2025 (9) TMI 1412 - HC - Companies Law

Article 227 relief denied; supervisory interference refused in corporate insolvency where no breach of natural justice found

Parsvnath Developers Limited Versus Union of India & Anr.

The HC upheld the NCLT order and dismissed the petition and accompanying application, finding no breach of natural justice. The court noted the petitioner ... Maintainability of petition - availability of alternative remedy - Violation of principles of natural justice - Deprival of opportunity to file formal reply to the application under Section 7 of the Code - impugned order was passed by the NCLT was in abrogation of jus naturale or not - HELD THAT:- Admittedly, in terms with order dated 25.07.2025 of NCLT, notice of the revival proceedings application returnable on 20.08.2025 was duly served on the present petitioner, directing that reply, if any, may be filed by the present petitioner within one week of date of receipt of the notice, which would follow rejoinder, if any, before the next date. Copy of order dated 25.07.2025 is Annexure P18 to the present petition - Also admittedly, despite service of the said notice of NCLT on 01.08.2025, neither reply to the application under Section 7 of the Code nor even any application seeking enlargement of time to file reply to the application was filed by the present petitioner till 20.08.2025. Coming to the “heavens would not fall” argument of learned counsel for petitioner, it is high time, the adjudicators shift paradigm, discarding the “heavens would not fall” approach. Deferment, unless unavoidable of each day matters. The admitted position being that the notice of the application under Section 7 of the Code was duly served on the present petitioner on 01.08.2025 and the impugned order after detailed arguments was passed on 20.08.2025, one also has to analyse the history of and the time already spent in the litigation. Where the court comes to a conclusion that the defaulting party is deliberately protracting the proceedings in one or the other manner with the intention to frustrate the other party into abandoning the lis, “heavens would certainly fall”. The learned NCLT in the impugned order has narrated in detail the entire record of the dispute, reflecting that somehow the proceedings were being protracted. There are also substance in the submission of learned Senior Counsel for respondent no. 2 that having failed to get stay on the revival proceedings as prayed under Section 9 of Arbitration and Conciliation Act, the petitioner instead of challenging the presently impugned order by way of appeal has brought the present petition only as a matter of speculation and forum hunting aimed at protracting the proceedings pending before the NCLT. This is certainly not a case for this court to invoke supervisory jurisdiction under Article 227 of the Constitution of India in order to interfere in the corporate insolvency resolution proceedings under the Code. The impugned order is upheld and the present petition as well as accompanying application is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the High Court may exercise supervisory jurisdiction under Article 227 of the Constitution of India despite existence of an alternative statutory appellate remedy under the Code. 2. Whether the impugned NCLT order reviving the corporate insolvency petition was passed in violation of principles of natural justice by not granting the petitioner an opportunity to file a formal reply to the Section 7 application. 3. Whether the conduct of the petitioner (failure to file reply or seek enlargement of time despite notice) and the history of protraction of proceedings justify the NCLT's refusal to defer revival and its decision to restore the petition to original position. 4. Whether the availability of the appellate remedy (and the petitioner's failure to prefer an appeal) bears on the propriety of invoking Article 227 and on the Court's exercise of supervisory jurisdiction. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of Article 227 vis-à-vis alternative appellate remedy Legal framework: The High Court's supervisory jurisdiction under Article 227 is exercised with self-restraint where efficacious alternative remedies exist; exceptions include enforcement of fundamental rights, orders wholly without jurisdiction, or breach of natural justice. Precedent Treatment: The Court acknowledged settled law (citing Ghanshyam Mishra & Sons and Embassy Property principles as relied upon by petitioner) that availability of alternate remedy is a factor but not an absolute bar; Mohammed Enterprises was relied upon by respondent to emphasise that the Code is a complete code with internal remedies and that supervisory powers demand rigorous scrutiny. Interpretation and reasoning: The Court balanced the principle of self-restraint against the petitioner's pleaded grievance. It accepted that Article 227 could be invoked in cases of natural justice violation but held that mere availability of an alternative remedy does not automatically require the High Court to intervene; the petitioner must demonstrate exceptional circumstances warranting exercise of supervisory jurisdiction. Ratio vs. Obiter: Ratio - High Court will refrain from exercising Article 227 where the impugned order does not disclose jurisdictional infirmity or breach of natural justice and where alternate statutory remedies are available and adequate. Conclusions: The Court declined to exercise Article 227 because the petitioner failed to establish any exceptional circumstance or breach justifying departure from self-restraint; availability of NCLAT appeal, coupled