2025 (6) TMI 25 - AT - IBC

Insolvency Proceedings Demand Detailed Reasoning: Tribunal Orders Quashed for Lack of Substantive Analysis Under Section 9

Drive India Enterprise Solutions Ltd. Versus BGM Telecommunications Pvt. Ltd. And BGM Telecommunications Pvt. Ltd. Versus Drive India Enterprise Solutions Ltd.

The SC reviewed IBC proceedings involving a Section 9 application and related punitive proceedings. The Tribunal's non-speaking orders dismissing the ... Dismissal of application filed under Section 9 of the IBC, 2016 - dismissal of first appeal only on the ground that earlier two applications filed by the same operational creditor against different Corporate Debtors were dismissed by two different Benches of the same Tribunal - dismissal of second appeal only on the ground that the main petition bearing CP (IB) 998 (ND) 2020) filed by the Operational Creditor (appellant in the first appeal) has been dismissed. HELD THAT:- The Tribunal has not deliberated upon the facts given in IB-998(ND)/2020 and the evidence and has simply relied upon earlier decisions dated 15.11.2021 and 14.09.2023 which are against different CD’s which has no nexus with the facts of the present case because in the case decided on 15.11.2021, the Tribunal has noticed that there was communications between the parties dated 23.04.2018, 04.10.2018 and 24.10.2018, relied upon by the Corporate Debtor, which were prior to the issuance of demand notice dated 11.12.2019 in which the Corporate Debtor had raised a dispute about quantum of debt due and payable by the Corporate Debtor, therefore, there was an issue of pre-existing dispute. In the case decided on 14.09.2023, the court has noticed the contention of the corporate debtor that there are communications of fraud and forgery made by the Corporate Debtor but the Tribunal has held that it is not expected to ascertain the veracity of documents produced and dismissed the application. For the purposes of holding that there is a similarity in the case setup by the appellant in the first appeal with the two cases decided on 15.11.2021 and 14.09.2023, it was incumbent upon the Tribunal to have referred to the facts of all the three cases in detail. Secondly, the application filed under Section 9 has to be decided on its own facts because the court has to find out as to whether the defence taken by the corporate debtor is sufficient for the purpose of dismissal of the application or the same is only moonshine defence. Conclusion - i) The impugned order dismissing the Section 9 application solely on the basis of prior dismissals is set aside. ii) The impugned order dismissing the punitive application without a speaking order is set aside. The impugned order in both the appeals is set aside and the matter is remanded back to the Tribunal with a direction to decide the lis between the parties afresh by passing a speaking order. The parties shall appear before the Tribunal on 21.07.2025 - Petition allowed by way of remand. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these appeals are:Whether the dismissal of the Section 9 application filed by the Operational Creditor solely on the ground of prior dismissals of similar applications against different Corporate Debtors by other Benches of the Tribunal was legally sustainable.Whether the impugned order dismissing the application under Section 65 read with Section 76 of the Insolvency and Bankruptcy Code (IBC), 2016 for punitive proceedings against the Operational Creditor was appropriate, particularly when the main Section 9 application was dismissed without a speaking order.Whether the Tribunal erred in not considering the facts and evidence specific to the present case and instead relying on prior decisions involving different parties and facts.Whether the impugned orders are non-speaking and thus violative of the principles of natural justice and proper adjudication under the IBC framework.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of dismissal of Section 9 application based solely on prior dismissals against different Corporate DebtorsRelevant legal framework and precedents: Section 9 of the IBC, 2016 allows an Operational Creditor to initiate insolvency resolution proceedings against a Corporate Debtor upon default in payment. The adjudicating authority is required to examine whether there is a valid debt and default and whether any pre-existing dispute exists. Precedents emphasize that each Section 9 application must be decided on its own facts and merits, and prior decisions involving different parties cannot be mechanically applied.Court's interpretation and reasoning: The Tribunal observed that the impugned order dismissed the Section 9 application only on the ground that two earlier applications filed by the same Operational Creditor against different Corporate Debtors were dismissed by different Benches of the same Tribunal. The Court found this approach legally incorrect, as the Tribunal failed to consider the facts and evidence specific to the present case and instead relied on unrelated prior decisions.Key evidence and findings: The Operational Creditor's claim arose from a High Sea Sale Agreement under which telecommunication devices in Semi Knocked Down (SKD) state and batteries were delivered. The claim involved a principal amount and interest calculated at 18% p.a. The prior cases cited by the Tribunal involved different Corporate Debtors and facts, including communications evidencing pre-existing disputes and allegations of fraud and forgery.Application of law to facts: The Court held that the Tribunal was obliged to examine the facts and evidence in the present case independently. The existence of pre-existing disputes or other defenses must be assessed