2023 (1) TMI 57 - AT - Insolvency and Bankruptcy

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

Mr. T.V. Sandeep Kumar Reddy, Suspended Director, M/s. Gayatri Projects Limited Versus State Bank of India, M/s. Gayatri Projects Limited

The Tribunal dismissed the appeal and upheld the Adjudicating Authority's decision to admit the insolvency application under Section 7 of the Insolvency ... Initition of CIRP - Ex-parte order - Corporate Debtor could not appear before the NCLT - Validity of impugned order - Burden to prove - It is the version of the Appellant that when a Statute specifies that a particular thing, is to be performed in a particular manner, it has to be done only in that fashion, and further that in the present case, the procedure enunciated, under Rule 37 of NCLT Rules, 2016, was not followed, by the Adjudicating Authority / Tribunal - HELD THAT:- The Burden of Proving, the Service of Summons, is on the Petitioner / 1st Respondent / Bank / Financial Creditor. In Law, if a registered Summons / Notice is sent to a Respondent / Defendant, at his / her correct address, the presumption of Service, arises, and an Ex-parte Decree, will not be set aside - In a given case, where Summons / Notice, correctly addressed sent by a Registered Post with Acknowledgement, not received back, the same is presumed to be Served. An Adjudicating Authority, under the I & B Code, 2016, is to provide a reasonable opportunity, to a Corporate Debtor, and as per sub-section 4 (7) of the Code, is to ascertain the factum of Default, from the records of Information Utility or from the evidence furnished, by the Financial Creditor - Where the Record showed that an Application / Petition was preferred on the Proforma, prescribed under the Rule 4 (2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and if an Adjudicating Authority, was satisfied, if the Default, had taken place, there is no illegality, in admitting the Application, filed by the Financial Creditor, under the I & B Code, 2016. An Application / Petition, under Section 7 of the Code, is to be considered by an Adjudicating Authority, on its own merits, taking into consideration of the available materials on record - Where the post filing, the Notice, as required under Rule 4 (3) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, was sent to the Corporate Debtor, and if the said Corporate Debtor, does not appear, before the Adjudicating Authority, the Petition, filed by a Financial Creditor, can be determined Ex-parte. There is no prohibition in Law, in this regard - An Application, under Section 7 of the I & B Code, 2016, is not to be rejected, merely on technical ground. An Acknowledgement - HELD THAT:- Under the Limitation Act, 1963, an Acknowledgement, ought to be in writing and signed by a Person, making an Acknowledgement. In fact, the exact sum or nature of Claim, need not be Acknowledged - the requirement of Section 18 and 19 of the Limitation Act, 1963, are quite independent and they are not cumulative in character. A mere denial, will not take the sheen off the document(s) and the Claim of the Creditor, remain alive, within the meaning of Section 18 of the Limitation Act, 1963. A Judicial Discretion, is to be regulated, as per known Rules of Law, and not on mere impulse or whim of a Person, for whom, it is given on the hypothesis that he is circumspect - In the instant case, it cannot be forgotten that the Adjudicating Authority (Tribunal), on 21.10.2022 at 2.30 P.M. (through Video Conferencing Hearing in CP (IB) / 308 / 7 / HDB / 2022), had directed the 1st Respondent/Bank (Financial Creditor), to serve Notice to the 2nd Respondent / M/s. Gayatri Projects Ltd. (Corporate Debtor), by Speed Post, and Email, within 5 days from today, i.e., 21.10.2022 and the Proof of Service, was directed to be filed, before the next hearing date. Any Person, who is in Law, entitled to Stake a Claim for payment, has no prohibition, under the I & B Code, 2016, to prefer the same, by means of an Application / Petition. The prevalent of Default, is a Sine Qua Non, for Admitting, an Application/ Petition, under the I & B Code, 2016, in respect of the Insolvency Proceedings. This Tribunal, on going through the impugned order (Filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, r/w Rule 4 of the I & B (Application to Adjudicating Authority) Rules, 2016, passed by the Adjudicating Authority, (National Company Law Tribunal, Hyderabad Bench – II, Hyderabad), comes to a consequent conclusion that in the instant case on hand, there is overwhelming evidence of Debt Due, payable in Fact and in Law, and Default, the Adjudicating Authority, had exercised its subjective discretion in a sound, judicious and right thinking manner, and accordingly Admitted the CP (IB) No.308 / 7 / HDB / 2022, filed by the 1st Respondent / Bank(Financial Creditor), which requires no interference, in the hands of this Tribunal, sitting in Appeal. Consequently, the Appeal fails. Appeal dismissed. 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.