Appellate Tribunal overturns insolvency order, declares Corporate Debtor free from restrictions

The Appellate Tribunal set aside the order admitting the application under Section 7 of the Insolvency and Bankruptcy Code due to the failure to provide notice to the Corporate Debtor. All orders by the Adjudicating Authority were declared illegal, and the Corporate Debtor was released from legal restrictions. The matter was not remitted back, and the Corporate Debtor could function independently. The Adjudicating Authority was tasked with determining the Interim Resolution Professional's fee, to be paid by the Corporate Debtor. The appeal was allowed, no costs were awarded, and the proceedings were to be closed.

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Issues: Challenge to admission of application under Section 7 of the Insolvency and Bankruptcy Code, 2016 due to lack of notice to Corporate Debtor.

Analysis:
The judgment involves a challenge by a Shareholder and Director of a company against the order passed by the Adjudicating Authority admitting an application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The main contention raised was the failure of the Adjudicating Authority to issue any notice prior to the admission of the application. The Respondent argued that although the Financial Creditor had issued a notice and provided proof of service, the Adjudicating Authority itself had not issued any notice to the Corporate Debtor. The absence of any record indicating notice served on the Corporate Debtor was highlighted.

The Appellate Tribunal referred to the case law of "M/s. Innoventive Industries Ltd. v. ICICI Bank & Anr." where it was established that the Adjudicating Authority is obligated to issue a limited notice to the Corporate Debtor before admitting an application under the Insolvency and Bankruptcy Code. In the present case, the Tribunal found that this procedural requirement had not been met, thereby violating the principles of natural justice. Consequently, the impugned order admitting the application was set aside due to the failure to provide notice to the Corporate Debtor regarding the admission.

Since the matter had already been settled between the parties and a Terms of Settlement document had been filed, the Tribunal decided not to remit the matter back to the Adjudicating Authority. All orders passed by the Adjudicating Authority, including the appointment of an Interim Resolution Professional, declaring a moratorium, freezing accounts, and any actions taken by the Interim Resolution Professional, were declared illegal and set aside. The application under Section 7 of the Insolvency and Bankruptcy Code was dismissed, and the Corporate Debtor was released from all legal restrictions to function independently through its Board of Directors immediately.

Furthermore, the Adjudicating Authority was directed to determine the fee of the Interim Resolution Professional, which the Corporate Debtor would be liable to pay for the period of the professional's service. The appeal was allowed with the aforementioned observations, and no costs were awarded in the circumstances of the case. The proceedings were to be closed by the Adjudicating Authority following the Tribunal's decision.

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