NCLAT restores dismissed petition finding sufficient cause under Rule 48(2) despite defective additional affidavit

The NCLAT Principal Bench allowed a restoration application that was initially dismissed for non-prosecution under Rule 48(2) of NCLT Rules, 2016. The Appellant's petition was dismissed when an additional affidavit containing loan agreements remained defective in the registry due to counsel's inaction. The NCLAT found sufficient cause existed as the Appellant was not casual, filed the restoration application within 30 days, and the defects were curable. The Tribunal noted the Appellant voluntarily sought to file additional documents, and the matter could have proceeded on merit regardless. The dismissal based solely on defective additional affidavit was unsustainable.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the dismissal of the Section 7 application for non-prosecution by the Adjudicating Authority was justified, considering the non-appearance of the Financial Creditor's counsel and non-filing of additional affidavits/documents.

(b) Whether the Restoration Application filed by the Financial Creditor within 30 days of dismissal satisfied the requirement of "sufficient cause" under Rule 48(2) of the NCLT Rules, 2016, warranting restoration of the dismissed petition.

(c) Whether the Appellants' failure to appear and non-compliance with the Adjudicating Authority's order was attributable to the negligence of their erstwhile counsel and whether such failure could be excused.

(d) Whether the Adjudicating Authority's dismissal of the Restoration Application without adequately addressing the Appellant's submissions and bonafide efforts violated principles of natural justice.

(e) Whether the Restoration Application was time-barred and whether the Appellant complied with procedural requirements including service of the Restoration Application on the Respondent.

(f) Whether the merits of the underlying debt and default are relevant to the present appeal concerning procedural dismissal and restoration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification of dismissal of Section 7 application for non-prosecution

The Adjudicating Authority dismissed the Section 7 petition on 30.09.2024 due to the non-appearance of the Financial Creditor or its counsel on two calls of the matter and non-filing of the additional affidavit and documents (facility agreement, financials, NeSL certificate) as directed on 04.09.2024. The order recorded that the Financial Creditor appeared disinterested in pursuing the case.

The Appellant contended that the non-appearance was due to the failure and negligence of its then counsel who neither appeared nor informed the Appellant. The additional affidavit was e-filed on 27.09.2024 but remained under registry objection for minor defects (unclear pages) which were curable. The Appellant argued that the dismissal was erroneous and unjust.

The Respondent submitted that the dismissal was justified on grounds of both non-appearance and non-compliance with the Adjudicating Authority's order. Partial filing of documents did not fulfill the directions. The Respondent also asserted that litigants are bound by their counsel's acts and negligence cannot be excused.

The Tribunal noted that dismissal for non-prosecution is generally warranted when the litigant or counsel fails to appear repeatedly and does not comply with directions, indicating lack of seriousness. However, the Tribunal observed that the defects in the additional affidavit were minor and curable, and the Appellant had sought permission to file the affidavit. The non-appearance was due to counsel's failure, which the Appellant could not have reasonably controlled or foreseen.

Issue (b): Sufficiency of cause in Restoration Application under Rule 48(2)

Rule 48(2) of the NCLT Rules mandates that where a petition is dismissed for default, the applicant may file a restoration application within 30 days showing sufficient cause for non-appearance. The Tribunal emphasized the mandatory use of "shall" in the Rule, indicating that if sufficient cause is shown within time, restoration ought to be granted.

The Appellant filed the Restoration Application on 29.10.2024, within the 30-day period. The Appellant's grounds for sufficient cause were the non-appearance of its counsel and the inability to cure registry defects in the additional affidavit due to counsel's non-cooperation.

The Respondent argued that the Restoration Application was time-barred and lacked sufficient cause, as the Appellant failed to monitor the case or engage alternative counsel despite counsel's non-responsiveness. The Respondent also contended that the dismissal was not solely for non-appearance but also for non-compliance, thus outside Rule 48(2) scope.

