2025 (6) TMI 29 - AT - IBC

Appellant's restoration application dismissed for non-appearance and misuse of Section 96 moratorium protection provisions

NCLAT Principal Bench dismissed restoration application filed by appellant following non-appearance at hearings. Court held that while Section 96 provides ... Dismissal of Restoration Application filed by the Appellant - non-appearance of the petitioner on the date of hearing - HELD THAT:- The Appellant has relied upon the Dilip B. Jiwarjika vs. Union of India & Ors. The Hon'ble Supreme Court in the said matter while upholding the constitutional validity of Section 95 to 100 has held that the interim moratorium under Section 96 is for the protection of the interest of the guarantors. There is no doubt that Section 96 provides interim protection to the debtor from further legal proceeding and the Appellant was enjoying the interim protection for long time but it was incumbent upon him to provide a repayment plan which has not happened in this case. It is argued by the Appellant that it was very well interested in submitting the repayment plan upon initiation of Insolvency Resolution Process and on 08.07.2024 the Adjudicating Authority was only to consider the report filed by the Resolution Professional - it is noted that it is the responsibility of the Appellant who has to work out a repayment plan and that he does it proactively and that can happen only if the Appellant is present in the proceedings. With three absents in the court proceedings on frivolous grounds, there is no proactiveness and initiative on the part of the Appellant. It is found that for finalizing a repayment plan it is important that the legal proceedings are pursued diligently and in a vigilant manner. The Appellant has been very casual in his approach. Appellant has been absent for last three hearings which shows that the applicant was not interested in pursuing the matter further. And was trying to abuse the process of law by misusing the moratorium available to him under Section 96 of the Code. Furthermore, no satisfactory explanation has been provided by the Appellant for his non-appearance in the restoration application - the Appellant does not deserve any protection and restoration application needs to be dismissed for reasons as discussed herein. Conclusion - i) The dismissal of the Section 94 petition for non-appearance is justified. ii) The Restoration Application is rightly dismissed for failure to demonstrate sufficient cause and due to the petitioner's dilatory conduct. There are no infirmity in the orders of the Adjudicating Authority in dismissing the restoration petition in both the related Appeals - the Appeals against dismissal of the restoration application are hereby dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Appellate Tribunal in this matter are:Whether the dismissal of the Section 94 application for initiation of insolvency resolution process due to non-appearance of the petitioner on the date of hearing was justified.Whether the Restoration Application filed under Rule 48(2) read with Rule 11 of the NCLT Rules, 2016, seeking restoration of the dismissed Section 94 petition, was rightly dismissed by the Adjudicating Authority.Whether the Appellant demonstrated sufficient cause for non-appearance on the date(s) fixed for hearing as required under Rule 48(2) of the NCLT Rules, 2016.The extent to which the Adjudicating Authority could consider facts beyond the immediate date of dismissal, including consecutive absences and the conduct of the petitioner, in deciding the restoration application.The interplay between the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2026 ('Code') and the prosecutorial diligence required from the petitioner under Section 94 and related provisions.The applicability and interpretation of Rule 48(2) of the NCLT Rules, 2016 regarding restoration of dismissed petitions and the requirement of showing sufficient cause for non-appearance.Whether the petitioner's conduct amounted to abuse of process of law by misusing the moratorium provisions to delay or obstruct proceedings under the SARFAESI Act, 2002.