2021 (10) TMI 895 - AT - Companies Law

Appellate Tribunal directs NCLT to allow reply filing and ensure natural justice in company petition

The Appellate Tribunal directed the NCLT Mumbai Bench to allow the appellants to file their reply/response to the main company petition and to pass fresh ... Freezing of Assets and ‘Bank Accounts’ of the Appellant - Opportunity of Hearing provided or not - principles of natural justice - HELD THAT:- It must be borne in mind that the ‘Rules of Natural Justice’ are not the edicts of a statute. As a matter of fact, the rudimentary requirement is that (i) Fair play (ii) a Determination/An Adjudication is to be made after ascribing necessary reasons in a fair, just, and objective manner of course, based on the relevant facts/materials in a given case - an opportunity of hearing is to be afforded to an ‘individual’ to air / put forward is point of view by either contradicting or raising objection, in regard to the claim which is ‘Detrimental’ to him. No wonder, the ‘Rules of Natural Justice’ do supplement the Law and they do not ‘Supplant the Law’. It cannot be forgotten that the ‘Tribunal’ has the trappings of a ‘Court’ and its powers are limited to the ingredients of the Companies Act, 2013 in that behalf and exercised in specified matters mentioned therein. The ‘Tribunal’ and the ‘Appellate Tribunal’ are to be guided by the ‘Principles of Natural Justice’ - this Appellate Tribunal makes a significant mention that whether a certain ‘Principles of Natural Justice’ is applicable to a particular situation or whether in a given case there is violation of ‘Principle of Natural Justice’ is to be judged on the facts and circumstances of each case, which float on the surface. Rule 44 of the ‘NCLT’ Rules, 2016 pertains to hearing of petition or applications. Rule 45 deals with ‘rights of a party to appear before the Tribunal’. Rule 49 speaks of Ex parte hearing and disposal. Rule 51 refers to ‘Power to regulate the procedure’. Rule 55 says that ‘No pleadings subsequent to the reply, shall be presented except by the leave of the Tribunal upon such terms as the Tribunal may think fit - there is no two opinion of a primordial fact that the ‘Tribunal’ in a given case is not to pass an order in a flurry manner and of course, it is to pass an order with utmost care, caution and circumspection. Ordinarily, no man shall be condemned without being heard. ‘Notice’ is the initial element and integral part of the principle of natural justice. Section 241(2) of the Companies Act, 2013 empowers the Central Government, if it is of the opinion that the affairs of the Company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order etc. under the Companies Act, there is no restriction on the generality of the power of a Tribunal. Section 242 of the Companies Act is verbatim similar to that of Section 402 of the Companies Act. As per Section 242(m) of the Companies Act, 2013, the Tribunal, for any other matter, in its opinion it is just and equitable that a provision should be made can pass orders on just and equitable ground. NCLT is directed to pass necessary fresh recent orders in a fair, just, dispassionate manner on merits, afresh (because of the fact that there was a ‘negation of principles of natural justice’ in not adhering to the ‘National Company Law Tribunal’ Rules, 2016, in so far as the Appellants/Respondents 11 and 12 are concerned). Appeal disposed off. Issues Involved:1. Legality of the 'Ex-parte' interim order freezing assets and bank accounts.2. Compliance with the principles of natural justice.3. Jurisdiction of the Mumbai Bench of the National Company Law Tribunal (NCLT).4. Justification for impleading the appellants as respondents.5. Applicability of Sections 241(2), 242, 246, and 339 of the Companies Act, 2013.6. The necessity of the appellants as parties to the proceedings.7. The impact of previous judicial decisions on the current case.Detailed Analysis:1. Legality of the 'Ex-parte' Interim Order Freezing Assets and Bank Accounts:The appellants contended that the 'Ex-parte' interim order dated 31.08.2021 by the NCLT Mumbai Bench, which directed the freezing of their assets and bank accounts, was illegal. They argued that the order was passed without providing them an 'Opportunity of Hearing,' which adversely affected their livelihood and brought their families into a 'penury position.' The appellants were not initially a party to the main Company Petition No.294/MB/2021, and no notice was issued to them regarding their impleadment.2. Compliance with the Principles of Natural Justice:The appellants argued that the NCLT Mumbai Bench violated the principles of 'Fair Play' and 'Natural Justice' by denying an adjournment despite the non-service of the petition. They emphasized that Section 424 of the Companies Act, 2013, read with Rule 23(5) of the NCLT Rules, 2016, mandates the fulfillment of the principles of 'Natural Justice.' The appellants claimed that the impugned order was passed without adherence to these principles, making it null and void.3. Jurisdiction of the Mumbai Bench of the NCLT:The appellants contended that the application under Section 241(2) of the Companies Act, 2013, should lie only before the 'Principal Bench' of the Tribunal, as per the proviso to Section 241(2). They argued that the Mumbai Bench lacked jurisdiction, making the impugned order a nullity. However, the First Respondent countered that the proviso to Section 241(2) would apply only when the Central Government prescribes such a company or class of companies, which had not been done, making the proviso inapplicable.4. Justification for Impleading the Appellants as Respondents:The appellants argued that there was no justification for their impleadment as respondents since there were no allegations against them in the 'Auditor's Report' or the 'Avoidance Application' filed by the Resolution Professional. They had resigned from the Second Respondent on 31.03.2017 and were not involved in the 'Writing Off' of INR 21.18 crores. The First Respondent, however, maintained that the appellants, as 'Key Managerial Personnel,' were necessary parties to the litigation due to their roles and responsibilities during the period of 'Transaction Audit Review.'5. Applicability of Sections 241(2), 242, 246, and 339 of the Companies Act, 2013:The appellants argued that there is no power under Sections 241(2), 242, 246, and 339 of the Companies Act, 2013, to pass an order freezing the assets and bank accounts of employees or ex-employees of the company. They contended that the Tribunal cannot exercise jurisdiction beyond the 'strict letter of Law.' The First Respondent, however, argued that these sections empower the Central Government to apply to the Tribunal if the affairs of the company are conducted in a manner prejudicial to public interest.6. The Necessity of the Appellants as Parties to the Proceedings:The appellants argued that they were not necessary or proper parties to the proceedings. They cited previous judicial decisions where similar orders were stayed for officers who had resigned from the company. The First Respondent, however, maintained that the appellants were necessary parties due to their roles as 'Key Managerial Personnel' and their involvement in the company's affairs during the period of 'Transaction Audit Review.'7. The Impact of Previous Judicial Decisions on the Current Case:The appellants cited several judicial decisions to support their arguments, including orders from the Hon'ble Supreme Court and the Hon'ble High Court of Delhi, which stayed similar orders against officers who had resigned from the company. The First Respondent, however, cited decisions where the principles of natural justice were not considered sacrosanct when they impeded justice and where interim orders were passed against persons not initially respondents.Conclusion:The Appellate Tribunal directed the NCLT Mumbai Bench to allow the appellants to file their reply/response to the main company petition and to pass fresh orders on merits, adhering to the principles of natural justice. The impugned order dated 31.08.2021 was made subject to the fresh determination by the Tribunal after considering the appellants' pleadings and providing an opportunity of hearing. The appeals were disposed of with no costs.