NCLAT Sets Aside CIRP Admission Order for Lack of Hearing, Remands for Settlement Consideration Under IBC
- REEDLAW
- Oct 15
- 3 min read
REEDLAW Legal News Network reports: In a significant ruling reinforcing the principles of natural justice, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, held that an order admitting a Corporate Debtor to the Corporate Insolvency Resolution Process (CIRP) is liable to be set aside if passed without affording a proper opportunity of hearing to the affected party. The Tribunal further observed that once such an order is set aside, any proposed settlement or termination of CIRP must strictly comply with the procedural requirements under the Insolvency and Bankruptcy Code, thereby ensuring fairness, transparency, and adherence to statutory due process.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice N. Seshasayee (Judicial Member) and Mr. Arun Baroka (Technical Member), while adjudicating a Company Appeal, held that an order admitting a Corporate Debtor to CIRP must be set aside if the affected party was not given a proper opportunity of hearing. The Tribunal clarified that following such admission, any settlement or termination of the insolvency process must be conducted strictly in accordance with the provisions of the Insolvency and Bankruptcy Code. This ruling reaffirmed the importance of procedural fairness and the observance of natural justice in insolvency proceedings.
The Appellant challenged the order of the Adjudicating Authority, which had admitted the Respondent to the Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor. The main grievance raised was that the Appellant was denied an opportunity of hearing by the Tribunal before the admission order was passed. It was submitted that the Appellant had informed the Adjudicating Authority about the likelihood of a settlement and had sought accommodation for filing a reply, with the settlement of dues having since been completed with the Financial Creditor who initiated CIRP.
The Financial Creditor also confirmed that their dues had been settled. The Tribunal considered whether, in light of this settlement, the CIRP proceedings should be closed as has occurred in prior cases, or if not, whether the order of admission should be set aside on merit. Upon review of the case papers, it appeared that the Appellant had not been properly heard on the merits and was entitled to an opportunity to be heard. Accordingly, it was determined that the admission order should be set aside.
It was noted that since CIRP had already commenced, the Interim Resolution Professional (IRP) may have received claims from other creditors, and these could not be ignored. In view of prevailing legal principles, including developed jurisprudence such as in GLAS Trust Company LLC v. BYJU Raveendran and Others (3), REEDLAW 2024 SC 10545, it was found appropriate for the matter to be remanded to the Adjudicating Authority to address the settlement in accordance with law.
In conclusion, the appeal was allowed, the original admission order set aside, and the matter remanded to the Adjudicating Authority. The parties were directed to approach the Adjudicating Authority with any settlement pleas for appropriate orders. No order was made as to costs.
Mr. Krishnendu Datta, Sr. Advocate with Mr. Apoorv Shukla, Mr. Prerak Sharma, Ms. Prabhleen A. Shukla and Mr. Ayush Acharjee, Advocates, represented the appellant.
For the Respondent/ Defendant: Ms. Aakashi Lodha, Mr. Aditya Sharan and Mr. Rohit Gupta, Advocates, appeared for the Respondent No. 1.
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