Mahesh Paricharak vs Indian Overseas Bank

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 16.12.2022, passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court II), admitting the application bearing CP No. (IB) 1083/MB/2022 filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) r/w Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (in short ‘Rules’) by Indian Overseas Bank (Financial Creditor) against M/s Utopian Sugars Limited (Corporate Debtor) for the resolution of an aggregate amount of Rs. 23,16,19,975/- which includes principal amount of Rs. 17,81,96,000/- and interest of Rs. 5,34,23,975/-. Moratorium was declared and Ritesh R. Mahajan was appointed as the Interim Resolution Professional (in short ‘IRP’).

In brief, notice in the application was issued by the Adjudicating Authority on 11.10.2022. At that time, the following order was passed :-

On the adjourned date i.e. 07.11.2022, the following order was passed by the Adjudicating Authority:-

In compliance of the order dated 07.11.2022, the Financial Creditor filed an affidavit of service dated 18.11.2022 which is also reproduced as under:-

Thereafter, the case was listed on 21.11.2022 and on that date the following order was passed:-

The order reserved on 21.11.2022, was pronounced on 16.12.2022. The relevant paragraph in regard to the findings is Para 7 of the impugned order which is reproduced as under:-

This Appeal is filed by the suspended board of directors of the Corporate Debtor assailing the validity of the impugned order dated 16.12.2022 by which the application filed under Section 7 of the Code has been admitted. The appeal filed on 22.12.2022 was listed for preliminary hearing on 23.12.2022 in which the following order was passed by this Tribunal:-

Counsel for the Appellant has submitted that 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. In this regard, he drew our attention to the first order passed by the Adjudicating Authority on 11.10.2022. On that date a formal notice was issued by the Adjudicating Authority to the Corporate Debtor. However, 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 and on 11.10.2022 the case was adjourned to 07.11.2022 and 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. It is submitted that till that time the Adjudicating Authority was not sure about the service of the Corporate Debtor and therefore, the affidavit by the Financial Creditor was asked to be filed. The affidavit of service was to be filed by 14.11.2022 but the affidavit was attested by the Financial Creditor on 18.11.2022. It is further submitted that it is recorded on the next date i.e. 21.11.2022 that the Corporate Debtor was absent but Counsel appearing on behalf of the Financial Creditor made a submission that the Corporate Debtor is not appearing despite various opportunities granted by the Adjudicating Authority and the order was reserved on the same day. It is argued that ultimately in the impugned order which pronounced on 16.12.2022, the Adjudicating Authority recorded that the Corporate Debtor failed to appear despite various opportunities granted. Counsel for the Appellant has thus vehemently argued that 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. It is therefore submitted that the Adjudicating Authority has shown an unholy haste in proceeding against the Appellant and no proper opportunity to defend was granted.

In this regard, Counsel for the Respondent (Financial Creditor) has submitted that 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.

Besides the aforesaid facts and circumstances, 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 IRP (Respondent No. 2) allegedly before the order of stay passed by this Tribunal. However, during the course of hearing, it is not disputed by Counsel appearing on behalf Intervenor that an application has separately been filed before the Adjudicating Authority in respect of the aforesaid amount which is alleged to be without prejudice to its right to Intervene in this appeal.

Besides the application for intervention, there were out of court of settlement between the Financial Creditor and the Corporate Debtor. This fact is recorded in the order dated 10.04.2023 passed by this Tribunal, which is reproduced as under:-

The Appellant also filed an application bearing I.A. No. 1325 of 2023 for taking OTS on record under Rule 11 of the NCLAT Rules, 2016. It is averred that out of the court settlement (OCS) was sanctioned by the Financial Creditor as per which the Appellant had to pay Rs. 24 Crore i.e. 6 Crore upfront amount and 6 Crore each in three tranches. It is submitted that 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/- set up in the application filed under Section 7 of the Code. However, Counsel for the Financial Creditor has submitted that the OCS was not only in regard to the amount involved in the present appeal but also regarding the amount of KCC account where the borrower company is a corporate guarantor. In its reply to this application, it is submitted that the amount involved in the KCC loan account of Rs. 12.40 Crore which was to be paid by the Appellant in four tranches of Rs. 3.10 Crores. It is submitted that the Appellant has already paid two tranches of Rs. 3.10 Crores i.e. Rs. 6.20 Crores but rest of the amount has not been paid, therefore, this settlement cannot be pushed forward.

During the course of hearing, it also transpired that the Respondent (Financial Creditor) has also filed a separate legal proceeding in respect of the KCC account which is pending adjudication.

Counsel for the Appellant has submitted that the amount which has been claimed in Part IV of the application filed in Form 1 is Rs. 23,16,19,975/-against which the Appellant has already paid Rs. 24 Crores which has not been disputed by the Respondent (Financial Creditor), therefore, the present case deserves to be closed as regards the amount is concerned and in this regard Section 12A of the Code would not come to play because the CoC has not been constituted in view of the fact that the impugned order was passed on 16.12.2022, the appeal was filed on 22.12.2022 and stay was granted on 23.12.2022. It is further submitted that the interest of the Intervenor can easily be watched by relegating it to pursue its remedy already availed before the Adjudicating Authority by filing an application under Section 7 of the Code and in so far as the balance amount of KCC is concerned that can also be taken care of in the legal proceedings already pending, initiated at the instance of the Financial Creditor. In support of his submissions, Counsel for the Appellant has relied upon the following decisions of this Tribunal in the case of Bhagwandas R. Bhattad Vs. Bhattad Brother Realty Pvt. Ltd. CA (AT) (Ins) No. 95 of 2022, Vishwajeet Subhash Jhavar Vs. IDFC First Bank Limited & Anr. CA (AT) (Ins) No. 08 of 2023 and Jogendra Kumar Arora Vs. Dharmender Sharma & Anr. I.A. No. 312 & 336 of 2019 in CA (AT) (Ins.) No. 94 & 95 of 2019.

We have heard Counsel for the parties and perused the record with their able assistance.

As we have given the facts in the earlier part of this order about the manner in which 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. This fact is not borne out from the record because the notice for the first time was issued by the Adjudicating Authority on 11.10.2022 (order Supra) for 07.11.2022 (order Supra) and on 07.11.2022, the case was adjourned to 21.11.2022 (order supra) 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.

Be that as it may, 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.

As an abundant caution, 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.

Thus, the observations made by the Adjudicating Authority in the impugned order that the Appellant (Corporate Debtor) remained absent on many occasions is patently erroneous and is not borne out from the record.

At this stage, it is made clear that we can allow this appeal for this reason alone and remand the case 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.

Thus, in these facts and circumstances, in our considered opinion, nothing survives for the Respondent to recover in the application filed under Section 7 of the Code therein. The present appeal succeeds and the impugned order is hereby set aside.

However, before parting, we would also like to mention that in so far as the claim of the Intervenor is concerned, it has already filed a separate application under Section 7 of the Code before the Adjudicating Authority which it may pursue and the Adjudicating Authority shall decide the same without being influenced by any of the observations made in the present case. Similarly, the legal proceedings initiated by the Financial Creditor in regard to the KCC account, it may pursue the same before the Court concerned and it is observed that the said Court shall decide the same in accordance with law without being influenced by any of the observations made in the present appeal as it is restricted to the dispute between the parties in regard to the amount involved in the application filed under Section 7 of the Code in Part IV of Form 1 which has already been paid by the Corporate Debtor during the pendency of this appeal.