Neeta Saha vs Asset Care & Reconstruction Enterprises Ltd.

“A) Allow the present Application and vacate the stay granted by this Hon’ble Tribunal vide order dated 30.05.2023 in terms of judgment passed by Hon'ble Supreme Court in the matter of Dilip B Jivrajka versus Union of India [Writ Petition (Civil) No. 1281 of 2021]; and/or,

b. Pass any other further order as this Appellate Tribunal may deem appropriate in the facts and circumstances of the instant case.”

“30.05.2023 These Appeals have been filed against the Order dated 10th April, 2023 by which the Adjudicating Authority on an Application under Section 95 of the Code filed by the Financial Creditor has appointed Resolution Professional and directed the Professional to give a report to the Financial Creditor as well as Personal Guarantor. 2. Learned Counsel for the Appellant submits that no Application under Section 95 was served on the Appellant. He has further referred to Order dated 10.02.2023 of the Adjudicating Authority and submits that in pursuance of the said order also no service was effected on the Appellant. He submits that he could not appear before the Adjudicating Authority due to aforesaid and also could not bring into the notice of the Adjudicating Authority, the NoC which was given by the Financial Creditor dated 30^th December, 2022. 3. From the order impugned, it does appear that Adjudicating Authority has fixed 14^th June, 2023 for further consideration. We are of the view that ends of justice will be served in giving an opportunity to the Appellant to file an objection before the Adjudicating Authority on or before 14^th June, 2023 which may be considered by the Adjudicating Authority while proceeding further in the matter. Issuing notice to the Respondent and keeping the Appeal pending shall result further delay in matter. In view of the aforesaid, we permit the Appellant to file an objection, it shall be open for the Adjudicating Authority to proceed further after considering objections of the Appellant. 4. With these observations, the Appeals are disposed of. In view of the fact that we have permitted the Appellant to file an objection, IRP shall not submit any report in the meantime. We make it clear that we are not expressing any opinion on merit.”

“02.06.2023 This appeal has been filed against the order dated 10.04.2023. Counsel for the Appellant submit the same was passed by the Adjudicating Authority on an Application under Section 95 of the Code filed by the Financial Creditor. Counsel for the Appellant submits that two appeals have been filed by the Personal Guarantor against the same order which have already been disposed of by the judgment dated 30.05.2023 in Company Appeal (AT) (Ins.) No. 692 of 2023 and Company Appeal (AT) (Ins.) No. 693 of 2023. This Appeal is also disposed of in terms of the aforesaid order dated 30.05.2023.”

“When it is the argument put forth by the Ld. Counsel appearing for the Personal Guarantor that in the wake of the order passed by Hon’ble NCLAT, this Adjudicating Authority cannot further proceed with the matter, without considering his objections to the appointment of RP, in terms of the provisions of Section 97 of IBC, 2016. Mr. Gaurav Mitra, Ld. Counsel appearing for the Applicant submitted that in the wake of the judgment of Hon’ble Supreme Court in W.P. (Civil) No. 1281 of 2021 titled Dilip B. Jiwrajka vs. Union of India & Ors., the PG has no right to address this Tribunal at the stage where the issue regarding appointment/continuation of RP has to be determined. There is no assistance from the Ld. Counsel for the RP in the matter. Nevertheless, as prayed by Ld. Counsel appearing for the Applicant and the Personal Guarantor, the hearing is deferred to 22.05.2024. On the next date of hearing, the Ld. Counsels for the parties should remain present physically. List on 22.05.2024.”

“3.

From the order impugned, it does appear that Adjudicating Authority has fixed 14th June, 2023 for further consideration. We are of the view that ends of justice will be served in giving an opportunity to the Appellant to file an objection before the Adjudicating Authority on or before 14th June, 2023 which may be considered by the Adjudicating Authority while proceeding further in the matter. Issuing notice to the Respondent and keeping the Appeal pending shall result further delay in matter. In view of the aforesaid, we permit the Appellant to file an objection, it shall be open for the Adjudicating Authority to proceed further after considering objections of the Appellant.

4.

