Tribunal sets aside order for lack of reply time, upholds natural justice rule

The tribunal found that the Adjudicating Authority's refusal to grant time for filing a reply on the first hearing date violated natural justice principles. It held that Rule 37 of the NCLT Rules allows for reasonable opportunities and set aside the order, granting the appellant two weeks to file a reply. The Financial Creditor was given two weeks to file a rejoinder. The application under Section 7 was revived for further proceedings. No costs were awarded.

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Issues Involved:
1. Denial of natural justice due to refusal to grant time for filing a reply.
2. Interpretation and application of Rule 37 of the National Company Law Tribunal Rules, 2016.
3. Procedural fairness and the principles of natural justice in insolvency proceedings.

Issue-wise Detailed Analysis:

1. Denial of Natural Justice Due to Refusal to Grant Time for Filing a Reply:

The appellant argued that the Adjudicating Authority's refusal to grant time to file a reply on the first date of hearing violated the principles of natural justice. The appellant contended that not even one opportunity was granted to file a reply, which was essential for a fair hearing. The appellant emphasized that procedural rules should align with the principles of natural justice, and the refusal to grant time on the first hearing date was unjust. The tribunal acknowledged that the order passed by the Adjudicating Authority on the first date of hearing, rejecting the request of the appellant to grant time to file a reply, violated the principles of natural justice. The tribunal noted that the order admitting the application had serious consequences, and thus, the appellant should have been given an opportunity to file a reply.

2. Interpretation and Application of Rule 37 of the National Company Law Tribunal Rules, 2016:

The appellant referred to Rule 37 of the National Company Law Tribunal Rules, 2016, which envisages that if the respondent does not appear on the date specified in the notice, the tribunal shall proceed ex-parte after according reasonable opportunity to the respondent. The appellant argued that this rule does not imply that no reasonable opportunity should be given if the respondent appears on the first date of hearing. The tribunal agreed, stating that Rule 37, sub-rule (3), which requires the corporate debtor to file a reply before the date of hearing, is procedural and does not provide for any consequence if the reply is not filed before the hearing date. The tribunal emphasized that procedural rules are meant to assist in adjudicating disputes and should not be interpreted to deny a party the opportunity to present their case. The tribunal concluded that the Adjudicating Authority has the jurisdiction to consider requests for reasonable time to file a reply and that denying such a request on the first hearing date is not in consonance with the principles of natural justice.

3. Procedural Fairness and the Principles of Natural Justice in Insolvency Proceedings:

The tribunal highlighted that the procedure adopted by the tribunal must align with the principles of natural justice and equity, as required by the rules. It noted that unless it is held that non-filing of a reply before the hearing date obliges the Adjudicating Authority to decide the application, the authority has ample jurisdiction to grant reasonable time for filing a reply. The tribunal pointed out that rejecting the request for time to file a reply on the first hearing date cannot be said to be in consonance with the principles of natural justice. The tribunal also referred to the Supreme Court's judgment in Surendra Trading Company vs. Juggilal Kamlapat Jute Mills Company Ltd. and Ors., which held that procedural provisions are generally 'directory' and not mandatory. The tribunal emphasized that procedural fairness requires that a corporate debtor who appears on the first date of hearing should not be in a worse position than one who does not appear.

Conclusion:

The tribunal concluded that the Adjudicating Authority did not grant reasonable opportunity to the corporate debtor to file its reply, as envisaged by Rule 37 of the NCLT Rules. The tribunal set aside the impugned order dated 29.03.2022 and allowed the appellant two weeks to file a reply before the Adjudicating Authority. The Financial Creditor was also entitled to file a rejoinder within two weeks thereafter. The application under Section 7 was revived before the Adjudicating Authority and listed for further proceedings in accordance with the law. No order as to costs was made.

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