ADMISSION OF APPLIATION FOR INITIATION OF ‘CIRP’ IN AN EX-PARTE ORDER

[Mr. M. GOVINDARAJAN]

In MAHESH PARICHARAK VERSUS INDIAN OVERSEAS BANK - 2023 (9) TMI 83 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI  Overseas Bank filed an application for initiation of corporate insolvency resolution process against Utopian Sugars Limited (Corporate Debtor) for the outstanding amount of Rs.23.17 crores which includes principal and interest.   The case was for the first time heard on 11.10.2022.  On that day the Adjudicating Authority directed the Registry to send to the Corporate Debtor intimating the next hearing date.  The financial creditor was also directed to file an affidavit for the service notice before the Adjudicating Authority in the next hearing.  The date of next hearing was fixed on 07.11.2022.  In the hearing held on 21.11.2022 the financial creditor filed an affidavit as to the service of notice to the corporate debtor.  Even after service upon the Corporate Debtor by the Registry as well as Counsel, appearing for the Financial Creditor the Corporate Debtor has neither filed Reply nor has caused appearance. Consequently, the Adjudicating Authority has no option except to hear the arguments of the Financial Creditor.  The Adjudicating Authority heard the arguments of the financial creditors and reserved for orders.  On 16.12.2022 the Adjudicating Authority passed the order in which the Adjudicating Authority held that the Corporate Debtor failed to appear before this Tribunal on multiple occasions despite notice.  The Corporate Debtor committed several defaults in repayments and did not reply to the Notices and reminders issued by the Financial Creditor.  The admission of the Corporate Debtor's liability to repay the said loan is well evidenced by the "Confirmation of Balance and Security" dated 9th October 2020.

Being aggrieved against the order of Adjudicating Authority the suspended directors of corporate debtor filed the present appeal before the National Company Law Appellate Tribunal (‘NCLAT’ for short).  The appellant submitted the following before the NCLAT-

• The Adjudicating Authority has committed an error in recording the finding that the Corporate Debtor failed to appear before the Adjudicating Authority on multiple occasions despite notice, as it is contrary to the record.
• On 11.10.2022 a formal notice was issued by the Adjudicating Authority to the Corporate Debtor.
• In the column of appearance, absence of the Corporate Debtor was recorded though by that time the Corporate Debtor could not have been present because the notice was itself issued on 11.10.2022.
• On 07.11.2022, the Adjudicating Authority recorded that no one appeared on behalf of the Corporate Debtor but at the same time it asked the Financial Creditor to file an affidavit of service for which one week time was granted.
• In the hearing date 21.11.2022 the appellant was absent.
• The Financial Creditor made a submission that the Corporate Debtor is not appearing despite various opportunities granted by the Adjudicating Authority.
•  The order was reserved on the same day.
• In its order the Adjudicating Authority held that the Corporate Debtor failed to appear despite various opportunities granted.
•  The Appellant was absent only on one day i.e. on 21.11.2022 and on the same day the order was reserved and later on pronounced.
• The Adjudicating Authority has shown an unholy haste in proceeding against the Appellant and no proper opportunity to defend was granted.

The Financial creditor, respondent in the present appeal submitted the following before NCLAT-

• After the service was effected, the Corporate Debtor was required to appear before the Adjudicating Authority and therefore, in the case of his absence, the Adjudicating Authority has adopted the right procedure in proceeding against the Corporate Debtor ex-parte and passing an ex-parte order.

During the pendency of this appeal, something more has happened, because after the order dated 16.12.2022 was stayed an application for intervention was filed by Union Bank of India claiming itself to be the creditor, alleged to have submitted its claim for an amount of Rs. 22,27,81,187.21/- with the interim resolution processional allegedly before the order of stay passed by NCLAT.  Besides the application for intervention, there were out of court of settlement between the Financial Creditor and the Corporate Debtor.  The Appellant has undertaken to pay the amount of settlement to the Respondent (Financial Creditor) in tranches and the last payment has to be made on 31.03.2023.  The amount of Rs. 24 Crore has already been paid as against the total claim of the Financial Creditor of Rs. 23,16,19,975

NCLAT further observed that the ex-parte proceedings have been carried out by the Adjudicating Authority against the Corporate Debtor making observation in the impugned order that the Corporate Debtor failed to appear on multiple occasion despite notice.  NCLAT observed that this is not borne out from the record because the notice for the first time was issued by the Adjudicating Authority on 11.10.2022  for 07.11.2022 and on 07.11.2022, the case was adjourned to 21.11.2022 in which the Adjudicating Authority was not sure about the service having been effected by the Financial Creditor on the Corporate Debtor, therefore, it asked the Financial Creditor to file an affidavit of service within a week of the Corporate Debtor. However, it is pertinent to mention that both in the order dated 11.10.2022 and 07.11.2022, in the column of appearance, absence of the Corporate Debtor has been mentioned which in fact is a wrong recording of fact of absence.  In compliance of the order dated 07.11.2022, though the affidavit of service was not filed in time yet the same was filed on 18.11.2022 and when the case was taken up on 21.11.2022, the Corporate Debtor has been shown absent and the ex-parte arguments were heard and the order was reserved as well.

NCLAT was of the view that the Adjudicating Authority should have passed the order of proceeding against the Respondent ex-parte and should have listed the case for ex-parte hearing but the case was heard on the same day and the order was reserved.  The NCLAT held that the observations made by the Adjudicating Authority in the impugned order that the Appellant remained absent on many occasions is patently erroneous and is not borne out from the record.

NCLAT was of the view that the appeal can be allowed for the above said reasons.  NCLAT remanded the matter back to the Adjudicating Authority for deciding it again on merits but for the fact that the Appellant/Corporate Debtor has already made the entire payment of the amount which has been sought to be resolved in the application filed under Section 7 of the Code, nothing survives for adjudication either by the Adjudicating Authority or by this Appellate Tribunal because ultimately the aim is to get the resolution of the amount which is stated to be a debt in default.

NCLAT allowed the appeal and set aside the impugned order.