Sanjay Kumar Choudhary vs Creative Infraheights Pvt. Ltd. & Anr.

Per: Justice Rakesh Kumar Jain:

16.11.2022: This appeal is against the order dated 17.08.2020, filed by one of the director of the suspended board of directors of the Corporate Debtor, being aggrieved against the admission of the application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short ‘Code’) by the Operational Creditor (Creative Infraheights Pvt. Ltd.)

Counsel for the Appellant, at the outset, has challenged the validity of the impugned order on the ground that it has been passed by a single member (Judicial Member) though the entire matter was heard by two members (Judicial Member and Technical Member). It is submitted that the application filed under Section 9 of the Code was continuously heard by a bench comprising of Dr. Deepti Mukesh, Judicial Member and Hemant Kumar Sarangi, Member Technical till 17.01.2020 when they had passed the following order “Ld. Counsel for the Respondent states that reply is filed. Learned Counsel for the Applicant seeks and is granted three days’ time to file Rejoinder, with copy in advance to the other side. Adjourned to 14.02.2020.” However, on 14.02.2020, the arguments were heard and order was reserved by the Judicial Member alone. The order passed on 14.02.2020 read thus “order reserved. Sd/- Dr. Deepti Mukesh, Member (Judicial)”.

Counsel for the Appellant has vehemently argued that the constitution of benches of the Tribunal has been categorically provided in Section 419(3) of the Companies Act, 2013 and contended that “the powers of the Tribunal shall be exercisable by Benches consisting of two Members out of whom one shall be a Judicial Member and the other shall be a Technical Member:” She has further argued that in case the bench is to function with the strength of one member only, to exercise the powers of the Tribunal, it has to be specified by a special order by the President of the Tribunal that they would act in respect of such class of cases or such matters pertaining to such class of cases.

It is argued that in the absence of any such notification, issued by the President of the Tribunal, the order passed by a Judicial Member alone is against the law.

She has further argued that even otherwise, in exercise of the powers provided in Section 419 of the Act, the Central Govt. notified the rules for NCLT, 2016 on 01.06.2016 to lay down the procedure for regulation of the Tribunal in which there is no such rule that the matter is heard continuously by a bench comprising of Judicial Member and Technical Member, in compliance of Section 419(3) and then suddenly the order is reserved by the Judicial Member alone. It is submitted that there are only two provisions in the Rules pertaining to the pronouncement of the order by any one member of the bench and also by authoring any member to pronounce the order but there is no such rule as per which the arguments can be heard by a single member and thereafter the order is pronounced by a single member.

She has also relied upon a decision of this Tribunal rendered in Raj Singh Gehlot, Director of Ambience Pvt. Ltd. Vs. Vistra ITCL (India) Ltd. & Anr., CA (AT) (Ins) No. 971 of 2019 in which a similar issue was raised about the violation of Section 419(3) of the Act and Rule 152(4) of NCLT Rules, 2016. The contention was accepted not only by the Counsel for the Appellant but also by the Tribunal. The impugned order was set aside and the matter was remanded back to be decided in accordance with law with the constitution of two members bench in terms of Section 419(3).

Counsel for the Respondent has not denied the factual position because the same is borne out from the record that the application filed under Section 9 of the Code by the Operational Creditor was heard through out by a Bench comprising of two members (Judicial Member and Technical Member) but the arguments were ultimately heard on the penultimate date i.e. 14.02.2020 by a single bench member (Judicial Member) who reserved the order and ultimately pronounced the same though after a period of six months.

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

From the resume of the aforestated facts and circumstances, the question is as to whether the application filed either under section 7, 9 or 10 of the Code is heard by a bench comprising of two members of the Tribunal till the date it was reserved by a single bench who ultimately pronounced the order is in violation of the provisions of Section 419(3) of the Act?

Since, the facts are not disputed, therefore, it is relevant to refer to law much less Section 419 of the Act, which is reproduced as under:-

A bare reading of Section 419(3) of the Act provides that the powers of the Tribunal is to be exercised by benches having strength of two members out of whom one shall be a Judicial Member and the other a Technical Member. However, in order to meet the exigency, there is a proviso to this section which says that, a member of the Tribunal, who is authorized by the President to function as a bench, consisting of single Judicial Member bench, in order to exercise the powers of the Tribunal in respect of a particular class of cases or particular matters pertaining to such class of cases. However, it has to be only by a general or special order passed by the President and not otherwise. Nothing has been brought to our notice during the course of hearing that the President of the Tribunal had issue any general or special order to give power to the single member (Judicial Member) to function as a bench and nothing has been brought to our notice that the case filed by the Operational Creditor has been treated as a class of cases for the purpose of a decision by a single bench to function as a division bench.

In so far as, Rule 151 of NCLT Rules, 2016 is concerned, it provides that any member of the bench may pronounce the order for and on behalf of the Bench and when an order is pronounced in terms of Rule 151, the Court Master shall make a note in the order sheet, that the order of the Bench consisting of President and Members was pronounced in open court on behalf of the Bench. There is no such note even in the impugned order at the instance of the Court master in compliance with Rule 151 of the NCLT Rules. Rule 152 deals with the situation where the member who had heard the matter is not available or ceased to be member of the Tribunal then with the authority conferred by the President any other member of the Tribunal may pronounce the order on his behalf after being satisfied that the order has been duly prepared and signed by all the members who heard the case.

In such facts and circumstances, there is no other alternative but to set aside the order because the order passed is nonest in the eyes of law and cannot be followed in any Court. Consequently, the appeal is allowed and the impugned order is set aside. The application filed under Section 9 of the Code is restored to its original number. The matter is remanded back to the concerned Adjudicating Authority to decide it again in accordance with law.

The parties are directed to appear before the concerned Adjudicating Authority on 06^th December, 2022.

It is made clear that while allowing the appeal we have not touched any aspect of the merit of the case.