NCLAT sets aside penalty order under Section 70 IBC citing natural justice violations and legal errors

NCLAT Principal Bench set aside the lower tribunal's penalty order under Section 70 of IBC, finding violation of natural justice principles. The Adjudicating Authority failed to consider applicable law and established precedents while imposing the penalty. The appellate tribunal concluded the impugned order was unsustainable due to these procedural and legal errors. Matter was remanded to NCLT New Delhi Bench Court-III for fresh consideration in accordance with law and precedents, directing appropriate order be passed after proper examination of the case.

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Issues Involved:
1. Jurisdiction of the Adjudicating Authority u/s 70 of the Code.
2. Compliance with Section 236 of the Code.
3. Non-cooperation by the Appellants with the Resolution Professional.

Summary:

Jurisdiction of the Adjudicating Authority u/s 70 of the Code:
The Appellants contended that the Adjudicating Authority lacked jurisdiction to impose penalties u/s 70 of the Code, which deals with "offences and penalties" and falls within the purview of Special Courts as per Section 236 of the Code. They argued that any prosecution under Section 70 must follow the procedure outlined in Section 236(2) of the Code, which mandates that offences be tried by a Special Court. The Appellants cited previous judgments, including *Vivek Prakash v. Dinesh Kr. Gupta* and *Lagadapati Ramesh v. Mrs. Ramanathan Bhuvaneshwari*, to support their claim that the Adjudicating Authority cannot directly impose penalties under Section 70.

Compliance with Section 236 of the Code:
The Appellants argued that the Adjudicating Authority erred in exercising powers that are vested exclusively in Special Courts under Section 236 of the Code. They emphasized that no Court shall take cognizance of any offences punishable under the Act unless a complaint is made by the Board, the Central Government, or an authorized person. The Appellants referenced multiple judgments, including *Union of India v. Maharashtra Tourism Development Corporation* and *Writer Business Services (P.) Ltd. v. Ashutosh Agrawala*, which clarified that prosecution under Section 70 must be initiated by appropriate authorities and not by the Adjudicating Authority.

Non-cooperation by the Appellants with the Resolution Professional:
The Respondent, the Liquidator of the Corporate Debtor, alleged that the Appellants failed to provide necessary documents and information, thereby not cooperating with the Resolution Professional. The Adjudicating Authority, in its Order dated 07.06.2022, imposed a fine of Rs. 10,00,000/- on each of the Appellants for their non-cooperation, invoking Section 70 of the Code. The Respondent argued that the Adjudicating Authority acted within its powers to ensure compliance and cooperation as mandated by Section 19 of the Code.

Conclusion:
After analyzing the arguments and cited judgments, the Appellate Tribunal concluded that the Adjudicating Authority erred in passing the Impugned Order by overlooking the statutory provisions and precedent cases. The Tribunal set aside the Impugned Order and remanded the case back to the National Company Law Tribunal, New Delhi Bench, Court-III for a fresh decision in accordance with the law. The Appellants and the Respondent were directed to appear before the NCLT on 8th November, 2023. No costs were imposed, and any interlocutory applications were closed.

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