2022 (9) TMI 1701 - AT - IBC

Natural justice requires reasons and a fair hearing before threshold dismissal of an insolvency petition.

A threshold dismissal of a section 9 insolvency application without a reasoned order and without giving the respondent an opportunity to file a reply was ... Reasoned orders - Principles of natural justice - Dismissal in limineReasoned orders - Principles of natural justice - Opportunity to file reply - The dismissal of the Section 9 application in limine, without affording the respondent an opportunity to file a reply and without recording proper reasons, was unsustainable. - HELD THAT: - The Appellate Tribunal held that, even in the absence of any specific prescribed form for an order under the Code, the Adjudicating Authority was required to follow the general principles governing judicial orders. An order must disclose reasons and reflect consideration of the rival contentions. In the present case, the application was dismissed at the threshold, the respondent was not afforded an opportunity to place its defence by filing a reply, and the question relating to liability to pay interest on delayed payment involved a disputed issue which could not properly be decided without such opportunity. The Tribunal held that deciding that question without permitting a reply would amount to denial of reasonable opportunity and would violate the principles of natural justice. Since the impugned order did not satisfy the basic requirements of a reasoned judicial order, it was held to be bad in law. [Paras 14, 19, 20, 21, 22]The impugned order was set aside and the petition was remanded for restoration to its original number, with liberty to the respondent to file its reply and for fresh decision in accordance with law.Final Conclusion: The Appellate Tribunal held that the impugned dismissal order was legally unsustainable for want of reasons and for failure to afford reasonable opportunity to the respondent. The matter was accordingly remanded to the Adjudicating Authority for fresh consideration after permitting the respondent to file its reply and rejoinder, if any. Issues: Whether the impugned dismissal of the section 9 insolvency application in limine, without a reasoned order and without affording the respondent an opportunity to file a reply, was liable to be set aside and remanded.Analysis: The order under challenge did not disclose reasons and was passed at the threshold without considering the respondent's defence. The Tribunal held that, in the absence of any special procedural dispensation under the Insolvency and Bankruptcy Code, adjudication must conform to the basic requirements of a judgment or order, including recording reasons and considering rival contentions. Since the issue of liability to pay interest and its effect on the debt threshold could not be finally decided without giving the respondent an opportunity to respond, the order was found to be contrary to the principles of natural justice.Conclusion: The impugned order was set aside and the matter was remanded to the Adjudicating Authority for restoration of the petition and fresh decision after granting opportunity to file reply and rejoinder.Ratio Decidendi: A threshold dismissal of an insolvency application without reasons and without affording a fair opportunity to answer contested issues is vitiated for violation of natural justice and cannot stand.