Tribunal overturns ex parte insolvency order, citing lack of natural justice and pre-existing dispute.

The Tribunal set aside the ex parte order passed by the Adjudicating Authority, ruling in favor of the appellant - Corporate Debtor. The Tribunal found a violation of natural justice principles as the Corporate Debtor was not given an opportunity to be heard before admitting the application for Corporate Insolvency Resolution Process. Additionally, the existence of a dispute between the parties prior to the notice under Section 8 of the Insolvency and Bankruptcy Code rendered the application under Section 9 not maintainable. Consequently, the impugned order was overturned, releasing the Corporate Debtor from the insolvency process and its associated restrictions.

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Issues Involved:
1. Whether the ex parte order by the Adjudicating Authority violated the principles of natural justice.
2. Whether there was an existence of a dispute between the parties prior to the notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
3. Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable.
4. Whether the Adjudicating Authority was required to issue a notice to the Corporate Debtor before admitting the application for Corporate Insolvency Resolution Process.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The appellant contended that the ex parte order passed by the Adjudicating Authority without prior notice or intimation of hearing to the Corporate Debtor violated the principles of natural justice. The Adjudicating Authority did not provide the Corporate Debtor an opportunity to be heard before admitting the application for Corporate Insolvency Resolution Process. The Tribunal emphasized that adherence to the principles of natural justice is mandatory, as established in the case of "M/s. Innoventive Industries Ltd." The Tribunal concluded that the impugned order was passed in violation of the principles of natural justice.

2. Existence of Dispute:
The appellant argued that there was a pre-existing dispute between the parties regarding the quality of construction work and non-completion within the stipulated time frame. The appellant had raised concerns through various correspondences dating back to 2013 and 2014. Additionally, the appellant had replied to a winding-up notice under Section 433 of the Companies Act, 1956, disputing the entire claim. The Tribunal noted that the existence of a dispute is not limited to pending suits or arbitration proceedings but includes any genuine dispute raised prior to the notice under Section 8 of the Insolvency and Bankruptcy Code, 2016. The Tribunal found that there was an "existence of a dispute" between the parties, making the application under Section 9 not maintainable.

3. Maintainability of Application under Section 9:
The respondent argued that the appeal was not maintainable as the appellant had no legal authority to initiate proceedings on behalf of the Corporate Debtor after the appointment of an Interim Resolution Professional. The Tribunal, however, focused on the existence of a dispute and the violation of natural justice principles. Given the existence of a dispute and the lack of notice to the Corporate Debtor, the Tribunal held that the application under Section 9 was not maintainable.

4. Requirement of Notice Before Admission:
The Tribunal referred to the decision in "M/s. Innoventive Industries Ltd." and emphasized that the Adjudicating Authority is bound to issue a limited notice to the Corporate Debtor before admitting an application for Corporate Insolvency Resolution Process. This notice is essential to ascertain the existence of default and to ensure adherence to the principles of natural justice. The Tribunal concluded that the Adjudicating Authority failed to issue such a notice, further invalidating the impugned order.

Conclusion:
The Tribunal set aside the impugned order dated 6th March 2017 passed by the Adjudicating Authority, Mumbai Bench, and made the appellant - Corporate Debtor free from all rigours of the Corporate Insolvency Resolution Process. The order of moratorium, freezing of bank accounts, appointment of Interim Resolution Professional, and public announcements were all set aside. The Board of Directors was allowed to take over the possession and function of the appellant company immediately. The Tribunal directed the closure of proceedings and dismissal of the application, determining the fees of the Interim Resolution Professional to be borne by the respondent - Operational Creditor. The appeal was allowed with no order as to cost.

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