NCLAT rejects appeal against CIRP admission under Section 7 IBC citing repeated non-appearance despite notices

The NCLAT dismissed an appeal challenging admission of a corporate debtor into CIRP under Section 7 of IBC. The appellant claimed violation of natural justice principles, arguing inadequate opportunity to be heard. The NCLAT found that despite multiple notices and newspaper publication, the appellant failed to appear on 18 occasions before the adjudicating authority. The excuse of family demise was rejected as insufficient given the repeated absences and availability of other directors. The NCLAT upheld that debt and default above Rs. 1 crore threshold was adequately proven, and the adjudicating authority correctly exercised summary jurisdiction in admitting the application, following established precedent from Innoventive Industries Limited case.

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Issues Involved:
1. Violation of principles of natural justice.
2. Proof of debt and default.
3. Calculation and agreement on interest rate.
4. Use of forged documents and police complaint.
5. Admissibility of Section 7 application under IBC.

Detailed Analysis:

1. Violation of Principles of Natural Justice:

The Appellant argued that the impugned order was passed ex-parte, violating natural justice principles. Despite being aware of the Section 7 proceedings, the Appellant failed to appear before the Adjudicating Authority on multiple occasions. The Adjudicating Authority had directed paper publication of the notice, which was duly published in two newspapers on 01.04.2022. The Appellant's absence was explained by the demise of a close relative, a justification deemed insufficient given the Appellant's non-appearance on 18 occasions. The Appellant's active pursuit of related criminal applications during the same period further undermined their claim. The Tribunal concluded that adequate notice was given, and the impugned order was not vitiated by a violation of natural justice principles.

2. Proof of Debt and Default:

The Tribunal referred to the guiding principles from the Innoventive Industries Limited v. ICICI Bank case, emphasizing that the Adjudicating Authority must determine whether a default has occurred and if the debt remains unpaid. The Adjudicating Authority admitted the Section 7 application after satisfying itself of the presence of debt and default. The Appellant admitted to taking a "friendly loan" with varying interest rates based on an oral agreement. The Respondent No.1 provided financial statements, Form 26AS Tax Statements, and a statement of reconciliation to establish debt and default. The Appellant's claim of clearing outstanding payments in June 2017 was contested by the Respondent No.1, who presented a ledger statement showing a closing balance of Rs.51.81 lakhs as of 31.03.2017. The Tribunal found no material evidence from the Appellant to dispute this ledger statement.

3. Calculation and Agreement on Interest Rate:

The Appellant contested the levy of 24% compounded interest, arguing the absence of a written contract. The Respondent No.1 relied on Form-26AS for F.Y. 2015-16, showing interest calculated at 24% compound interest, reported to the Income Tax Department by the Appellant. The Tribunal noted that the loan was based on an oral agreement with varying interest rates. The Tribunal cited the Agarwal Polysacks Ltd. vs K. K. Agro Foods & Storage case, clarifying that a written financial contract is not mandatory for proving financial debt. The loan's disbursement with interest and repayment on demand established the financial debt's essential conditions.

4. Use of Forged Documents and Police Complaint:

The Appellant claimed that the balance confirmation document was forged and filed a police complaint on 28.02.2023, a day before the Section 7 application. The Tribunal found this timing suspicious, suggesting the complaint was an afterthought. The Tribunal opted not to delve further into the forgery aspect, given the summary jurisdiction of the Adjudicating Authority and the Tribunal.

5. Admissibility of Section 7 Application under IBC:

The Tribunal reiterated that under IBC, once a debt becomes due and remains unpaid, CIRP may be triggered if the default amount exceeds the threshold limit. The Adjudicating Authority, satisfied with the evidence of debt and default above Rs.1 crore, admitted the Section 7 application. The Tribunal found no error in the Adjudicating Authority's decision to admit the Corporate Debtor into CIRP.

Conclusion:

The Tribunal concluded that the Adjudicating Authority did not err in admitting the Section 7 application and initiating CIRP against the Corporate Debtor. The appeal was dismissed, the interim stay vacated, and the Resolution Professional was allowed to proceed with the CIRP process in accordance with the law. All I.A.s were disposed of, with no order as to costs.

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