NCLAT, New Delhi held the Adjudicating Authority has no role in implementing the penal provisions of the Insolvency and Bankruptcy Code.
National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Technical Member was hearing an Appeal on Friday and held that the Adjudicating Authority has no role in implementing the penal provisions in the Code. A limited role which can be performed by the Adjudicating Authority is to make a reference if there are allegations which need consideration by IBBI or the Central Government for purpose of filing a complaint.
The present Appeal was filed by the Corporate Debtor against the Order passed by the National Company Law Tribunal, Cuttack Bench, Cuttack. The Corporate Debtor was seeking initiation of appropriate proceedings and imposition upon the Operational Creditor under Sections 65 and 76 of the Insolvency and Bankruptcy Code, 2016 has been dismissed by the NCLT.
Facts:
In CP (IB) No. 62/CB/2021 filed by the Operational Creditor under Section 9 before the Adjudicating Authority, an Order was passed on 2nd August 2022 rejecting the Section 9 Application, which Order, the Operational Creditor has challenged and filed an Appeal i.e. Company Appeal (AT) Ins. No. 1315 of 2022, which has been dismissed by the Appellate Authority vide Judgement of the date.
Appellant’s Submission:
Learned Counsel for the Appellant submitted that the Adjudicating Authority committed an error in rejecting the Application under Sections 65 and 76 of the Code taking view that the Special Court established under IBC is alone competent to entertain Criminal Proceedings in respect of offence punishable under the provisions of the Code and the Adjudicating Authority has no role in implementing the penal provisions under the Code. He further argued that the proceeding initiated by the Operational Creditor under Section 9 have been dismissed with the observations that it needed further investigation. The proceeding initiated by an Operational Creditor cannot be termed as a fraudulent transaction or malicious in nature and prayer under Section 65 is to be rejected. Learned Counsel for the Appellant submitted that the Adjudicating Authority committed an error in rejecting the Application filed under Sections 65 and 76 of the Code.
NCLAT’s Analysis:
The Appellate Authority recalled that the Appellate Tribunal in the matter of “Committee of Creditors of Amtek Auto Limited through Corporation Bank v. Dinkar T. Venkatasubramanian and Others, REED 2019 NCLAT Del 08505” had occasion to consider Section 74 and has categorically held that the Adjudicating Authority is empowered to refer the matter to IBBI or the Government of India to take up the matter if any case of an offence under Section 74(3) of Chapter VII of Part-II is made out. Appellate Authority noted that the law is thus well settled, that the Adjudicating Authority with regard to the allegation of offence in an appropriate case, can always refer the recommendation to the Insolvency and Bankruptcy Board of India or to the Central Government to consider whether the case was made out for filing a complaint before the Special Court.
The Appellate Tribunal thus did not approve the observations of the Adjudicating Authority to the extent that the Adjudicating Authority has no role in implementing the penal provisions in the Code. A limited role which can be performed by the Adjudicating Authority is to make a reference if there are allegations which need consideration by IBBI or the Central Government for purpose of filing a complaint.
The Appellate Authority noted that the Statement made in paragraph 2 of the Impugned Order did not lay down the correct law. The Appellate Tribunal had by separate order passed in Biswa Janani Serivces, Bhubaneshwar v. Shree Nokoda Ispat Limited, REED 2022 NCLAT Del 11536, Company Appeal (AT) Ins. No. 1315 of 2022 on 11.11.2022 dismissed the Appeal filed by the Operational Creditor challenging the Order dated 2nd August 2022 rejecting the Section 9 Application filed by the Operational Creditor. The observations have been made by the Adjudicating Authority that proceedings initiated by the Operational Creditor cannot be termed as fraudulent transactions or malicious transactions in nature hence petition under Section 65 was rejected.
The Appellate Authority observed that in the facts of the present case where the Adjudicating Authority has found that there was a pre-existing dispute between the parties and Application under Section 9 was not liable to be admitted which Order has been confirmed by the Appellate Tribunal by Judgment/Order dated 11.11.2022 in Company Appeal (AT) Ins. No. 1315 of 2022, REED 2022 NCLAT Del 11536.
Thus, the Appellate Authority found no reason to issue any direction to the Adjudicating Authority at this stage to consider making a reference to the Board or Central Government for prosecution under Section 76.