NCLT Proceeded Ex-Parte Against CD On First Hearing After Notice, NCLAT Delhi Says Sufficient Opportunity Not Given As Per Rule 37(2) Of NCLT Rules
The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), while adjudicating an appeal filed in Ami Ashutosh Majumdar v Omkara Assets Reconstruction Pvt. Ltd. & Anr., has set aside an ex-parte order initiating CIRP against the...
The National Company Law Appellate Tribunal (“NCLAT”), New Delhi Bench, comprising of Justice Ashok Bhushan (Chairperson), Shri Barun Mitra (Technical Member) and Shri Arun Baroka (Technical Member), while adjudicating an appeal filed in Ami Ashutosh Majumdar v Omkara Assets Reconstruction Pvt. Ltd. & Anr., has set aside an ex-parte order initiating CIRP against the Corporate Debtor. The NCLT had proceeded ex-parte against the Corporate Debtor on the first hearing held post issuance of notice and when the time period to file a Reply had not lapsed. The Bench held that the NCLT ought to have granted an opportunity to file Reply to the Corporate Debtor.
“In view of the fact that notice by registry was received and served on 04.11.2022 which fact is not disputed, Adjudicating Authority ought to have given one more opportunity to file a reply. Proceeding ex-parte and reserving order is not giving sufficient opportunity to the appellant as contemplated by Rule 37 Sub Rule 2 of the NCLT Rule, 2016.”
Background Facts
Omkara Assets Reconstruction Pvt. Ltd. (“Financial Creditor”) filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Chemstar Organics (India) Limited (“Corporate Debtor”). On 28.09.2022, the NCLT passed an order directing the Financial Creditor to issue notice to the Corporate Debtor and Reply will have to be filed by the latter within two weeks of receiving the notice. The Corporate Debtor was also directed to appear before the NCLT on the next date of hearing i.e. 15.11.2022.
The Registry of NCLT as well as the Financial Creditor served notice upon the Corporate Debtor but no one appeared from its side on 15.11.2022. The NCLT proceeded ex-parte against the Corporate Debtor and eventually admitted it into CIRP on 06.12.2022.
Ami Ashutosh Majumdar (“Suspended Director/Appellant”), being the Suspended Director of the Corporate Debtor, filed an appeal before the NCLAT against the order dated 06.12.2022. It was argued that the letter was received from Registry on 04.11.2022 and the period of two weeks to file the Reply had not lapsed on 15.11.2022. Further, the Financial Creditor’s intimation did not state that two weeks’ time has been granted for filing Reply. Therefore, NCLT ought to have given an opportunity to the Corporate Debtor to file the Reply.
Relevant Law
Rule 37(2) of NCLT Rules 2016
“37. Notice to Opposite Party.-
(1) The Tribunal shall issue notice to the respondent to show cause against the application or petition on a date of hearing to be specified in the Notice. Such notice in Form No. NCLT.5 shall be accompanied by a copy of the application with supporting documents.
(2) If the respondent does not appear on the date specified in the notice in Form No. NCLT.5, the Tribunal, after according reasonable opportunity to the respondent, shall forthwith proceed ex-parte to dispose of the application. xxxx”
NCLAT Verdict
The Bench noted that 15.11.2022 was the first date after issuance of notice by the NCLT on 28.09.2022. Although the Corporate Debtor was well aware that it has to appear on 15.11.2022 since notice by the registry was already been received by them but the submission of the counsel for the appellant that opportunity of two weeks was granted after service of notice as per order of the Adjudicating Authority, hence, when notice was received from the registry then they had still two weeks time to file the reply and on 15.11.2022 time had not expired. On 15.11.2022 when the appellant did not appear, the Adjudicating Authority on the same very date proceeded ex-parte and reserved the order.
“In view of the fact that notice by registry was received and served on 04.11.2022 which fact is not disputed, Adjudicating Authority ought to have given one more opportunity to file a reply. Proceeding ex-parte and reserving order is not giving sufficient opportunity to the appellant as contemplated by Rule 37 Sub Rule 2 of the NCLT Rule, 2016.”
The Bench granted two weeks time to the Corporate Debtor to file its Reply to the Section 7 petition and fixed a date for Parties to appear before the NCLT.
Case title: Ami Ashutosh Majumdar v Omkara Assets Reconstruction Pvt. Ltd. & Anr.
Case No.: Company Appeal (AT) (Ins.) No. 1492 of 2022
Counsel For Appellant: Mr. Krishnendu Datta, Sr. Advocate, Mr. Himanshu Satija, Ms. Prerana Wagh, Mr. Shivam Shukla, Advocates.
Counsel For Respondent: Mr. P. Nagesh, Sr. Advocate, Mr. Adarsh Ramanujan, Mr. Lzafeer Ahmad BF, Mr. Skanda Shekhar, Mr. Akshay Sharma, Advocates for R-1.