With these observations, the Appeals are disposed of. In view of the fact that we have permitted the Appellant to file an objection, IRP shall not submit any report in the meantime. We make it clear that we are not expressing any opinion on merit.”

“64.

At the same time, it needs to be noted that the principles of natural justice are not to be construed in a straitjacket. The nature of natural justice is liable to vary with the exigencies of the situation. In a given situation, it may extend to a fullyfledged evidentiary hearing while, on the other hand, the principles of natural justice may require that a bare minimum opportunity should be given to an individual who is liable to be affected by an action, to furnish an explanation to the allegations or the nature of the enquiry.

1. Role of the Resolution Professional as a facilitator is to collate facts

65.

In the provisions of Chapter III, particularly in Section 99, Parliament has provided for an engagement of the debtor with the resolution professional at various stages. Sub-section (2) of Section 99 stipulates that where an application has been filed by the creditor under Section 95, the resolution professional may require the debtor to prove the repayment of the debt in the manner which has been indicated in sub-clauses (a), (b) and (c). Evidently, the expression “may require the debtor to prove repayment of the debt” implicates the role of the debtor in explaining, whether, as a matter of fact, the debt remains unpaid or has been paid.

We are of the view that the submission that an adjudicatory role should be interposed at the stage of Section 97(5) cannot be accepted. The power which is conferred on the adjudicating authority at the stage of filing of an application is to appoint a resolution professional. The appointment of a resolution professional is for the purpose of a facilitative exercise which is contemplated by Section 99 which, as we have noted, eventually ends in a report either recommending the acceptance or rejection of the application. Bearing in mind the statutory scheme, it would be impermissible for this Court to allow for the adjudicatory intervention of the adjudicating authority in adjudicating what is described as a jurisdictional question at the stage of Section 97(5).”

“3. A right of representation has been provided under Section 99(2)

75.

On behalf of the petitioners, it has been submitted that the resolution professional has been empowered to make wide ranging enquiries for the purpose of eliciting information under sub-section (4) of Section 99. In our view, it is necessary to clarify the ambit of sub-section (4) of Section 99. Sub-section (4) is prefaced by the words “for the purposes of examining an application”. In other words, the information which the resolution professional is empowered to seek or the explanation which the resolution professional can require to be furnished is for that purpose. That apart, sub-section (4) also goes on to specify that the information or explanation may be sought in connection with the application. In other words, the nature of the information or the explanation which is sought must have a nexus with the application. Therefore, properly read, the power to seek information or, for that matter, to seek an explanation is related to the nature of the application which has been submitted under Section 94 or Section 95. We are of the view that the right to file such representation is sufficient compliance of audi alterum partem requirements.

76.

Hence, the petitioners' assertion that the statutory framework, as interpreted and applied by the adjudicating authority, results in a violation of natural justice lacks merit. The reliance on State Bank of India v Rajesh Agarwal does not help the case of the petitioners, as the court in that case established that exceptions to natural justice must be confined to the 'narrowest possible limits.' The court underscored that the waiver of prior hearing is permissible only in situations where its inclusion would obstruct the entire process. In that case, the court specifically addressed the duties of banking authorities, emphasizing the obligation to adopt fair procedures and afford borrowers a hearing before classifying their accounts as fraud accounts, given the serious penal and civil consequences. The court further held that reasoned orders must be passed when categorizing an account as a fraud account. It then clarified that no hearing is required before lodging an FIR. In other words, it held that the principles of audi alteram partem must be read into the Circular issued by the Reserve Bank of India on the classification of bank accounts as fraud accounts. However, a crucial distinction is made here, signifying that the circumstances of this case are distinct from those considered in Rajesh Agarwal (supra). The classification of the borrowers account as fraud without giving any opportunity of being head entailed significant material consequences, including the disability on accessing institutional finance. That may be contra-distinguished with the procedure under Section 95 to Section 99. In this, a person is not deemed a debtor but a resolution professional is appointed to ascertain whether the facts substantiate the application for an IRP. An interim-moratorium is placed on legal proceedings concerning the debt to safeguard the debtor from further legal action. However, the interim-moratorium does not act to freeze the assets and legal rights and title of the debtor. Once a recommendation is made, it is not binding on the adjudicating authority. The authority would only decide after looking at the recommendation of the resolution professional and affording full opportunity of hearing to the debtor or the personal guarantor, as the case may be. Consequently, the petitioners' argument lacks merit when assessed against these established legal principles.

