Tribunal upholds decision to admit insolvency application under Section 7 of Insolvency and Bankruptcy Code.

The Tribunal dismissed the appeal and upheld the Adjudicating Authority's decision to admit the insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Tribunal found that the Adjudicating Authority had provided adequate opportunity to the corporate debtor and followed procedural rules and principles of natural justice. It emphasized the necessity of demonstrating default for admitting such applications.

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Issues Involved:
1. Validity of the ex-parte order dated 04.11.2022.
2. Compliance with procedural rules and natural justice.
3. Admission of the insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Detailed Analysis:

1. Validity of the Ex-Parte Order Dated 04.11.2022:
The appellant, the suspended director of the corporate debtor, contested the ex-parte order passed by the Adjudicating Authority (NCLT, Hyderabad Bench - II) on 04.11.2022. The appellant argued that the corporate debtor inadvertently missed the notice issued by the Tribunal and was not given a fair opportunity to present its case. The appellant had filed two interlocutory applications (IA Nos. 1338 and 1339 of 2022) seeking to set aside the ex-parte order and recall the order dated 10.11.2022. However, these applications were not taken up by the Adjudicating Authority, which proceeded to deliver the final order on 15.11.2022.

2. Compliance with Procedural Rules and Natural Justice:
The appellant argued that the proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, should not be concluded without providing a fair and reasonable opportunity of hearing to the respective parties. The appellant contended that the Adjudicating Authority did not follow the procedure enunciated under Rule 37 of the NCLT Rules, 2016, which mandates issuing notice to the respondent and providing a reasonable opportunity to be heard before proceeding ex-parte. The appellant also cited several judgments emphasizing the importance of adhering to the principles of natural justice and providing a fair hearing.

The respondent (State Bank of India) countered that the Insolvency and Bankruptcy Code, 2016, is a special law and the Adjudicating Authority need not follow the rules made under the Companies Act, 2013. The respondent argued that the Adjudicating Authority had directed the bank to issue private notice to the corporate debtor, which was duly complied with. The bank had sent notices through email and registered post, and the corporate debtor was set ex-parte due to non-appearance.

3. Admission of the Insolvency Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The Adjudicating Authority admitted the insolvency application filed by the respondent under Section 7 of the Insolvency and Bankruptcy Code, 2016, based on the evidence of debt and default. The appellant contended that the corporate debtor is a going concern with significant assets and arbitral awards in its favor, which were not considered by the Adjudicating Authority. The appellant argued that the proceedings were conducted in a hasty manner, and the corporate debtor was not given sufficient time to file a reply.

The Tribunal observed that the Adjudicating Authority had followed the mandate prescribed under Rule 38(2)(c) of the NCLT Rules, 2016, and provided sufficient opportunity to the corporate debtor to represent its case. The Tribunal noted that the corporate debtor had admitted its liability and default in various documents, including balance confirmation and annual reports. The Tribunal concluded that there was overwhelming evidence of debt and default, and the Adjudicating Authority had exercised its discretion judiciously in admitting the insolvency application.

Conclusion:
The Tribunal dismissed the appeal, upholding the order of the Adjudicating Authority admitting the insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The connected interlocutory applications were also closed. The Tribunal found that the Adjudicating Authority had provided sufficient opportunity to the corporate debtor and followed the procedural rules and principles of natural justice. The Tribunal emphasized that the presence of default is a sine qua non for admitting an application under the Insolvency and Bankruptcy Code, 2016.

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