2025 (9) TMI 681 - AT - IBC

Appeals dismissed for abuse of process: repeated identical Section 94 petitions, failure to prosecute, and unjustified delay under IBC timelines

Mr. Manoj Aggarwal and Mrs. Vimla Devi Versus Karnataka Bank Limited

NCLAT-PB (LB) dismissed the appeals, upholding the Adjudicating Authority's rejection of the restoration and second Section 94 petitions. The panel found ... Dismissal of restoration application - dismissal for want of satisfactory explanation - HELD THAT:- The Appellant was persistently not appearing after filing the Section 94 applications without sufficient cause or explanation. This is a clear case of the Appellant resorting to repeat litigations for the same cause of action thus abusing the process of law and wasting the valuable time of the Adjudicating Tribunal. It would not be far from truth to infer that the underlying intent of the Appellant was to prevent the Respondent from taking legal action for the recovery of its outstanding dues against the Appellants including enforcement actions undertaken under SARFAESI Act. There are no reasons to disagree with the Adjudicating Authority that it did not find any satisfactory basis for allowing the restoration application. The dismissal of the restoration application is not for unjustified reasons. The Adjudicating Authority cannot be faulted for rejecting the restoration application. Dismissal of Section 94 application filed by the Appellant - non-prosecution of the case - HELD THAT:- There are no doubts that the Appellant had preferred the second Section 94 petition on the same facts and for the same cause of action as the first petition though no such liberty was granted for filing a fresh Section 94 petition. It is also an indisputable fact that the Appellant did not disclose to the Adjudicating Authority about the dismissal of their first Section 94 application. There are nothing unusual or unreasonable on the part of the Adjudicating Authority to ascertain the reasons from the Appellant as to why they had filed Section 94 petition again when it had already been dismissed earlier. It is also noticed that the Adjudicating Authority in the order dated 08.10.2024 which has already been reproduced, has clearly stated that it perused the affidavit by which explanation had been offered but was not satisfied with the explanation given. There are no quarrel with the justice-oriented approach that for negligence of lawyers, litigants cannot be made to suffer so that substantive justice is not denied to a serious litigant. Be that as it may, while adopting a liberal approach, we cannot afford to overlook that IBC is a special legislation designed to resolve insolvency and bankruptcy cases in a timely and efficient manner. Adherence to timelines enjoys a special place in the scheme of IBC as it imparts certainty and predictability to the resolution framework. For the process of resolution to remain efficient and effective, the Adjudicating Authority is required to act against unjustified delays caused by repeated and unnecessary adjournments - the Adjudicating Authority was not precluded from scrutinizing the tenability, reasonability and bonafide of the grounds on which the second Section 94 petition was filed when the first petition had already been dismissed - the dismissal of the second Section 94 petition of this Appellant by the Adjudicating Authority was made on cogent grounds. There are no merit in these Appeals. The Appeals are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a restoration application under Section 94 of the IBC should be allowed where the original petition was dismissed for non-prosecution and the applicant failed to appear despite prior specific directions to do so. 2. Whether filing a second Section 94 petition arising out of the same facts/transaction, without disclosing a prior dismissal for non-prosecution, amounts to abuse of process and whether the Adjudicating Authority may scrutinize and dismiss such a petition. 3. The weight to be accorded to litigant infirmity (advanced age/illness) and counsel negligence as explanations for non-appearance or non-disclosure, and whether such explanations justify restoration or indulgence under the IBC regime. 4. Whether invocation of moratorium under Section 96 IBC can be abused by successive filings timed immediately before execution/possession and whether such motive is a relevant factor in refusing restoration or dismissing a successive petition. 5. Whether the Adjudicating Authority erred in imposing costs on a restoration applicant where the application was dismissed for unsatisfactory explanation and abuse of process. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Restoration after dismissal for non-prosecution: legal framework Legal framework: Restoration of a petition dismissed for non-prosecution is governed by principles of providing reasons for non-appearance and whether satisfactory explanation is offered to justify restoration. Natural justice requires opportunity to explain, but final exercise rests on the Adjudicating Authority's satisfaction about sufficiency of cause. Precedent treatment: The Tribunal applied established practice that restoration is determined on the reasons for non-appearance; however, whether to allow restoration is discretionary and fact-sensitive in each case. Interpretation and reasoning: The Tribunal examined the chronological orders showing repeated adjournments and a specific direction for personal appearance (with explicit warning of dismissal). Given multiple opportunities and a clear warning, the Tribunal found that the Adjudicating Authority afforded adequate opportunity and that non-appearance was deliberate or negligent rather than accidental. Ratio vs. Obiter: Ratio - An Adjudicating Authority is justified in dismissing a restoration application where the applicant repeatedly fails to appear after specific directions and does not provide satisfactory explanation for non-appearance. Conclusion: Restoration was properly refused on cogent grounds; the Adjudicating Authority did not violate principles of natural justice in dismissing the restoration application after adequate opportunity had been given. Issue 2 - Filing a second