Appeal Tribunal overturns Adjudicating Authority's Order due to failure to consider pre-existing objections

The Appeal Tribunal set aside the Adjudicating Authority's Order in a case involving encumbrance during Corporate Insolvency Resolution Process (CIRP). The Authority's failure to consider pre-existing objections and attachments made before CIRP initiation led to the Appeal Tribunal overturning the decision. The Tribunal emphasized the significance of acknowledging pre-existing attachments and objections, stressing procedural fairness and adherence to natural justice principles in insolvency matters.

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Issues: Appeal against Order dated 11th October 2019 passed by Adjudicating Authority in Company Petition No. CP/1037/(I.B.)/2018

Issue 1: Consideration of encumbrance during Corporate Insolvency Resolution Process (CIRP)
The Financial Creditor filed a company petition under Section 7 of the IBC, leading to the appointment of a Resolution Professional who sought to cancel the encumbrance created by an attachment order registered by EPFO Vellore. The Resolution Professional argued that the encumbrance violated the Moratorium under Section 14(1) of the Code, potentially impacting creditor interests during liquidation. The Adjudicating Authority allowed the Resolution Professional's application, emphasizing the prohibition on creating encumbrances during the Moratorium period.

Issue 2: Failure to consider objections and attachments made before CIRP initiation
The Adjudicating Authority passed the impugned Order without considering objections filed by the Recovery Officer of EPFO, despite objections being on record. The Recovery Officer had attached the Corporate Debtor's immovable properties before the initiation of CIRP, but the attachment was only recorded during CIRP. The Authority neglected to acknowledge that the attachment predated the CIRP initiation, leading to the Appeal Tribunal setting aside the impugned Order due to the Authority's failure to consider the pre-existing attachment and objections raised.

Conclusion
The Appeal Tribunal allowed the appeal, setting aside the impugned Order without imposing costs. The detailed analysis highlighted the importance of considering pre-existing attachments and objections during CIRP proceedings, emphasizing the need for procedural fairness and adherence to the principles of natural justice in insolvency cases.

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