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Justification for dismissal of Section 94 petition due to non-appearanceLegal framework and precedents: Section 94 of the Code provides the mechanism for initiation of insolvency resolution process by the debtor. Rule 48(1) of the NCLT Rules, 2016 empowers the Tribunal to dismiss a petition if the applicant does not appear on the date fixed for hearing. The Supreme Court's decision in Dilip B. Jiwarjika vs. Union of India & Ors. (2023) clarified that the interim moratorium under Section 96 is protective in nature, shielding the debtor from legal proceedings, but does not absolve the debtor from prosecuting the petition diligently.Court's interpretation and reasoning: The Adjudicating Authority dismissed the Section 94 petition on 08.07.2024 for want of prosecution due to non-appearance of the petitioner. The Tribunal noted that the petitioner was absent on three consecutive dates (03.04.2024, 20.05.2024, and 08.07.2024). The Court held that the petitioner's absence was neither justified nor supported by sufficient cause. The Tribunal emphasized that the moratorium under Section 96 does not protect a petitioner who fails to prosecute the petition with due diligence.Key evidence and findings: The order sheets of the NCLT proceedings recorded non-appearance of the petitioner on the noted dates. The petitioner's counsel failed to provide credible explanations for absence on two of the three dates. The petitioner's claim of presence on 03.04.2024 and 20.05.2024 was not corroborated by the record. The petitioner's reason for absence on 08.07.2024 was due to simultaneous hearings in other courts, which was held insufficient.Application of law to facts: The Tribunal applied Rule 48(1) to dismiss the petition for non-appearance and invoked the principle that moratorium does not shield a petitioner from prosecutorial negligence. The petitioner's repeated non-appearance was found to be a deliberate attempt to delay proceedings, amounting to abuse of process.Treatment of competing arguments: The petitioner argued that absence was due to unavoidable circumstances and that they were interested in submitting a repayment plan. The Tribunal rejected these contentions, noting the absence of any proactive steps by the petitioner and the lack of credible explanation for non-appearance.Conclusions: The dismissal of the Section 94 petition was justified due to the petitioner's failure to appear without sufficient cause, thereby abusing the moratorium and delaying proceedings.Issue 2: Dismissal of Restoration Application under Rule 48(2) of NCLT Rules, 2016Legal framework and precedents: Rule 48(2) of the NCLT Rules, 2016 allows restoration of a petition dismissed for default if the applicant files an application within 30 days and satisfies the Tribunal of sufficient cause for non-appearance. The restoration is discretionary but guided by the principle that sufficient cause must be demonstrated.Court's interpretation and reasoning: The Adjudicating Authority dismissed the restoration application on the grounds that the petitioner failed to show sufficient cause for non-appearance on the date of dismissal. Further, the Tribunal considered the petitioner's conduct over multiple hearings, noting repeated absences and inconsistent explanations, indicating a lack of bona fide prosecution.Key evidence and findings: The petitioner was absent on three consecutive hearing dates, with explanations only tendered for the last date. The Tribunal found the petitioner's affidavit claiming presence on two dates inconsistent with the records. The petitioner's counsel was also absent on the date of dismissal. The Tribunal also noted the petitioner's inconsistent conduct in other related proceedings.Application of law to facts: Applying Rule 48(2), the Tribunal found no sufficient cause for non-appearance on the dismissal date and noted the petitioner's pattern of absences as deliberate and obstructive. The Tribunal held that the restoration application deserved dismissal to prevent abuse of process.Treatment of competing arguments: The petitioner contended that the Adjudicating Authority erred by relying on absences on multiple dates rather than only on the date of dismissal, and that the absence on 08.07.2024 was due to unavoidable court commitments. The Tribunal rejected these arguments, emphasizing the importance of consistent attendance and the need to prevent misuse of moratorium provisions.Conclusions: The restoration application was rightly dismissed for failure to demonstrate sufficient cause for non-appearance, and the petitioner's conduct was found to be dilatory and abusive of the process.Issue 3: Interpretation of Rule 48(2) and the scope of sufficient causeLegal framework and precedents: Rule 48(2) mandates that restoration is contingent on the applicant demonstrating sufficient cause for non-appearance specifically on the date of dismissal. The principle 'Vigilantibus non dormientibus jura subveniunt' (law assists those who are vigilant, not those who sleep over their rights) was cited by the Tribunal to underscore the importance of prosecutorial diligence.Court's interpretation and reasoning: While the rule focuses on the date of dismissal, the Tribunal held