2021 (9) TMI 929 - AT - Insolvency and Bankruptcy

Tribunal upholds Adjudicating Authority's decision on ex-parte order, allows pursuit of settlement through legal provisions.

The Tribunal dismissed the appeal, upholding the Adjudicating Authority's decision not to set aside the ex-parte order after the constitution of the ... Ex-parte order filed by the Corporate Debtor filed for initiation of CIRP - power of Adjudicating Authority to use power under Rule 49 of National Company Law Tribunal Rules, 2016 at belated stage - Section 424 (1) of the Companies Act, 2013 r/w Rule 11 of the National Company Law Tribunal, Rules, 2016 - HELD THAT:- Admittedly, the Ld. Adjudicating Authority has vide order dated 27.05.2020 admitted the application under Section 9 of the IBC filed by the Operational Creditor Respondent No. 1 and the Appellant has filed the Application for setting aside the ex-parte order on 06.11.2020 under Section 424 (1) of the Act r/w Rule 11 of NCLT Rules, 2016 stating that the Corporate Debtor has not received the notice. It is also an admitted fact that CoC has been constituted on 20.11.2020 i.e. after filing of the aforesaid Application for setting aside ex-parte order of admission. It is settled that once the Application under Section 7 or 9 is admitted and CIRP initiated, such proceeding is in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. Before a CoC is constituted, a party can approach the Adjudicating Authority directly and the Adjudicating Authority may in exercise of its powers under Section 12A of the IBC r/w Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 allow or disallow an application for withdrawal or settlement - after constitution of CoC the Adjudicating Authority cannot set aside even ex-parte admission order and in such a situation the Corporate Debtor has to file the Appeal under Section 61 of the IBC. In the present case, the Application under Section 9 was admitted on 27.05.2020 and the Appellant (Corporate Debtor) has filed the Application for setting aside the ex-parte admission order on 06.11.2020 whereas the CoC has been constituted thereafter on 20.11.2020. In such a situation before constitution of CoC the Ld. Adjudicating Authority can consider the Application for setting aside ex-parte admission order but after constitution of the CoC the Ld. Adjudicating Authority cannot in exercise of power under Rule 49(2) of the NCLT Rules, 2016 set aside the ex-parte admission order. Ld. Adjudicating Authority has passed the impugned order after constitution of CoC i.e. on 23.03.2021, therefore, there are no illegality in the impugned order. Appeal dismissed. Issues Involved:1. Whether the Adjudicating Authority can set aside an ex-parte order initiating Corporate Insolvency Resolution Process (CIRP) under Rule 49(2) of the NCLT Rules, 2016.2. Whether the notice was duly served on the Corporate Debtor.3. Whether the constitution of the Committee of Creditors (CoC) affects the ability to set aside the ex-parte order.4. Whether the settlement between the Corporate Debtor and Operational Creditor impacts the CIRP proceedings.Detailed Analysis:1. Whether the Adjudicating Authority can set aside an ex-parte order initiating CIRP under Rule 49(2) of the NCLT Rules, 2016:The Appellant argued that the Adjudicating Authority erroneously refused to set aside the ex-parte order, despite the notice not being duly served on the Corporate Debtor. The relevant provision, Rule 49(2) of the NCLT Rules, 2016, allows the Tribunal to set aside an ex-parte hearing if the notice was not duly served or if there was sufficient cause for the respondent's non-appearance. The Tribunal emphasized that once the CIRP is initiated, the proceedings become in rem, meaning they affect the rights of all creditors and stakeholders, not just the parties involved. Therefore, after the constitution of the CoC, the Adjudicating Authority cannot set aside the ex-parte order and the Corporate Debtor must file an appeal under Section 61 of the IBC.2. Whether the notice was duly served on the Corporate Debtor:The Appellant contended that they did not receive the notice and only became aware of the ex-parte order during a conversation with a bank employee. The record showed that the notice sent to the Corporate Debtor was returned with the postal remark 'left.' The order sheets from the Adjudicating Authority indicated that the Operational Creditor was directed to inform the Corporate Debtor of the hearing date, but there was no evidence that this was done. The Tribunal found that the notice was not duly served on the Corporate Debtor.3. Whether the constitution of the CoC affects the ability to set aside the ex-parte order:The Tribunal noted that the application to set aside the ex-parte order was filed before the constitution of the CoC. However, the CoC was constituted on 20.11.2020, after the application was filed but before the Adjudicating Authority disposed of the application on 23.03.2021. The Tribunal referred to the Supreme Court's decision in Swiss Ribbons Pvt. Ltd. Vs. Union of India, which held that after the constitution of the CoC, the Adjudicating Authority cannot set aside the ex-parte order. Therefore, the Tribunal found no illegality in the Adjudicating Authority's decision to refuse to set aside the ex-parte order after the CoC was constituted.4. Whether the settlement between the Corporate Debtor and Operational Creditor impacts the CIRP proceedings:The Appellant submitted that a settlement was reached between the Corporate Debtor and the Operational Creditor, and the CoC was informed of this settlement. The CoC directed the IRP to file an application for the withdrawal of the CIRP. The Tribunal noted that if the matter is settled, the Operational Creditor can file an application for withdrawal under Section 12A of the IBC r/w Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Tribunal did not interfere with the impugned order but indicated that the settlement could be pursued through the appropriate legal provisions.Conclusion:The Tribunal dismissed the appeal, finding no illegality in the Adjudicating Authority's decision to refuse to set aside the ex-parte order after the constitution of the CoC. It was noted that the Corporate Debtor and Operational Creditor could still pursue withdrawal of the CIRP through the appropriate legal mechanisms.