2024 (9) TMI 1752 - AT - IBC

Dissolution of the Corporate Debtor without making the Successful bidder (Appellant) a party or hearing them - HELD THAT - From the facts which have been brought on record it does appear that the Adjudicating Authority has passed the impugned order dated 18.06.2024 in ignorance of the earlier order dated 10.05.2024. Appellant being not before the Adjudicating Authority at the time of reserving the order on dissolution Application the facts could not be noticed by the Adjudicating Authority. The Adjudicating Authority have already granted reliefs and concession by order dated 10.05.2024 the order impugned is passed ignorance of the order dated 10.05.2024 which order deserves to be set aside on this ground alone. The application for recall of order dated 10.05.2024 is still pending before the Adjudicating Authority - The Appeal is disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Appellate Tribunal include:

• Whether the Adjudicating Authority erred in passing the order dated 18.06.2024 for dissolution of the Corporate Debtor without making the Successful bidder (Appellant) a party or hearing them, despite an earlier order dated 10.05.2024 granting reliefs and concessions to the Appellant;
• Whether the impugned order dated 18.06.2024 was passed in ignorance of the earlier order dated 10.05.2024;
• The legal effect and validity of the sale conducted by the Liquidator, particularly whether it was a sale of assets or a going concern sale, and the implications thereof;
• The procedural propriety of the Adjudicating Authority's decision to dissolve the Corporate Debtor without considering the pending application for recall of the earlier order dated 10.05.2024;
• The appropriate course of action regarding the pending application for recall of the order dated 10.05.2024 and the dissolution application.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the Adjudicating Authority erred in passing the dissolution order without making the Appellant a party or hearing them, despite an earlier order granting reliefs and concessions

The relevant legal framework under the Insolvency and Bankruptcy Code (IBC) mandates that parties affected by an order must be heard, ensuring principles of natural justice are upheld. Precedents emphasize that orders affecting rights, especially in liquidation proceedings, require due notice and opportunity to be heard.

The Court observed that the Appellant was declared the Successful bidder in the liquidation process and had complied with all requirements, including payment of the entire sale consideration and execution of the sale agreement. The Appellant had also been granted reliefs and concessions by the Adjudicating Authority in the earlier order dated 10.05.2024.

Despite this, the Adjudicating Authority passed the impugned order dated 18.06.2024 for dissolution of the Corporate Debtor without making the Appellant a party or hearing them. The Appellant contended that they were unaware of the dissolution application proceedings and thus could not bring the earlier order to the notice of the Authority.

The Court found that the Adjudicating Authority acted in ignorance of the earlier order and without affording the Appellant a hearing, thereby violating principles of natural justice. This procedural lapse was sufficient ground to set aside the impugned order.

The competing argument by the Liquidator that the sale was only of assets and not a going concern was noted but was not determinative of the procedural impropriety.

Issue 2: Legal nature of the sale - asset sale or going concern sale

The Liquidator argued that the sale was conducted on an 'as is what is basis, whatever there is basis and no recourse basis' and was a sale of assets, not a going concern sale. This distinction is significant as a going concern sale entails transfer of the corporate debtor as a whole, including liabilities and ongoing business operations, whereas an asset sale transfers only certain assets.

The Court noted the Liquidator's submission and the sale notice dated 20.10.2022, which explicitly stated the terms of sale. However, the Court did not make a final determination on this issue, as the primary focus was on procedural fairness and the effect of the earlier order granting reliefs to the Appellant.

Issue 3: Effect of pending application for recall of the order dated 10.05.2024 on the dissolution application

The Liquidator had filed an application before the Adjudicating Authority seeking recall of the order dated 10.05.2024, which was pending and scheduled for hearing on 04.09.2024. The Appellant submitted that the impugned order was passed without considering this pending application.

The Court held that the Adjudicating Authority should have considered the pending recall application before passing the dissolution order. The failure to do so contributed to the impugned order being passed in ignorance of the earlier order and pending proceedings.

The Court directed that the application for dissolution be listed alongside the pending recall application, ensuring both parties are heard and a comprehensive decision is rendered.

Issue 4: Appropriate remedy and directions

Given the procedural irregularities and the ignorance of the earlier order, the Court concluded that the impugned order dated 18.06.2024 must be set aside. The Court allowed the appeal and disposed of it with directions for the Adjudicating Authority to hear both parties on the dissolution application afresh, taking into account the earlier order and the pending recall application.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The Adjudicating Authority has passed the impugned order dated 18.06.2024 in ignorance of the earlier order dated 10.05.2024. Appellant being not before the Adjudicating Authority at the time of reserving the order on dissolution Application, the facts could not be noticed by the Adjudicating Authority."

"The Adjudicating Authority have already granted reliefs and concession by order dated 10.05.2024, the order impugned is passed ignorance of the order dated 10.05.2024, which order deserves to be set aside on this ground alone."

Core principles established include:

• The necessity of affording parties a hearing before passing orders that affect their rights, especially in liquidation proceedings under the IBC;
• The importance of the Adjudicating Authority considering all relevant prior orders and pending applications before passing consequential orders;
• The procedural impropriety of passing orders in ignorance of earlier reliefs granted and without making affected parties a party to the proceedings;
• The appellate power to set aside orders passed in violation of principles of natural justice and to remit matters for fresh consideration.

Final determinations:

• The impugned order dated 18.06.2024 dissolving the Corporate Debtor was set aside;
• The appeal was allowed on the ground of procedural irregularity and ignorance of the earlier order;
• The Adjudicating Authority was directed