2021 (7) TMI 1086 - AT - Insolvency and Bankruptcy

Tribunal Upholds Order in Insolvency Appeal Emphasizing Timely Resolution and Procedure Regulation

The Tribunal dismissed the appeal against the impugned order in CP (IB) No. 159/CTB/2019 under Section 9 of IBC. The Appellant's challenge regarding the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - although the contingent liability was existing, the same was not shown in the Annual Return - documents concerned were public document - whether Appellant is justified to carry the appeal only because the Adjudicating Authority had given directions to produce the Balance Sheets? - HELD THAT:- The Application under Section 9 of IBC has been pending before the Adjudicating Authority since December, 2019. Keeping in view Section 9 of the IBC, it was required to be ordered upon in 14 days with Limited Notice to the Corporate Debtor. When above interim order was passed, the matter has been carried to this Tribunal and on 10th August, 2020 relying on the judgment of V. Padmakumar Vs. Stressed Assets Stabilisation Fund & Anr. [2020 (3) TMI 1244 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI], the appeal was sought to be entertained. This Tribunal had then granted stay to the hearing before the Adjudicating Authority. The Adjudicating Authority which is basically dealing with the matter in summary manner, is not bound by the procedure laid down by the Code of Civil Procedure but shall be guided by the principles of natural justice and can regulate its own procedure. Even if Order XI Rule 12 of CPC may be prescribing that any party may without filing affidavit apply to the Court for Discovery of Documents, the same does not stop the Adjudicating Authority from regulating own procedure reading sub-section (2) with sub-section (1) if the Adjudicating Authority in the course of arguments finds that it needs to peruse particular documents. In the present matter the Adjudicating Authority was not dealing with any application filed or sought by the Operational Creditor but while hearing the arguments in the matter which was on pre-admission stage and not yet admitted, the Adjudicating Authority found it necessary to go through the Profit and Loss account and Balance Sheets of the Company. As such it passed the impugned order. The Application under Section 9 of IBC has been pending for long and against the spirit of provisions of IBC. The delay must be affecting the maximization of value of assets. The merits of the application under Section 9 have yet not been adjudicated and decided and so we are not entering in the issue whether there was a pre-existing dispute - It is apparent that for hearing the matter, the Adjudicating Authority needed a particular document which is even otherwise admittedly a public document. If that was so, there was no good reason to file the present appeal and to raise a dispute as has been raised. Appeal is dismissed. Issues:- Appeal against impugned order passed by the Adjudicating Authority in CP (IB) No. 159/CTB/2019 under Section 9 of IBC.- Validity of the impugned order for discovery of documents.- Interpretation of Section 424 of Companies Act, 2013 in relation to the Adjudicating Authority's powers.- Justifiability of filing the appeal against the impugned order.- Impact of delay on the maximization of asset value in the pending Application under Section 9 of IBC.Analysis:Issue 1: Appeal against impugned orderThe Appellant filed an appeal against the impugned order passed by the Adjudicating Authority under Section 9 of IBC. The Appellant argued that the order was akin to directions for Discovery of Documents under Order XI Rule 12 of CPC, emphasizing the necessity of following proper procedures and recording reasons for such orders. The Appellant contended that the order lacked reasoning and highlighted pre-existing disputes between the parties since 2016. The Respondent, however, pointed out that the documents directed to be produced were in the public domain and accessible, questioning the rationale behind the appeal.Issue 2: Validity of impugned order for discovery of documentsThe Adjudicating Authority's order for the production of Balance Sheets was challenged by the Appellant, citing the need for formal applications and adherence to prescribed procedures. The Respondent argued that the documents were readily available in the public domain, questioning the Appellant's motive for appealing the order. The Tribunal noted that the Adjudicating Authority, not bound by CPC procedures, acted within its powers to regulate its own procedure, especially during the pre-admission stage of the matter.Issue 3: Interpretation of Section 424 of Companies Act, 2013The Tribunal examined Section 424 of the Companies Act, 2013, emphasizing the Adjudicating Authority's discretion to regulate its procedure guided by principles of natural justice. The Tribunal clarified that the Adjudicating Authority's actions were within the scope of Rule 11 of the NCLT Rules, allowing flexibility in requiring document production during proceedings.Issue 4: Justifiability of filing the appealThe Tribunal considered the Appellant's delay in adjudicating the Section 9 application under IBC, highlighting the adverse impact on asset value maximization. The Tribunal opined that the merits of the application had not been decided, and the appeal only prolonged the proceedings, contrary to the spirit of IBC. The Tribunal dismissed the appeal, emphasizing the need for timely resolution of insolvency matters.Issue 5: Impact of delay on asset value maximizationThe Tribunal underscored the adverse effects of delays in resolving insolvency matters, noting that the pending Section 9 application required expeditious adjudication to maximize asset value. The Tribunal's decision to dismiss the appeal aimed to streamline the proceedings and uphold the efficiency of the insolvency resolution process.In conclusion, the Tribunal dismissed the appeal against the impugned order, emphasizing the importance of timely resolution in insolvency proceedings to maximize asset value and uphold the spirit of the IBC.