77.

Rules have been framed in 2019 in pursuance of the provisions of Section 239(2). The Rules, inter alia, provide for the Form (Form A) in which an application under Section 94 has to be submitted; the Form (Form B) in which a demand notice has to be served under Section 95(4) on the guarantor demanding payments; and the Form (Form C) in which an application has to be submitted under Section 95(1). Form A is the statutory Form in which an application is submitted by the debtor. Form C, on the other hand, is the statutory Form in which an application is submitted by a creditor. Form C is required to be filled in by the creditor who institutes an application for the initiation of the insolvency resolution process. This includes particulars of the applicant, particulars of the guarantor, particulars of the debt and particulars of the insolvency professional. The creditor who fills up Form C would have to furnish such information as lies within the knowledge of the creditor who is the applicant under Section 95(4). When the resolution professional is empowered to seek information or an explanation in connection with the application, such information or explanation must be relevant to and bearing a connection with the nature of the application itself.”

“82.

For the reasons which we have already indicated, we have come to the conclusion that an adjudicatory decision-making process of the nature which has been suggested by the petitioners would not be implicated under Section 97(5). To accept the submission of the petitioners would render the provisions of Sections 99 and 100 otiose.”

“V. Conclusion

86.

We summarise the conclusion of this judgment below:

(i)

No judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99 of the IBC;

(ii)

The resolution professional appointed under Section 97 serves a facilitative role of collating all the facts relevant to the examination of the application for the commencement of the insolvency resolution process which has been preferred under Section 94 or Section 95. The report to be submitted to the adjudicatory authority is recommendatory in nature on whether to accept or reject the application;

(iii)

The submission that a hearing should be conducted by the adjudicatory authority for the purpose of determining ‘jurisdictional facts’ at the stage when it appoints a resolution professional under Section 97(5) of the IBC is rejected. No such adjudicatory function is contemplated at that stage. To read in such a requirement at that stage would be to rewrite the statute which is impermissible in the exercise of judicial review;

(iv)

The resolution professional may exercise the powers vested under Section 99(4) of the IBC for the purpose of examining the application for insolvency resolution and to seek information on matters relevant to the application in order to facilitate the submission of the report recommending the acceptance or rejection of the application;

(v)

There is no violation of natural justice under Section 95 to Section 100 of the IBC as the debtor is not deprived of an opportunity to participate in the process of the examination of the application by the resolution professional;

(vi)

No judicial determination takes place until the adjudicating authority decides under Section 100 whether to accept or reject the application. The report of the resolution professional is only recommendatory in nature and hence does not bind the adjudicatory authority when it exercises its jurisdiction under Section 100;

(vii)

The adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100 for the purpose of determining whether to accept or reject the application;

(viii)

The purpose of the interim-moratorium under Section 96 is to protect the debtor from further legal proceedings; and

(ix)

The provisions of Section 95 to Section 100 of the IBC are not unconstitutional as they do not violate Article 14 and Article 21 of the Constitution.”

“74.

The true adjudicatory function of the authority commences under Section 100 after the submission of the report. Another reason why we are not inclined to accept the submission is that what is described as a jurisdictional question by the petitioners may not be a simple matter to be decided as a question of law. The jurisdictional questions of the nature which have been suggested by the petitioners, namely, on whether there is a subsisting debt or whether the relationship of debtor and creditor subsists, would involve a decision on mixed questions of law and fact. The entire scheme of Sections 99 and 100 implicates time lines which have been laid down by Parliament. The entire process of implementing these time lines would be rendered nugatory if an adjudicatory role were to be read into the provisions of Section 97(5). The final reason which would militate against accepting the submission is that the provisions of Section 99 do not as such implicate any adverse civil consequences particularly if those provisions are read in the manner in which we now propose to elucidate.”