TMI Blog2017 (4) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... ault must necessarily involve the consideration of the documentary claim of the financial creditor. This statutory requirement of ascertainment of default brings within its wake the extension of a reasonable opportunity to the corporate debtor to substantiate by document or otherwise, that there does not exist a default as claimed against it. The proceedings before the NCLT are adversarial in nature. Both the sides are, therefore, entitled to a reasonable opportunity of hearing. Rule 10 of the Rules of 2016 states that, till such time the Rules of procedure for conduct of proceedings under the Code of 2016 are notified, an application made under Sub-section (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-III 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 orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted on such Company Petition on January 25, 2017. The order was passed ex-parte. The petitioner was not informed of the date of hearing. The petitioner was not afforded an opportunity of hearing by the NCLT prior to the passing of such order of administration of the petitioner and appointment of Interim Resolution Professional. The petitioner had preferred an appeal from such order. Such appeal being Company Appeals (AT) (Insolvency) No. 3 of 2017 was disposed of by an order dated February 21, 2017. He submits that, pursuant to the disposal of the appeal, proceedings have taken place in the Company Petition. At no stage has the petitioner been heard by the NCLT. He submits that, the petitioner is entitled to a right of hearing under the principles of natural justice. He submits that, the Code of 2016 is silent as to the grant of hearing by the NCLT. In such circumstances, the right of hearing, on the principles of natural justice, has to be read into such Statute. He submits that, the claim of the respondent under the Company Petition is not such that the Bankruptcy Code of 2016 can be invoked. The NCLT has assumed jurisdiction under the Code of 2016 where none exists. The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Rules, 2016 will be applicable. He refers to Rule 24 of the National Company Law Tribunal Rules, 2016 which contemplates service of notice of the application upon the respondent. He submits that, the proceedings before the NCLT are to be conducted keeping in view the provisions of Section 424 of the Companies Act, 2013. Section 424 of the Act of 2013 contemplates the NCLT applying the principles of natural justice in the proceedings. He submits that, the NCLT is not bound by the Code of Civil Procedure, 1908 and that, it can regulate its own procedure subject to the provisions of the Act of 2013 and the Insolvency and the Bankruptcy Code of 2016. He submits that, the Code of 2016 does not debar the applicability of the principles of natural justice in proceedings under consideration by the NCLT when it is considering an application under Section 7 of the Code of 2016. Therefore, the challenge to the vires to the provisions of Section 7 of the Code of 2016 and Rule 4 of the Rules 2016 should fail. I have considered the rival contentions of the petitioner and the materials made available on record. The respondent No. 2 had filed an application under section 7 of the Code of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under Sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3). (5) Where the Adjudicating Authority is satisfied that- (a) a default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or (b) default has not occurred or the application under sub-section(2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: PROVIDED that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proceedings is pending against the proposed resolution professional. However, if the adjudicating authority is proceeding to dismiss an application, on the ground of defect in the application, then the adjudicating authority will give a notice of such defect to the applicant to rectify such defect within 7 days from the date of receipt of the notice. Sub-section (6) of Section 7 stipulates that, the corporate insolvency resolution process shall commence from the date of admission of the application under Sub-section (5). Sub-section (7) of Section 7 mandates the adjudicating authority to communicate its orders within 7 days of admission or rejection of the application, as the case may be, to the financial creditor and the corporate debtor. Section 61 of the Code of 2016 allows an appeal to be filed before the appellate authority. It is as follows:- 61. Appeals and Appellate Authority (1) Notwithstanding anything to the contrary contained under the Companies Act, 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 013. The procedure before the NCLT and the NCLAT is guided by Section 424 of the Companies Act, 2013. It is as follows: 424. Procedure before Tribunal and Appellate Tribunal.-(1) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908(5 of 1908), but shall be guided by the principles of natural justice, and, subject to the other provisions of the Act 1[or of the Insolvency and Bankruptcy Code, 2016] and of any rules made thereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act [or under the Insolvency and bankruptcy Code, 2016] the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908) while trying a suit in respect of the following matters, namely:- (a) summoning and enforcing the attendance of any person examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above anything else. It also allows the NCLT and NCLAT the power to regulate their own procedure. Fretters 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 insolvency of a company has drastic consequences for a company. Such proceeding may end up in its liquidation. A person cannot be condemned unheard. Where a statute is silent on the right of hearing and it does not in express terms, oust the principles of natural justice, the same can and should be read into in. When the NCLT receives an application under Section 7 of the Code of 2016, therefore, it must afford a reasonable opportunity of hearing to the corporate debtor as Section 424 of the Companies Act, 2013 mandates it to ascertain the existence of default as claimed by the financial creditor in the application. The NCLT is, therefore, obliged to afford a reasonable opportunity to the financial debtor to contest such claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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