Mr. Pasam Laxmi Srinivas Reddy vs State Bank Of India & Ors.

[Oral Judgment: Justice Sharad Kumar Sharma, Member (Judicial)]:

The Appellate questions the validity of the impugned order dated 09.01.2026 as it was rendered in IA(IBC) No.1616/2025, as it was preferred by the Respondent No. 1, in CP(IB) No.74/94/HDB/2024, being the proceedings held under Section 121 to be read with Section 123 of the I&B Code, that had ultimately resulted into passing of an order of directing the bankruptcy proceedings to be initiated against the present Appellant.

The Appellant questions the very procedural impropriety of the Tribunal, while passing the impugned order of 09.01.2026, contending thereof that, the order happens to be in utter delegation of principals of natural justice because the basic elements, which were required to be satisfied by the Tribunal of providing an effective opportunity of hearing to the Appellant, was not provided and hence he submits that the order would be vitiated. The Learned Counsel for the Appellant in support of his contention has submitted that, when IA(IBC) No. 1616/2025, was preferred by the Respondent on 01.10.2025, wherein the bankruptcy process was sought to be initiated, as against the present Appellant, the notices were issued on the IA and that, upon notices being issued on 16.10.2025, the proceedings were thereafter taken up only on 02.12.2025, i.e., the date on which the Appellant has put an appearance for the first time. His prime grievance is that, when he could put an appearance on 02.12.2025, Learned Tribunal without providing any opportunity to him to controvert the pleadings raised by way of filing of an objection in IA(IBC) No.1616/2025, directed the judgment to be reserved on the same day and consequently passed the impugned order.

The argument of the Learned Counsel for the Appellant is that, procedurally the order suffers from the vices of being bad in the eyes of law due to the principles of audi alteram partem, as he was not provided an effective opportunity of hearing or to controvert the pleadings that, were raised in the IA, which in itself would vitiate the order and make the order to be in violation of principal of natural justice, which is intended to be preserved by the provisions contained under Section 424 sub-section 1 of the Companies Act, which has been made subsequently applicable to the proceedings under the I&B Code, by an amendment in law.

The Counsel for the Respondent vehemently opposes the said contention, contending thereof that, admittedly in the proceedings, held on 02.12.2025, the Appellant had put an appearance and he was heard and as such it cannot be said at their behest, that the order suffers from the non-adherence to the principles of natural justice, owing to the fact that, no effective defence could have been put forward by the Appellant to the contents of the application preferred by the Respondents, seeking the initiation of a bankruptcy proceedings as against the Appellant to be bad in the eyes of law.

The Counsel for the Respondents has further stated that, there could not have been much material, which could have been placed by the Appellant in his defence, on the contents of application itself, when he has put an appearance on 02.12.2025 and thus the Tribunal has not erred at law, in reserving the orders on 02.12.2025 to be passed on the IA(IBC) No. 1616/2025 and delivering the same on 09.01.2026.

He has further contended that as per his perception, the application filed by him under Section 121 of I&B Code was self-contained, containing all the parameters and materials required for the same and that there was very little that could have been done by the Appellant to controvert the same.

This argument extended by the Learned Counsel for the Respondent may not be acceptable by us at this moment, for the reason being that, the Respondent since being in the driver's seat, while pressing upon the application IA(IBC) No. 1616/2025, cannot make a presumption as to what objection could have been forthcoming from the Appellant, as that would always be the prerogative of the Appellant and the same cannot be pre-empted by the Respondent, herein, who was the Applicant in the proceedings of IA(IBC) No.1616/2025. What objection the Appellant could have raised is not relevant at this stage. What is relevant is that the Tribunal should have provided an opportunity to him to file an objection to IA(IBC) No.1616/2025 after his appearance before the Tribunal on 02.12.2025. There is nothing on record and we could not find any, even after going through the order sheet, which has been placed before us to show that, on 02.12.2025, when the Appellant appeared for the first time in the said proceedings, the Tribunal has provided an opportunity to the Appellant to file an objection to the application preferred by the Respondent under Section 121 of I&B Code before proceeding to reserve the orders on the said application on the same day. Rather to the contrary, if we go through the impugned order, particularly the finding, which has been recorded in Para 9 of the impugned order, it simply records a finding that since the repayment plan was not submitted by the Personal Guarantor and since there was no resolution plan for resolving the Personal Insolvency, the prayer for bankruptcy is allowed. There is not a whisper of what opportunities were given to the Appellant to raise his defence. May be the conclusion arrived at by the Learned Tribunal is after all correct, but it will be against the principles of natural justice to come to that conclusion without hearing the Appellant and without knowing what defence he might have raised.

Owing to the fact that, the Appellant was not provided with an effective opportunity of hearing on the application and no opportunity was granted to him to file his objection, it is held that the order suffers from the principal of audi alteram partem and accordingly the impugned order dated 09.01.2026, as passed on IA(IBC) No.1616/2025 as preferred in CP(IB) No.74/94/HDB/2024 cannot be sustained in the eyes of law and would hereby stand quashed.

The matter is relegated back to the Learned Tribunal, i.e., NCLT, Hyderabad, to reconsider the application as fresh, after providing an opportunity to the Appellant to file his objection to the application and then to decide the application on its merit. It is made clear at this stage itself that the Appellant has undertaken, that after the uploading of this order passed by us today, of allowing of the Company Appeal, he will be filing his objection before the Learned Tribunal to IA(IBC) No.1616/2025, within a period of 10 days thereafter and within 6 weeks thereafter the Learned Tribunal is requested to decide the application in itself on its own merits. Subject to the aforesaid, the Company Appeal stands allowed. All Interlocutory Applications would stand closed.