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2025 (6) TMI 1513 - AT - IBCViolation of principles of natural justice - deprivation from availing an opportunity to file his objection to the report that has been submitted in the proceedings under Section 95 of the I B Code 2016 at the stage when the proceedings have reached to Section 99 of the I B Code - HELD THAT - Section 99 (5) of the I B Code 2016 stipulates that the person from information/explanation is sought under Section 99(4) shall furnish the same within 7 days of receipt of such request. The Ld. Counsel for the Appellant argues that since only 2 days notice was provided in the notice of 21.06.2024 the same would be in utter derogation to the procedural requirement and legislative intent and necessity providing for 7 days under Section 99 (5) of the I B Code 2016 and hence the impugned order of 21.10.2024 cannot be sustained. The issuance of the Letter dated 03.07.2024 by way of reminder will not help the Resolution Professional overcome the shortcomings of initial notice of 21.06.2024 because at no point of time till 03.07.2024 he ever contemplated to issue a reminder and because he by his own admissions had finalized the report on 26.06.2024 itself. Hence complying with the conditions of providing a time period upto 7 days to file the information under Section 99 (5) of the I B Code 2016 becomes mandatory for the Resolution Professional who issued the first notice on 21.06.2024 and non-compliance with the same cannot be ameliorated by issuance of a Letter on 03.07.2024 in the shape of a reminder calling for a reply in pursuance to the notice of 21.06.2024 the reason being that the Letter of 03.07.2024 apart from the fact that it will not have an independent existence to satisfy the conditions contemplated under Section 99 (5) of the I B Code 2016 of providing time upto 7 days to file reply under Section 99 (5) of the I B Code 2016 which was to be complied at the stage when the first notice was issued on 21.06.2024. The issue of substantial compliance cannot be substituted herein under the given facts; According to the argument of the Ld. Counsel for the Respondent issuance of letter dated 03.07.2024 provided substantial compliance of the provisions of Section 99(4) of the I B Code 2016. However issuance of a mere reminder letter will not constitute substantial compliance unless it is shown that such action fulfils the codal provisions of Section 99(5) of the I B Code 2016. Mere submission of the report of 14.08.2024 or a prior act of issuance of a letter of 03.07.2024 cannot be construed as to be substantial compliance post facto. Hence the aforesaid principle which has been sought to be argued by the Ld. Counsel for the Respondent may not be applicable. Conclusion - i) The RP s discretion under Section 99(4) becomes mandatory in operation once exercised. ii) The appellant must be afforded the full seven days to furnish information as per Section 99(5). iii) Limiting the response time to two days is invalid and violates the statutory procedure. iv) The precedent limiting the personal guarantor s rights until Section 100 is reached does not override the procedural safeguards under Sections 99(4) and (5) once the RP seeks information. The impugned order dated 21.10.2024 is hereby quashed. The matter is remitted back to be decided afresh after providing a time period of seven days from the date of the receipt of the certified copies of this order by the Ld. Adjudicating Authority for filing a reply furnishing information as contemplated under Section 99 (5) of the I B Code 2016 - Appeal allowed by way of remand.
The core legal questions considered by the Tribunal are:
1. Whether the appellant was deprived of a fair opportunity to file objections or furnish information in response to the report submitted under Section 95 of the Insolvency and Bankruptcy Code (I & B Code), 2016, when the proceedings had reached the stage of Section 99. 2. Whether the discretionary power vested in the Resolution Professional (RP) under Section 99(4) of the I & B Code to seek information or explanation is mandatory or directory once exercised. 3. Whether the time period prescribed under Section 99(5) of the I & B Code-requiring furnishing of information or explanation within seven days of the request-is mandatory and whether limiting the time to two days, as done in the impugned notice, is legally valid. 4. Whether the principles laid down in the precedent judgment involving the rights of a personal guarantor under Sections 95 and 100 of the I & B Code apply when the RP has exercised discretion to seek information under Section 99(4). 5. Whether subsequent actions by the RP, such as reminders or delayed report submissions, can cure non-compliance with the mandatory time frame prescribed under Section 99(5). 6. The applicability of principles of substantial compliance and natural justice in the procedural context of Sections 99(4) and (5) of the I & B Code. Issue-wise Detailed Analysis: Issue 1 & 2: Discretionary vs. Mandatory Nature of Section 99(4) and (5) The Tribunal examined the language of Section 99(4), which empowers the RP to seek further information or explanation from the debtor, creditor, or any other person deemed relevant. The use of the word "may" indicates discretion vested in the RP to decide whether to seek such information. However, once the RP exercises this discretion and issues a notice requesting information, the provision ceases to be merely directory and becomes mandatory in its operation. This means the RP must comply with the procedural safeguards, including the time frame prescribed under Section 99(5). Section 99(5) mandates furnishing the requested information or explanation within seven days of receipt