with absence of compelling grounds, militated against supervisory intervention. Issue 2 - Alleged violation of principles of natural justice by refusing opportunity to file formal reply Legal framework: Natural justice requires a fair opportunity to be heard; procedural directions of the NCLT (notice and timeline for filing reply) engage this obligation. Precedent Treatment: The petitioner relied on authorities advocating fair opportunity to file reply; the Court acknowledged these precedents but analysed them against the factual matrix of service and opportunity in the present matter. Interpretation and reasoning: The Court found that the NCLT had afforded hearing and the impugned order is detailed and records that the petitioner was heard at length. The NCLT's order dated 25.07.2025 had directed the petitioner to file reply within one week of receipt; notice was served on 01.08.2025; no reply or application for extension was filed by 20.08.2025. The Court held that absence of a formal reply despite clear directions and time rendered the petitioner's complaint of denial of opportunity untenable. The Court also observed that the petitioner's contentions were ventilated before the NCLT and that nothing prevented filing of affidavits or replies up to the hearing date. Ratio vs. Obiter: Ratio - where a party is served with clear directions to file a reply and is heard in proceedings but elects not to file the prescribed reply or seek extension, a later claim of denial of opportunity to file reply will not ordinarily constitute a ground for supervisory interference. Conclusions: The impugned order did not violate principles of natural justice; the petitioner had both notice and hearing and failed to avail the opportunity to file a formal reply or to seek extension, therefore the challenge on natural justice grounds fails. Issue 3 - Justification for NCLT's revival decision in context of settlement history and alleged protraction Legal framework: Adjudicating authority may permit withdrawal or facilitate settlement under Rule 8 of the IBBI Rules; however, tribunals are not obliged to facilitate settlement and may restore proceedings if settlement is not bona fide or is recanted by the creditor. Precedent Treatment: Mohammed Enterprises was invoked to underline the Code's internal mechanisms and need for procedural discipline; the Court treated prior decisions on settlement and withdrawal as informing the tribunal's discretion to not perpetually defer proceedings for settlement facilitation. Interpretation and reasoning: The NCLT record shows repeated disposal on grounds of settlement and subsequent retraction by the financial creditor. The NCLT found that the financial creditor had brought on record an unequivocal stand that there was no settlement and that the restructuring proposal was rejected; given protracted attempts to delay resolution, the NCLT declined to further defer and restored the petition. The High Court accepted this factual narrative and reasoning, noting the history of delay and framing that continued deferment to accommodate protraction would frustrate the statutory objective of timely resolution under the Code. Ratio vs. Obiter: Ratio - where there is credible evidence that settlement attempts have been used to indefinitely delay proceedings and the creditor denies settlement in writing, the tribunal may restore proceedings and refuse further accommodation for settlement. Conclusions: The NCLT's decision to revive the petition was justified on the record of protraction and the financial creditor's clear denial of settlement; the Court upheld the exercise of discretion to prevent abuse of process and delay. Issue 4 - Effect of petitioner's failure to appeal on propriety of Article 227 invocation and assessment of forum shopping/protraction Legal framework: Availability of a statutory appeal with broader scope normally counsels against resort to Article 227; unexplained failure to use the appellate remedy can suggest forum shopping or delay tactics. Precedent Treatment: Mohammed Enterprises emphasises respecting the Code's appellate framework; the Court applied that principle to assess the petitioner's conduct. Interpretation and reasoning: The petitioner neither preferred an appeal to the appellate tribunal nor offered any explanation for not doing so. The Court regarded this omission as relevant in exercising supervisory jurisdiction and as supporting the inference that the present petition was a collateral attempt to delay. The absence of any reason for foregoing the appellate remedy diminished the petitioner's entitlement to extraordinary equitable relief under Article 227. Ratio vs. Obiter: Ratio - unexplained failure to prefer an available statutory appeal undermines a litigant's claim for supervisory relief under Article 227 and may indicate impermissible forum shopping or intent to protract litigation. Conclusions: The petitioner's failure to appeal, without satisfactory explanation, weighed against invoking Article 227 and supported dismissal of the petition as a collateral attempt to delay the insolvency resolution process. Overall Conclusion The Court upheld the NCLT's order reviving the corporate insolvency petition, holding: (a) no breach of natural justice occurred as the petitioner had notice and hearing and did not file reply or seek extension; (b) the NCLT permissibly exercised discretion to restore the petition in view of protracted settlement attempts and the creditor's denial of settlement; and (c) Article 227 was not to be exercised in the facts given the availability of appellate remedy and the petitioner's unexplained failure to avail it.