Litigant Has No Right To Ask NCLT Member To Recuse Himself From Hearing : NCLAT Delhi

“The litigant has no right to ask the member to recuse himself. The present is a case where request was made by the Appellant to the Member to recuse from hearing the proceeding. Rule 62 cannot be put to such interpretation and giving any such right to litigant shall lead to disastrous and unwelcome results”, the Bench ruled.

BACKGROUND FACTS

The Cosmos Cooperative Bank Ltd. (“Financial Creditor”) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) before NCLT Mumbai, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Mirco Dynamics Pvt. Ltd. (“Corporate Debtor”). During the pendency of the petition, the Corporate Debtor filed an application alleging that the Financial Creditor has placed forged documents on record to commit fraud upon the Tribunal. However, the NCLT dismissed the application. On 25.02.2022, the NCLT initiated CIRP against the Corporate Debtor.

Thereafter, Mr. Ishrat Ali, Suspended Director of Corporate Debtor, sought recusal of the NCLT Member from hearing the matter but the latter refused to recuse. The Suspended Director filed a transfer application before the Principal Bench of NCLT, seeking transfer of the Section 7 petition from NCLT Mumbai Bench-III. The Principal Bench held that refusal of Member to recuse from a case on the request of party cannot be a ground for transferring a proceeding from NCLT Mumbai. Accordingly, the transfer application was dismissed on 19.12.2022.

The Suspended Director filed an appeal before the NCLAT challenging the Principal Bench’s order. It was argued that several new facts came to the notice of Suspended Director, such as defect in Affidavit filed alongwith Section 7 petition. Further, the Suspended Director alleged that the NCLT Registry has practiced fraud and the same was indicative from information received through RTI. On the said grounds, the transfer application ought to have been allowed.

RELEVANT LAW

Rule 62 of NCLT Rules 2016

“62. Recusal.-

(1) For the purpose of maintaining the high standards and integrity of the Tribunal, the President or a Member of the Tribunal shall recuse himself: –

(a) in any cases involving persons with whom the President or the Member has or had a personal, familial or professional relationship;

(b)in any cases concerning which the President or the Member has previously been called upon in another capacity, including as advisor, representative, expert or witness; or

(c) if there exists other circumstances such as to make the President or the Member’s participation seem inappropriate.

(2) The President or any Member recusing himself may record reasons for recusal:
Provided that no party to the proceedings or any other person shall have a right to know the reasons for recusal by the President or the Member in the case.”

NCLAT VERDICT

The Bench placed reliance on Rule 62 of NCLT Rules, 2016 and observed that Members and President can recuse themselves from hearing a proceeding if factors as mentioned in sub-clauses (a), (b) and (c) are fulfilled. However, under Rule 62 a litigant does not have any right to seek recusal of a Member from hearing the case.

“The litigant has no right to ask the member to recuse himself. The present is a case where request was made by the Appellant to the Member to recuse from hearing the proceeding. Rule 62 cannot be put to such interpretation and giving any such right to litigant shall lead to disastrous and unwelcome results.”

It was further observed that allegations of fraud in filing Section 7 petition have no bearing, since the order initiating CIRP passed by the NCLT was upheld by both NCLAT and the Supreme Court.

“The admission order of Section 7 which has attained finality upto the Hon’ble Supreme Court cannot be allowed to be stifled on the argument that affidavit which was filed in support of application was not properly sworn and some information under RTI has been received on 09th June, 2022.”

The Bench upheld the order of dismissal of transfer application passed by the Principal Bench of NCLT and dismissed the appeal.

Case Title: Ishrat Ali v The Cosmos Cooperative Bank Ltd. & Anr.

Case No.: Company Appeal (AT) (Insolvency) No. 420 of 2023

Counsel For Appellant: Mr. Dhruv Surana, Mr. Rajeev Ahuja, Mr. Arya Hardik, Advocates.

Counsel For Respondent: Mr. Ninad Laud, Mr. Ivo’ D’costa, Mr. Avinash Mathews, Advocates

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