that the petitioner's conduct on earlier dates is relevant to assess bona fides and whether the petitioner was genuinely pursuing the matter. The Tribunal reasoned that repeated absences and failure to provide explanations on prior dates indicated a casual and negligent approach, undermining the claim of sufficient cause.Key evidence and findings: The petitioner's absence on three consecutive dates, with explanations only on the last date, and contradictory claims regarding attendance, were critical in the Tribunal's assessment.Application of law to facts: The Tribunal applied Rule 48(2) strictly, holding that mere presence on the date of dismissal or a single explanation is insufficient where the overall conduct shows lack of diligence and intent to delay.Treatment of competing arguments: The petitioner argued that the Adjudicating Authority exceeded its power by considering absences on multiple dates. The Tribunal responded that the petitioner's conduct over the entire period is relevant to determine the genuineness of the restoration application.Conclusions: The Tribunal established that sufficient cause under Rule 48(2) encompasses an assessment of the petitioner's overall conduct, not merely the date of dismissal, to prevent abuse of process.Issue 4: Abuse of moratorium under Section 96 of the Code and interplay with SARFAESI proceedingsLegal framework and precedents: Section 96 of the Code provides an interim moratorium protecting the debtor from legal proceedings during pendency of insolvency resolution. The Supreme Court in Dilip B. Jiwarjika emphasized that this moratorium is protective but does not permit abuse or delay. The SARFAESI Act, 2002 allows secured creditors to take possession of secured assets, but such proceedings are stayed by the moratorium under Section 96.Court's interpretation and reasoning: The Tribunal noted that the petitioner's failure to prosecute the Section 94 petition while enjoying the moratorium effectively stalled the SARFAESI proceedings. The Tribunal found this to be an abuse of process, as the petitioner was neither diligent nor proactive in submitting a repayment plan or pursuing the insolvency process.Key evidence and findings: The Bank had filed a writ petition seeking possession under SARFAESI Act, which was stayed due to the moratorium. The petitioner's repeated absences and failure to cooperate with the Resolution Professional delayed the insolvency process, thereby prolonging the moratorium unjustifiably.Application of law to facts: The Tribunal balanced the protective purpose of Section 96 moratorium against the need to prevent misuse. It held that the petitioner's conduct was a deliberate attempt to frustrate the creditor's rights under SARFAESI by misusing the moratorium.Treatment of competing arguments: The petitioner argued that it was interested in submitting a repayment plan and that the moratorium protected its rights. The Tribunal rejected this, emphasizing that protection under Section 96 requires active prosecution of the insolvency petition, not passive delay.Conclusions: The Tribunal confirmed that the moratorium under Section 96 cannot be used as a shield for inaction or delay, and abuse of this protection will be dealt with firmly.3. SIGNIFICANT HOLDINGS'Law protects those who are vigilant (Vigilantibus non dormientibus jura subveniunt).''The filing and non-pursuance of section 94 petition is nothing but the abuse of process of law and needs to be hammered with iron hand.''The interim moratorium under Section 96 is for the protection of the debtor from further legal proceedings, but it does not absolve the debtor from prosecuting the petition diligently.''Where the petition is dismissed for default, restoration under Rule 48(2) requires the applicant to show sufficient cause for non-appearance on the date of dismissal; however, the conduct of the applicant on other dates is relevant to assess bona fides and prevent abuse of process.''Repeated non-appearance without sufficient cause, inconsistent explanations, and casual approach in pursuing insolvency proceedings amount to abuse of process and justify dismissal of restoration application.''The moratorium under Section 96 cannot be used as a tool to delay or obstruct creditor's rights under SARFAESI Act or other laws.'Final determinations:The dismissal of the Section 94 petition for non-appearance was justified.The Restoration Application was rightly dismissed for failure to demonstrate sufficient cause and due to the petitioner's dilatory conduct.The petitioner's conduct constituted abuse of the moratorium and process of law.The Tribunal upheld the strict application of Rule 48(2) to prevent misuse of procedural safeguards.