Section 94 petition after prior dismissal and abuse of process Legal framework: There is no express bar in IBC/NCLT Rules to file a fresh petition after a dismissal for non-prosecution, but the Adjudicating Authority may treat successive filings on the same cause of action as abuse of process if filed without disclosure or satisfactory explanation. Precedent treatment (distinguished): A prior decision allowing revival where appearance was explained on the same date was distinguished on facts - there the party had registered appearance and explained the omission before dismissal; present facts showed dismissal had already been entered and no such explanation was provided. Interpretation and reasoning: The Tribunal emphasized fact-specific inquiry - the second petitions were filed one day prior to scheduled possession on two occasions, the prior petitions had been dismissed for non-prosecution and were not challenged, and there was failure to disclose prior dismissals. The Adjudicating Authority's issuance of show cause and demand for affidavit was a proper probing measure; unsatisfactory affidavits justified dismissal. The timing of refiling and pattern of non-appearance supported inference of mala fide motive to delay recovery and avail moratorium. Ratio vs. Obiter: Ratio - Successive petitions on the same cause of action, filed without disclosure of an earlier dismissal and accompanied by conduct of non-appearance, can be treated as an abuse of process warranting dismissal. Conclusion: The Adjudicating Authority rightly dismissed the second Section 94 petitions as an abuse of process, having been satisfied that explanations were inadequate. Issue 3 - Effect of litigant infirmity and counsel negligence on restoration and indulgence Legal framework: Courts recognise that litigants should not be unduly penalised for counsel's negligence; infirmity and illness are relevant mitigating factors. However, IBC's objectives (timely resolution and adherence to timelines) permit scrutiny of repeated delays and unjustified adjournments. Precedent treatment: The Tribunal accepted the broad principle that litigants should not suffer for advocate's lapses but stressed its limits within the IBC framework where timeliness and prevention of dilatory tactics are paramount. Interpretation and reasoning: The Tribunal evaluated the totality - multiple adjournments, specific direction for personal appearance, failure to challenge first dismissals, pattern of refiling immediately before possession, late production of medical records at appeal stage - and found these factors insufficient to excuse the conduct. Engaging substitute counsel after defaults did not negate earlier dilatory conduct nor rebut inference of mala fide intent. Ratio vs. Obiter: Ratio - While counsel negligence and personal infirmity are relevant, they do not automatically entitle an applicant to restoration where there is a consistent pattern of non-appearance, lack of disclosure, and indicia of abuse of process, especially under IBC timelines. Conclusion: The explanations of illness and counsel fault were not sufficient to overturn the Adjudicating Authority's findings; the authority acted within discretion in refusing indulgence. Issue 4 - Misuse of moratorium and timing of petitions as indicia of mala fide intent Legal framework: Section 96 (moratorium) is intended to preserve the corporate debtor's assets during insolvency proceedings; invocation of moratorium by non-genuine or tactical filings undermines the statute's purpose and may justify denial of relief if motive is to obstruct enforcement. Precedent treatment: The Tribunal relied on the statutory purpose of IBC and the need to prevent misuse of moratorium to delay recovery, treating timing and repetitive filings as relevant in assessing bona fides. Interpretation and reasoning: The Tribunal noted coincidence of filing dates falling one day prior to scheduled possessions on multiple occasions, and concurrent filings by related guarantors, as strong circumstantial evidence of intent to delay recovery. Such pattern supported the Adjudicating Authority's conclusion of mala fide use of IBC process to suspend remedies under SARFAESI. Ratio vs. Obiter: Ratio - Courts may consider timing and pattern of filings, including coordinated or serial petitions timed to frustrate possession, as probative of mala fide intent and grounds to refuse restoration or dismiss petitions. Conclusion: The Adjudicating Authority correctly took the timing and pattern into account in finding abuse of process and denying relief. Issue 5 - Imposition of costs on refused restoration applications Legal framework: Adjudicating Authorities have discretion to impose costs where conduct of a litigant amounts to abuse, frivolity, or causes undue burden on the forum; costs may be directed to public funds as a deterrent. Precedent treatment: The Tribunal upheld exercise of discretion where an applicant's conduct justified a punitive or deterrent monetary direction. Interpretation and reasoning: Given repeated non-appearances, non-disclosure, unsatisfactory affidavits, and apparent strategy to delay enforcement, the Adjudicating Authority's imposition of costs was a proportionate exercise of discretion to discourage misuse of process. Ratio vs. Obiter: Ratio - Where dismissal/restoration refusal is grounded in abuse of process or gross lack of bonafides, imposition of costs is a permissible and appropriate judicial response. Conclusion: The cost imposed on the restoration applicant was within the Adjudicating Authority's discretion and was not interfered with. Overarching Conclusion The Tribunal upheld the Adjudicating Authority's refusal to restore petitions dismissed for non-prosecution and dismissal of successive Section 94 petitions where (i) repeated adjournments and specific directions to appear were ignored; (ii) prior dismissals were not disclosed; (iii) explanations proffered were unsatisfactory; and (iv) the timing and pattern of filings gave cogent reasons to infer abuse of the IBC process to delay recovery and improperly invoke moratorium. The Adjudicating Authority acted within its discretion, did not breach natural justice, and was entitled to impose costs.