2020 (10) TMI 638 - AT - Insolvency and Bankruptcy

Appeal allowed, order set aside, Corporate Debtor released from CIRP, illegal actions deemed, assets returned

The appeal was allowed, setting aside the impugned order and remitting the matter for fresh consideration. The Corporate Debtor was released from the ... Initiation of CIRP proceedings - order of NCLT - also alleged that the ‘Corporate Debtor’ was never issued with a notice by the Tribunal, in the application filed by the First Respondent / ‘Financial Creditor’ - HELD THAT:- It is to be pointed out the question of whether there is a ‘debt’ and ‘default’ can be looked into only if a ‘Corporate Debtor’ disputes the debt or comes out with a plea that there is no default, though there is a ‘debt’. Besides this, in (Blacks’ Law Dictionary 9th edition) the words ‘time value’ are defined to mean the price associated with the length of time that an ‘investor’ must wait and till an investment matures or the related income is earned. In the instance case, the Appellant has come out with a plea that the ‘Corporate Debtor’ was never issued with notice by the ‘Adjudicating Authority’ (Tribunal) and since the ‘serving’ of advance copy of the application to the ‘Corporate Debtor’ cannot be construed / deemed to be service of notice in the eye of Law, this Tribunal holds that the ‘Adjudicating Authority’ / Tribunal while reserving orders in C.P. No. IB-3228 (ND)/2019 had committed error of jurisdiction in reserving orders and passed the impugned judgement without issuing notice to the ‘Corporate Debtor’ which is clearly unsustainable in the eye of Law. When a plea is taken before this Tribunal that there was no ‘Debt’ extended by the ‘Financial Creditor’ to the ‘Corporate Debtor’ and added further there was no privity of contract between the ‘Financial Creditor’ and ‘Corporate Debtor’, this Tribunal is of the earnest opinion that in the impugned order there was no finding rendered by the ‘Adjudicating Authority’ as to how a third party payment became a ‘Financial Debt’ or how a ‘Financial Creditor’ had become a ‘Financial Creditor’, in the absence of any ‘Financial Debt’ - It cannot be brushed aside that the third party ‘Taj Consultancy’ was not a party to the proceeding before the ‘Adjudicating Authority’ and further that Mr. Rajeev Aggarwal, according to the Appellant is neither a Director or a Shareholder of the ‘Corporate Debtor’ and the impugned order is conspicuously silent about this vital aspect. On this score also the impugned order of the ‘Adjudicating Authority’ suffers from legal infirmity. Matter remanded to the ‘Adjudicating Authority’ [National Company Law Tribunal, New Delhi Bench-VI, New Delhi] for fresh consideration and appreciation - appeal allowed by way of remand. Issues Involved:1. Condonation of delay in filing the appeal.2. Notice issuance to the Corporate Debtor.3. Existence of financial debt and privity of contract.4. Allegations of fraudulent or malicious intent in initiating Corporate Insolvency Resolution Process (CIRP).5. Legal infirmities in the impugned order.Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The Applicant/Appellant sought condonation of a 16-day delay in filing the appeal, arguing that the free copy of the impugned order dated 31.01.2020 was not communicated as per Section 7(7) of the Insolvency and Bankruptcy Code (I&B Code). The copy was received from the first Respondent's representative on 04.03.2020 and downloaded from the National Company Law Tribunal (NCLT) website. The Tribunal condoned the delay, taking a practical, purposeful, meaningful, and pragmatic view.2. Notice Issuance to the Corporate Debtor:The Appellant contended that the Corporate Debtor was never issued a notice by the Tribunal in the application filed by the Financial Creditor under Section 7 of the I&B Code. The Tribunal noted that the service of an advance copy of the application could not be deemed as service of notice. The Tribunal emphasized that the Adjudicating Authority should have followed the 'Service of Notices and Processes' as per Rule 38 of the NCLT Rules, 2016, and the failure to do so constituted a jurisdictional error.3. Existence of Financial Debt and Privity of Contract:The Appellant argued that there was no financial debt extended by the Financial Creditor to the Corporate Debtor and no privity of contract between them. The alleged debt was purportedly paid by a third party, Taj Consultancy, which was not part of the proceedings. The Tribunal observed that the impugned order lacked findings on how a third-party payment became a financial debt or how the Financial Creditor was considered a Financial Creditor in the absence of any financial debt.4. Allegations of Fraudulent or Malicious Intent in Initiating CIRP:The Appellant alleged that the CIRP proceedings were initiated by the Financial Creditor with the intent to extort money from the Corporate Debtor by filing frivolous proceedings. The Tribunal referred to Section 65 of the I&B Code, which specifies penalties for fraudulent or malicious commencement of proceedings. The Tribunal noted that there was no evidence that the Corporate Debtor had not come with clean hands or suppressed any facts, and thus, no penalty was warranted.5. Legal Infirmities in the Impugned Order:The Tribunal found several legal infirmities in the impugned order, including the lack of notice to the Corporate Debtor and the absence of findings on the existence of financial debt and privity of contract. The Tribunal concluded that the Adjudicating Authority had committed a jurisdictional error by reserving orders and passing the impugned judgment without issuing notice to the Corporate Debtor.Conclusion:The Tribunal allowed the appeal, set aside the impugned order dated 31.01.2020, and remitted the matter back to the Adjudicating Authority for fresh consideration. The Corporate Debtor was released from the CIRP, and all actions taken by the Interim Resolution Professional and the Committee of Creditors were declared illegal and set aside. The Resolution Professional was directed to hand over the records and assets of the Corporate Debtor to its Promoter/Directors. The Adjudicating Authority was instructed to determine the fee and cost of the CIRP, to be borne by the Financial Creditor.