Adverse remarks against bank officials set aside; limited relief granted in insolvency appeals under Section 95 IBC

NCLAT, Chennai AT, in company appeals arising from proceedings under Section 95 of the I&B Code, 2016, partially allowed the appeals filed by a financial creditor-bank. The Tribunal held that the stigmatic adverse remarks recorded by NCLT against the bank's counsel and officials, without affording them an effective opportunity to explain the alleged negligence, were unsustainable in law and ordered that such remarks in para 2 of the impugned order be expunged. The direction to communicate the NCLT order to the Chairman/Managing Director and General Manager of the bank was modified, directing instead that they ensure diligent and prompt assistance to NCLT in future proceedings.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the delay of 11 days in filing the appeals warranted condonation.

1.2 Whether the adjudicating authority was justified in making adverse, stigmatic remarks against the counsel and bank officials without granting them an effective opportunity of hearing.

1.3 Whether the imposition of costs of Rs. 50,000 on the financial creditor, linked to alleged negligence of bank officials, was justified.

1.4 Whether the directions to communicate the order to senior bank officials required modification, and to what extent.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of delay in filing the appeals

Interpretation and reasoning: The Court noted that the appeals were delayed by 11 days and that the delay was explained on the ground that the appellant had, in the meantime, filed applications seeking recall of the order dated 23.04.2025, which were rejected on 06.05.2025. The same set of reasons applied to both appeals.

Conclusions: The reasons were held to be reasonable; the applications for condonation of delay were allowed and the delay of 11 days in both appeals was condoned.

Issue 2: Legality of adverse, stigmatic remarks against counsel and bank officials without opportunity of hearing

Legal framework (as discussed): The Court proceeded on the principle that before any stigmatic remark is made against professionals (counsel or officials) which may affect their professional career or future progression, "ample opportunity" must be provided to the affected persons to raise their defence and explain the circumstances in which any alleged negligence occurred.

Interpretation and reasoning: The adverse remarks were made in relation to alleged failure to submit certain documents within a reasonable time, as directed under proceedings initiated under Section 95 of the I&B Code, 2016. The Court found that no effective opportunity had been provided by the adjudicating authority to the counsel and bank officials to defend themselves against accusations of negligence. Given the "stigmatic" nature of the observations and the absence of such opportunity, the Court held that such remarks "ought not to have been made."

Conclusions: The adverse observations in paragraph 2 of the impugned order, insofar as they related to the conduct of counsel and officials of the bank, were ordered to be expunged.

Issue 3: Justification for imposition of costs of Rs. 50,000 on the financial creditor

Interpretation and reasoning: The adjudicating authority had imposed costs of Rs. 50,000 to be deposited with the Prime Minister's relief fund, in conjunction with its adverse observations regarding the functioning and conduct of the bank officials and counsel in the proceedings. The Court observed that the imposition of costs had a "direct nexus" with the stigmatic observations concerning the functioning of the bank officials.

Conclusions: As the underlying stigmatic observations were found unsustainable and expunged, the Court held there was no justification to impose the costs of Rs. 50,000, and the direction imposing such costs was also expunged.

Issue 4: Validity and modification of directions to communicate the order to senior bank officials

Interpretation and reasoning: The adjudicating authority had directed that its order be communicated by the NCLT Registry to the Chairperson and Managing Director of the bank and the General Manager of the Stressed Asset Management Branch (SAMB) "so as to ensure proper supervision and compliance in the conduct of proceedings." The Court considered that, in light of expunging the stigmatic remarks and the costs, the form of the communication direction required modification, while still ensuring that bank officials discharge their duties diligently before the NCLT.

Conclusions: The Court modified the direction to the extent that a copy of the appellate order (rather than the original adverse order) would be sent to the Chairperson/Managing Director of the bank and the General Manager, SAMB, with the observation that they shall ensure that subordinates working under them diligently and promptly assist the NCLT, Amaravati, in future proceedings. Subject to this modification and the expunging of adverse remarks and costs, the appeals were partially allowed, with no further time being required for compliance since the appellant stated that the required documents had already been furnished.

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