the object of the Code to prevent interminable proceedings, the Tribunal concluded that the present application amounted to an attempt by the corporate debtor's management to delay CIRP. The Tribunal emphasised the need for expedition in insolvency processes and treated the application as vexatious. [Paras 15, 16]The application is an impermissible attempt to delay CIRP and is dismissed as vexatious.Costs for vexatious or frivolous applications - Whether costs should be imposed for filing the application. - HELD THAT: - Having found the application to be vexatious and an attempt to delay the CIRP, the Tribunal exercised its discretion to impose costs. It directed the applicant to pay a specified amount to the Prime Minister's National Relief Fund within a stipulated period. [Paras 16]Application dismissed with costs payable by the applicant to the Prime Minister's National Relief Fund within two weeks.Final Conclusion: The application by the corporate debtor seeking setting aside of the admission order initiating CIRP was dismissed: the Tribunal held that it had no power to conduct a substantive review or recall of the admission under IBC (appeal under Section 61 is the remedy), found no procedural lapse attributable to the Tribunal or financial creditor arising from the corporate debtor's failure to intimate change of registered office, treated the petition as a vexatious delay tactic, and imposed costs payable to the Prime Minister's National Relief Fund. Issues Involved:1. Restoration of Company Petition and CIRP initiation.2. Procedural lapses and address change of the Corporate Debtor.3. Tribunal's power to set aside ex-parte CIRP orders.4. Review and recall of final orders under IBC, 2016.5. Procedural review versus substantial review.6. Compliance with statutory requirements for address change.7. Adherence to timelines under IBC, 2016.Issue-wise Analysis:1. Restoration of Company Petition and CIRP Initiation:The Corporate Debtor filed an application seeking restoration of the Company Petition after an order of admission was passed by the Tribunal initiating the Corporate Insolvency Resolution Process (CIRP) against it on 08.03.2019, based on a petition by the Financial Creditor. The Corporate Debtor acknowledged the housing loan facility of Rs. 1,06,20,000/- and the repossession of the mortgaged property by the Financial Creditor after the account was declared a non-performing asset (NPA).2. Procedural Lapses and Address Change of the Corporate Debtor:The Corporate Debtor argued that it did not receive any notice from the Tribunal due to a change in its registered office address, which occurred after an eviction notice from the landlord. The new address was not communicated to statutory authorities or business parties. The Tribunal noted that the Corporate Debtor failed to inform the Registrar of Companies (ROC) about the change, which is a statutory requirement under the Companies Act, 2013.3. Tribunal's Power to Set Aside Ex-parte CIRP Orders:The Corporate Debtor relied on an order from the NCLT Kolkata Bench, arguing that the Tribunal has the power to set aside ex-parte CIRP orders based on procedural lapses. The Tribunal, however, emphasized that the NCLT Rules, 2016, and the Companies Act, 2013, do not grant such powers for substantial reviews based on merits.4. Review and Recall of Final Orders under IBC, 2016:The Financial Creditor contended that the Tribunal lacks the power to review or recall final orders under the IBC, 2016, as established by consistent rulings and the absence of such provisions in the IBC. The Tribunal upheld this view, referencing judgments from the NCLAT and the Allahabad High Court, which affirmed that procedural reviews are only permissible for procedural defects or fraud.5. Procedural Review versus Substantial Review:The Corporate Debtor sought a procedural review, claiming procedural lapses in the notice delivery due to the address change. The Tribunal rejected this argument, stating that the failure to update the registered office address with the ROC was the Corporate Debtor's responsibility and not a procedural lapse by the Tribunal or the Financial Creditor.6. Compliance with Statutory Requirements for Address Change:The Tribunal highlighted the Corporate Debtor's duty to communicate any change in the registered office address to the ROC, as mandated by the Companies Act, 2013. The Tribunal concluded that the Corporate Debtor's failure to comply with this requirement cannot be considered a procedural lapse warranting a review.7. Adherence to Timelines under IBC, 2016:The Tribunal reiterated the importance of adhering to the strict timelines under the IBC, 2016, as emphasized by the Supreme Court in the Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. case. The Tribunal noted that the present application by the Corporate Debtor was an attempt to delay the CIRP process and dismissed it with a cost of Rs. 25,000/- to be paid to the Prime Minister's National Relief Fund within two weeks.