2023 (9) TMI 83 - AT - Insolvency and Bankruptcy

Appeal allowed, ex-parte order set aside under Insolvency and Bankruptcy Code, 2016. Errors found in proceedings.

Mahesh Paricharak Versus Indian Overseas Bank

The appeal was allowed, and the impugned ex-parte order dated 16.12.2022 admitting the application under Section 7 of the Insolvency and Bankruptcy Code, ... CIRP - Admission of application u/s 7 of IBC in an Ex-parte order - error in recording the finding that the Corporate Debtor failed to appear before the Adjudicating Authority on multiple occasions despite notice - No proper opportunity to defend was granted - violation of principles of natural justice - HELD THAT:-In the facts given in the earlier part of this order about the manner in which the ex-parte proceedings have been carried out by the Adjudicating Authority against the Corporate Debtor making observation in the impugned order that the Corporate Debtor failed to appear on multiple occasion despite notice. This fact is not borne out from the record because the notice for the first time was issued by the Adjudicating Authority on 11.10.2022 for 07.11.2022 and on 07.11.2022, the case was adjourned to 21.11.2022 in which the Adjudicating Authority was not sure about the service having been effected by the Financial Creditor on the Corporate Debtor, therefore, it asked the Financial Creditor to file an affidavit of service within a week of the Corporate Debtor. However, it is pertinent to mention that both in the order dated 11.10.2022 and 07.11.2022, in the column of appearance, absence of the Corporate Debtor has been mentioned which in fact is a wrong recording of fact of absence. As an abundant caution, the Adjudicating Authority should have passed the order of proceeding against the Respondent ex-parte and should have listed the case for ex-parte hearing but the case was heard on the same day and the order was reserved - the observations made by the Adjudicating Authority in the impugned order that the Appellant (Corporate Debtor) remained absent on many occasions is patently erroneous and is not borne out from the record. Nothing survives for the Respondent to recover in the application filed under Section 7 of the Code therein. The present appeal succeeds and the impugned order is hereby set aside - Appeal allowed. Issues Involved:1. Whether the Adjudicating Authority erred in proceeding ex-parte against the Corporate Debtor.2. Validity of the ex-parte order dated 16.12.2022 admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.3. Impact of the out-of-court settlement on the ongoing insolvency proceedings.4. Rights of the Intervenor (Union Bank of India) in the insolvency proceedings.Summary:1. Ex-Parte Proceedings Against Corporate Debtor:The Adjudicating Authority issued notice to the Corporate Debtor on 11.10.2022, but the Corporate Debtor was absent on the next hearing date, 07.11.2022. The Financial Creditor was granted time to file an affidavit of service, which was filed on 18.11.2022. On 21.11.2022, the Corporate Debtor was again absent, and the Adjudicating Authority proceeded ex-parte and reserved the order. The Corporate Debtor argued that it was not given a proper opportunity to appear, as the notice was issued on 11.10.2022, and the first hearing was on 07.11.2022. The Tribunal found that the Adjudicating Authority erroneously recorded the Corporate Debtor's absence on multiple occasions, which was not supported by the record.2. Validity of Ex-Parte Order:The ex-parte order dated 16.12.2022 admitted the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, based on the Corporate Debtor's failure to appear. The Tribunal noted that the Adjudicating Authority should have passed an order to proceed ex-parte and listed the case for ex-parte hearing, rather than reserving the order on the same day. The Tribunal found the observations of the Adjudicating Authority regarding the Corporate Debtor's absence to be erroneous and set aside the impugned order.3. Out-of-Court Settlement:During the pendency of the appeal, the Corporate Debtor and the Financial Creditor entered into an out-of-court settlement, where the Corporate Debtor agreed to pay Rs. 24 Crores. The Tribunal observed that the Corporate Debtor had already made the entire payment of the amount sought in the application under Section 7 of the Code, rendering the dispute resolved. Consequently, the Tribunal held that nothing survives for adjudication and allowed the appeal, setting aside the impugned order.4. Rights of the Intervenor:Union Bank of India filed an application for intervention, claiming to be a creditor with a claim of Rs. 22,27,81,187.21/-. The Tribunal noted that the Intervenor had also filed a separate application under Section 7 of the Code before the Adjudicating Authority. The Tribunal directed that the Intervenor may pursue its application independently, and the Adjudicating Authority shall decide the same without being influenced by the present case. Similarly, the Financial Creditor's legal proceedings regarding the KCC account may continue independently.Conclusion:The appeal was allowed, and the impugned order dated 16.12.2022 was set aside. The Tribunal emphasized that the out-of-court settlement resolved the dispute, and no further adjudication was necessary. The Intervenor and Financial Creditor were directed to pursue their respective claims independently.