TMI Blog2017 (7) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench and allow the appeal. In effect the appointment of Interim Resolution Professional, order declaring moratorium, freezing of account and all other order passed by 'adjudicating authority' pursuant to impugned order and action taken by the Interim Resolution Professional, including the advertisement published in the newspaper calling for applications are declared illegal. The 'adjudicating authority' is directed to close the proceeding. The appellant company is released from the rigour of law and allow the appellant company to function independently through its Board of Directors from immediate effect. - Company Appeal (AT) (Insolvency) No. 5 of 2017 - - - Dated:- 24-5-2017 - Mr. Balvinder Singh, And S.J.Mukhopadhaya, JJ. For The Appellant : Mr R.S. Majumdar, Senior Advocate alongwith Mr Darshan Mehta, Mr Raghav Dwivedi, Ms Nirali Sanghavi and Mr Vaibhav Modi, Advocates For The Respondents : Mr Ramji Srinivasan, Senior Advocate with Mr Aslam Ahmed, Mr Sharad Kharra, Ms Srivardhani and Mr Babit Singh Jamwal, Advocates. JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. This application under Section 61 of Insolvency Bankruptcy Code, 2016 (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble High Court by its judgment dated 7th April, 2017 held as follows:- However, it is to apply the principles of natural justice in the proceedings before it. It can regulate it own procedure, however, subject to the other provisions of the Act of 2013 or the Insolvency and Bankruptcy Code of 2016 and any Rules made thereunder. The Code of 2016 read with the Rules 2016 is silent on the procedure to be adopted at the hearing of an application under section 7 presented before the NCLT, that is to say, it is silent whether a party respondent has a right of hearing before the adjudicating authority or not. Section 424 of the Companies Act, 2013 requires the NCLT and NCLAT to adhere to the principles of the natural justice above anything else. It also allows the NCLT and NCLAT the power to regulate their own procedure. Fetters of the Code of Civil Procedure, 1908 does not bind it. However, it is required to apply its principles. Principles of natural justice require an authority to hear the other party. In an application under Section 7 of the Code of 2016, the financial creditor is the applicant while the corporate debtor is the respondent. A proceeding for declaration of insolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (1) of Section 7 of the Code of 2017 is required to be filed before the adjudicating authority in accordance with Rules 20, 21, 22, 23, 24 and 26 or Part-HI of the National Company Law Tribunal Rules, 2016. Adherence to the principles of natural justice by NCLT or NCLAT would not mean that in every situation, NCLT or NCLAT is required to afford a reasonable opportunity of hearing to the respondent before passing its order. In a given case, a situation may arise which may require NCLT to pass an ex-parte ad interim order against a respondent. Therefore, in such situation NCLT, it may proceed to pass an ex-parte ad interim order, however, after recording the reasons for grant of such an order and why it has chosen not to adhere to the principles of natural justice at that stage. It must, thereafter proceed to afford the party respondent an opportunity of hearing before confirming such ex-parte ad interim order. In the facts of the present case, the learned senior advocate for the petitioner submits that, orders have been passed by the NCLT without adherence to the principles of natural justice. The respondent was not heard by the NCLT before passing the order. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the 'adjudicating authority' they inflated the default amount to be ₹ 29,81,02,395.62 (Rupees twenty nine crore eighty one lac two thousand three hundred ninety five and paise sixty two only). Even Annexure 2 to the said application reflected 'Principal Unmatured' arrived in the computing the 'Default Amount'. 12. Ld. Senior Counsel for the Appellant further submits that as per the repayment schedule under the loan agreements, the entire aforementioned amount had not become due and payable as on 6th February, 2017. Neither the Financial Creditor, by his own admission, recalled the entire loan amount. 13. In view of the same, it was submitted that the computation of the default amount of ₹ 29,81,02,395.62 (Rupees twenty nine crore eighty one lac two thousand three hundred ninety five and paise sixty two only) is grossly incorrect and contrary to the provisions of law. 14. It was further submitted that for the said misstatement, the Financial Creditor ought to be adequately penalised under the provisions of the I B Code,20 16 particularly under Section 75. 