The Tribunal found that the Restoration Application was timely filed and that the Appellant's explanation constituted sufficient cause. The Tribunal held that the Appellant was not casual or negligent but acted promptly upon learning of dismissal. The defects in affidavit were curable and did not affect merits. The Tribunal rejected the Respondent's contention that the dismissal was outside Rule 48(2) scope, noting that the primary cause was non-appearance and non-prosecution.

Issue (c): Attribution of non-appearance and non-compliance to counsel's negligence

The Appellant relied on the Supreme Court precedent that a litigant should not suffer due to the default or negligence of his advocate, especially when the litigant is not legally trained and unaware of court proceedings. The Appellant contended that it was unaware of dismissal due to counsel's failure to inform or appear.

The Respondent relied on precedents holding that litigants are bound by their agents' actions and cannot disown their counsel's negligence. The Respondent argued that the Appellant's vague claims did not constitute sufficient cause.

The Tribunal accepted the Appellant's position, relying on the Supreme Court's ruling that a litigant who entrusts his case to a lawyer cannot be penalized for the lawyer's lapse, particularly when the litigant is not a legal professional. The Tribunal noted that the Appellant is a financial creditor, not a lawyer, and thus entitled to benefit of doubt. The Tribunal found the Appellant's efforts to engage new counsel and file restoration application promptly to be bona fide.

Issue (d): Violation of natural justice in dismissal of Restoration Application

The Appellant contended that the Adjudicating Authority failed to record or adequately consider its submissions during the hearing on 22.01.2025, rendering the dismissal arbitrary and legally unsustainable.

The Tribunal observed that the Impugned Order dismissed the Restoration Application solely on the ground of non-filing of necessary documents to establish the claim and failure to cure defects, without mentioning the non-appearance issue or the Appellant's submissions. The Tribunal found this omission to be a failure to address the Appellant's bonafide efforts and sufficient cause.

The Tribunal held that dismissal without due consideration of the Appellant's explanations and efforts violated principles of natural justice and the liberal approach mandated in restoration matters.

Issue (e): Timeliness and procedural compliance of Restoration Application

The Respondent challenged the timeliness of the Restoration Application and service on the Respondent's counsel. The Tribunal found the Restoration Application was filed within 30 days as prescribed by Rule 48(2). The Respondent's contention regarding delayed service was not persuasive, and the Adjudicating Authority did not reject the application on delay grounds.

The Tribunal found procedural compliance sufficient for restoration consideration.

Issue (f): Relevance of merits of debt and default in present appeal

The Respondent contended that the debt and default are disputed and alleged to be based on forged documents, with a pending suit challenging the validity. The Respondent argued that merits are irrelevant to the procedural appeal.

The Tribunal agreed that the appeal concerns procedural dismissal and restoration only and does not decide the merits of debt or default. The Tribunal clarified that the merits will be decided by the Adjudicating Authority on facts and law after restoration.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Where sufficient cause is made out for non-appearance within the stipulated 30 days, the Tribunal shall make an order restoring the same." (Rule 48(2) NCLT Rules, 2016)

"A litigant who has entrusted his case to his lawyer cannot be penalized for the lapse or negligence of his lawyer."

"The purpose of dismissal for non-prosecution is to procure the concerned party and his counsel and not to dismiss the appeal without going into the merit."

"Restoration applications should be dealt with liberally as right to represent one's cause before the court is a fundamental one."

The Tribunal concluded that the Appellant's failure to appear and non-compliance was attributable to its erstwhile counsel's negligence, which constituted sufficient cause for restoration. The Restoration Application was filed within time and the defects in the additional affidavit were curable. The dismissal of the Restoration Application without addressing these factors violated principles of natural justice.

The Impugned Order dismissing the Restoration Application was set aside, and the original petition was restored for hearing on merits by the Adjudicating Authority. The Tribunal expressly refrained from expressing any opinion on the substantive merits of the debt or default, leaving that to be decided afresh.

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