on the record of the specific application. The mere fact that earlier applications by the same Operational Creditor against different Corporate Debtors were dismissed could not justify dismissal without a detailed inquiry.Treatment of competing arguments: The Operational Creditor argued that the impugned order was non-speaking and failed to address the merits. The Corporate Debtor relied on prior dismissals to contend that the present claim was similarly untenable. The Court rejected the latter approach as legally impermissible.Conclusion: The dismissal of the Section 9 application solely on the basis of prior unrelated dismissals was improper. The matter requires fresh adjudication on the merits with a speaking order.Issue 2: Dismissal of application for punitive proceedings under Section 65 and Section 76 of the IBCRelevant legal framework and precedents: Sections 65 and 76 of the IBC provide for punitive action against parties who initiate proceedings fraudulently or maliciously or suppress material facts. Rule 11 of the NCLT Rules, 2016 governs the procedure for such applications. The adjudicating authority must consider the evidence and pass a reasoned order.Court's interpretation and reasoning: The application filed by the Corporate Debtor seeking punitive proceedings against the Operational Creditor was dismissed by the Tribunal merely on the ground that the main Section 9 application was dismissed. The Court found this to be an erroneous approach, as the punitive application required independent consideration and a speaking order.Key evidence and findings: The Corporate Debtor alleged fraudulent and malicious initiation of the Section 9 proceedings and deliberate non-disclosure of pre-existing disputes. The Tribunal did not examine these allegations or the evidence presented.Application of law to facts: The Court held that dismissal of the punitive application on the basis of dismissal of the main application without any deliberation on the merits was legally untenable. The application must be decided on its own facts and evidence.Treatment of competing arguments: The Corporate Debtor contended that the Operational Creditor acted fraudulently, while the Operational Creditor relied on dismissal of the main application to argue that the punitive application was not maintainable. The Court emphasized the need for separate adjudication.Conclusion: The dismissal of the punitive application without a speaking order and independent consideration was improper and requires fresh adjudication.Issue 3: Non-speaking nature of the impugned orders and failure to consider facts and evidenceRelevant legal framework and precedents: Principles of natural justice and judicial discipline require that orders passed by adjudicating authorities be speaking orders, addressing the material facts, evidence, and legal contentions. Non-speaking orders are liable to be set aside.Court's interpretation and reasoning: The Court observed that the impugned order dismissed the Section 9 application and the punitive application without examining the facts and evidence of the present case and without passing a reasoned order. The Tribunal relied on prior decisions without detailing the factual matrix of the present case or explaining the applicability of those decisions.Key evidence and findings: The prior orders relied upon involved different Corporate Debtors and facts, including communications evidencing pre-existing disputes and allegations of fraud. The present case involved a distinct High Sea Sale Agreement and a substantial claim for principal and interest.Application of law to facts: The Court emphasized that the Tribunal was duty-bound to analyze the facts and evidence before it and pass a reasoned, speaking order. The failure to do so rendered the impugned order non-speaking and legally unsustainable.Treatment of competing arguments: The Operational Creditor challenged the impugned order as non-speaking and arbitrary. The Corporate Debtor relied on prior dismissals to justify the impugned order. The Court rejected the latter approach as contrary to law.Conclusion: The impugned orders are non-speaking and require to be set aside for fresh adjudication on merits.3. SIGNIFICANT HOLDINGSThe Court held: 'The Tribunal has not deliberated upon the facts given in IB-998(ND)/2020 and the evidence and has simply relied upon earlier decisions dated 15.11.2021 and 14.09.2023 which are against different CD's which has no nexus with the facts of the present case.'It was further observed: 'For the purposes of holding that there is a similarity in the case setup by the appellant in the first appeal with the two cases decided on 15.11.2021 and 14.09.2023, it was incumbent upon the Tribunal to have referred to the facts of all the three cases in detail.'Core principles established include:Each Section 9 application under the IBC must be adjudicated on its own facts and merits; prior dismissals involving different parties cannot be mechanically applied.Applications for punitive proceedings under Sections 65 and 76 require independent consideration and cannot be dismissed merely because the main application is dismissed.Adjudicating authorities must pass speaking orders addressing material facts, evidence, and legal contentions; non-speaking orders are liable to be set aside.Final determinations:The impugned order dismissing the Section 9 application solely on the basis of prior dismissals was set aside.The impugned order dismissing the punitive application without a speaking order was set aside.The matter was remanded to the Tribunal for fresh adjudication on merits with a direction to pass speaking orders.All pending interlocutory applications were closed and no costs were imposed.