of the request. The Tribunal emphasized that this time frame is a statutory requirement and must be adhered to strictly once the RP issues the notice. The purpose is to ensure that the report prepared under Section 99(1) is based on adequate information, thereby enabling a fair and comprehensive examination of the application under Section 95 before proceeding to Section 100. Issue 3: Validity of Limiting Time to Two Days The appellant challenged the notice dated 21.06.2024, which sought information with a time limit of two days, contending this was in violation of Section 99(5). The Tribunal agreed with the appellant's contention, holding that the statutory requirement of seven days cannot be abridged by the RP through a notice. The RP's discretion to seek information does not extend to curtailing the legislatively mandated time period for furnishing the information. The Tribunal observed that the RP had issued the notice on 21.06.2024 but had finalized the report by 26.06.2024, within the two-day window, thus not allowing the appellant the full seven days as prescribed. This procedural deficiency could not be cured by a subsequent reminder letter dated 03.07.2024 or by the eventual submission of the report on 14.08.2024. The reminder letter was held to lack independent existence and could not retrospectively validate the initial non-compliance. Issue 4: Applicability of Precedent on Rights of Personal Guarantor The Tribunal considered the precedent judgment which held that no vested right is created in favor of the opposite party to have a say in the matter until the proceedings under Section 95 reach Section 100. The respondents relied on this to argue that minimal opportunity to the personal guarantor is sufficient. The Tribunal distinguished the present facts, noting that the precedent did not contemplate a scenario where the RP had exercised discretion under Section 99(4) to seek information. Once the RP issues such a notice, the procedural safeguards under Section 99(5) become operative, creating a right to adequate time to respond. Hence, the ratio of the precedent was held not applicable in the context where the RP has sought information and explanation, as the statutory provisions require compliance with the seven-day period to ensure the report's veracity and fairness. Issue 5: Effect of Subsequent Actions by Resolution Professional The respondents argued that subsequent issuance of a reminder letter and delayed submission of the report effectively granted the appellant sufficient time to respond, thereby satisfying the statutory requirement. The Tribunal rejected this argument, holding that the initial notice's non-compliance with the seven-day period could not be remedied by later unilateral actions. The statutory timeline is to be complied with at the stage of the initial request. The RP's unilateral actions post-facto cannot dilute or circumvent the legislative intent behind Section 99(5). Issue 6: Principles of Substantial Compliance and Natural Justice The respondents cited judgments on substantial compliance and natural justice to justify the procedural irregularities. The Tribunal clarified that substantial compliance could not substitute for strict adherence to the statutory time frame under Section 99(5). The reminder letter and eventual report submission did not amount to substantial compliance. Regarding natural justice, the Tribunal noted that the cited judgments pertained to post-decisional opportunities in service law contexts, which are not analogous to the present statutory regime. The provisions under Sections 99(4) and (5) are designed to ensure the RP can verify the application's veracity before admission under Section 100, and post-decisional opportunities cannot replace the pre-report procedural safeguards. Conclusions The Tribunal concluded that the impugned order dated 21.10.2024, which effectively denied the appellant a full seven-day period to furnish information as mandated under Section 99(5), was unsustainable. The procedural requirement to allow seven days is mandatory once the RP exercises discretion to seek information under Section 99(4). The attempt to curtail this period to two days was held to be contrary to the legislative intent and statutory provisions. The Tribunal quashed the impugned order and remitted the matter to the Adjudicating Authority for fresh consideration after providing the appellant a full seven-day period to furnish the required information as per Section 99(5). Significant Holdings: "As soon as the Resolution Professional has issued a notice... it means that he has exercised his wisdom... the provision contained under Section 99(4) of the I & B Code, 2016, will be no more directory in nature, and the provision becomes 'mandatory', meaning thereby that the conditions following thereof would necessarily be required to be followed." "The statutory requirement of seven days cannot be abridged by the Resolution Professional through a notice limiting the time to two days... non-compliance with the same cannot be ameliorated by issuance of a Letter on 03.07.2024, in the shape of a reminder." "The judgment... did not take into account a right, which stands created by exercise of wisdom by the Resolution Professional of calling for an explanation/information under Section 99(4)... Hence the principle... may not be applicable when the Resolution Professional himself has already exercised its discretion and had issued a notice." "Substantial compliance cannot substitute the mandatory statutory time frame under Section 99(5)... Mere submission of the report or issuance of a reminder letter cannot be construed as substantial compliance post facto." Final determinations:
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