15. The Ld. Counsel also highlighted the conduct of the Respondent - ICICI B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors the structure of JLF. The JLF members as per Respondent's own version had agreed to 'explore their action for resolving....' And not to resort to filing of application under Section 7 of the I B Code. Possibly the notice of demand served by the Respondent to the Appellant on 6th February 2017 was in furtherance of 'exploration of its action for resolving....' However, the filing of the application under Section 7 of the I B Code independently by the Respondent, totally disregarding the other members of the Forum was a mischief played by the Respondent upon the Appellant for reasons best known to them, which mischief is apparent from the aforesaid conduct of the Respondent. e. The Respondent has acted contrary to the guidelines of the RBI in relating to JLF, particularly the guideline issued on 24.9.20 15 which at para 5.2 of the guidelines stipulates that in case of disagreement between the members of the JLF on deciding the CAP for borrower, the dissenting lender shall have an option to exit their exposure by completely selling their exposure to a new or existing lender. Therefore, clearly the object of the RBI is clearly that the lenders act through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted and fit to be rejected. 17. The impact of the Insolvency Resolution Professional on the business and management of the Appellant, alleged to be as follows: The Interim Insolvency Resolution Professional (hereinafter referred to as IRP) has been appointed by the 'adjudicating authority' by the impugned order. On 1st March 2017 the IRP issued a public notice in Economic Times therein calling upon the creditors of the company to submit their claims. From 2nd March 2017 onwards the IRP has been attending office from the Appellant's premises and has taken over the management of affairs of the Appellant. 18. Ld. Counsel highlighted the events that occurred pursuant to IRP taking over the management of the affairs of the Appellant. 18.1 M/s. G.E Industrial India Pvt Ltd (hereinafter referred to as GE) has been a crucial and important client of the Appellant. GE had placed several orders in October 2016 and January 2017 for commission of the Appellant's cranes at its project sites at Lalpur, Kadapa, Jamnagar etc. The nature of Appellant's contracts with its clients are such that the Appellant is required to regularly and in a very prompt, timel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subsidiaries of the corporate debtor. In fact, the Explanation to Section 18 of the I B Code, 2016 explicitly provides that the assets of the corporate debtor shall not include the assets of its Indian or foreign subsidiaries. In that view of the matter, the aforesaid act of the IRP is ex-facie illegal and unsustainable in law. 18.9 As a result of the absolute mismanagement and dis interest in the management of the affairs of the Appellant, the Appellant has suffered loss of several valuable human resources namely, Mr R.0 Swamy, Project Manager who has been with the employment of the Appellant since 26 years, submitted his resignation therein citing the working atmosphere at the Appellant's office as severe stress as the reasons for his resignation. Mr Meet Shay, Deputy Manager e-mailed his resignation on 28th March, 2017. Mr Arup Kumar Ghosh, who was directed by the IRP to take charge of the head office activities of the Appellant e-mailed his resignation on 29th March 2017 citing inability to bear the stress to do so . Mr Varun Kaka, Legal Associate of the Appellant also resigned on 29th March, 2017. 19. Sub-section (12) of Section 3 of I B Code defined defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 9 of the impugned order that it is satisfied that the Appellant has committed a default of ₹ 27.77 crores, which finding is not only perverse, but also is contrary to the very application of the Financial Creditor itself in complete disregard to the apparent and conspicuous mismatch between the amount demanded by the Financial Creditor from the Appellant-Corporate Debtor in its demand notice dated 6th February 2017 and the amount stated to be in default in the said application. 21. Showing an incorrect claim, moving the application in a hasty manner and obtaining an ex-parte order from the 'adjudicating authority' which admitted such an incorrect claim, the Financial Creditor cannot disprove its mala fide intention by stating that the claim submitted is correct amount. The I B Code does not provide for any such mechanism where post-admission, the applicant financial creditor can modify their claim amount. 22. In some of the cases, an insolvency resolution process can and may have adverse consequences on the welfare of the company. This makes it imperative for the 'adjudicating authority' to adopt a cautious approach in admitting insolvency applic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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