NCLAT upholds denial of liberty to file fresh Section 9 application after withdrawal under IBC

NCLAT dismissed appeal challenging adjudicating authority's refusal to grant liberty to file fresh application under Section 9 of IBC after permitting withdrawal. Court held withdrawal of Section 9 application is not a matter of right, and timeline is crucial in IBC proceedings. Corporate debtor had raised objections alleging false evidence in demand notice by appellant. Adjudicating authority correctly permitted withdrawal while denying liberty to file afresh, though Rs.50,000 cost imposition was deemed unnecessary.

---

---

Issues Involved:
1. Withdrawal of Section 9 Application under IBC.
2. Imposition of costs for withdrawal.
3. Denial of liberty to file a fresh application.
4. Applicability of Order 23 Rule 1 of CPC.
5. Allegations of false evidence by the Corporate Debtor.

Detailed Analysis:

1. Withdrawal of Section 9 Application under IBC:

The Appellant filed two Section 9 Applications under the Insolvency and Bankruptcy Code, 2016 (IBC), claiming an operational debt amounting to Rs.3,51,72,942/- due from the Corporate Debtor. The Applications were registered as CP(IB)/65(AHM)2023 and CP(IB)/66(AHM)2023. The Appellant sought permission to withdraw these applications, which was allowed by the Adjudicating Authority subject to a cost of Rs.50,000/-. The Appellant contended that the Adjudicating Authority committed an error by not granting liberty to file fresh applications.

2. Imposition of Costs for Withdrawal:

The Adjudicating Authority allowed the withdrawal of the applications but imposed a cost of Rs.50,000/- to be paid to the Respondent towards legal costs. The Appellant argued that the imposition of costs was unnecessary and challenged this part of the order.

3. Denial of Liberty to File a Fresh Application:

The Adjudicating Authority refused to grant liberty to the Appellant to file fresh applications. The Authority noted that the Appellant did not provide any reason for withdrawal or for seeking liberty to file fresh applications. The Authority emphasized that the withdrawal was sought at a belated stage and that the pleadings were complete, thus dragging the Respondent into unnecessary litigation and consuming the Tribunal's time.

4. Applicability of Order 23 Rule 1 of CPC:

The Appellant argued that the principles underlying Order 23 Rule 1 of the Code of Civil Procedure (CPC) should apply, which allows withdrawal of a suit with liberty to institute a fresh suit under certain conditions. The Tribunal examined various judgments, including those of the Supreme Court and High Courts, to determine whether the Adjudicating Authority was obliged to grant liberty to file fresh applications. The Tribunal concluded that permission to file a fresh suit is not automatic or mandatory and can only be granted when the Court is satisfied that there are sufficient grounds for doing so.

5. Allegations of False Evidence by the Corporate Debtor:

The Corporate Debtor filed an IA No.409 of 2024, alleging that the Appellant had placed false evidence on record pertaining to the Demand Notice. This allegation was a significant factor in the Adjudicating Authority's decision to deny liberty to file fresh applications. The Tribunal noted that the IBC proceedings emphasize timelines and that allowing the Appellant to file fresh applications would undermine this principle.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision to permit withdrawal of the applications while denying liberty to file fresh applications. However, the Tribunal found that the imposition of a Rs.50,000/- cost was unnecessary and deleted this part of the order. The Tribunal emphasized that the principles under Order 23 Rule 1 of CPC do not automatically entitle a party to file fresh applications upon withdrawal and that the Adjudicating Authority had acted within its discretion. The appeals were dismissed, but the Appellant was allowed to pursue other legal remedies available under the law.

---