Section 9 IBC Applications Require Reasoned Orders After Notice: NCLAT Sets Aside Cryptic Rejection and Orders Remand
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REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal reaffirmed that an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 cannot be dismissed through a cryptic or non-speaking order, and that the Adjudicating Authority is duty-bound to issue notice, examine the existence of operational debt and default on the basis of material on record, and pass a reasoned order after granting due opportunity of hearing.
The National Company Law Appellate Tribunal, New Delhi Bench, comprising Justice Mohammad Faiz Alam Khan (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member), while adjudicating a Company Appeal, held that a Section 9 IBC application could not be rejected without issuing notice or recording reasons. The Appellate Tribunal observed that the Adjudicating Authority was mandatorily required to examine the existence of operational debt and default on the basis of the pleadings and documents on record and pass a reasoned and speaking order after affording due opportunity of hearing to the parties. Consequently, the impugned cryptic rejection order was set aside, and the matter was remanded for fresh consideration in accordance withthe law.
The appeal had been preferred by the Operational Creditor challenging the order passed under Section 9 of the Insolvency and Bankruptcy Code, 2016, whereby the application seeking initiation of the corporate insolvency resolution process against the Corporate Debtor had been rejected without issuance of notice or recording of detailed reasons. It was noted that the Adjudicating Authority had disposed of the application through a brief and cryptic order, recording contradictory observations regarding the absence of a purchase order, charging of interest through invoices, alleged settlement arrangements, and inconsistencies in the quantum of debt, without examining the material placed on record or affording an opportunity of hearing to the Corporate Debtor.
The Appellant had contended that goods had been supplied to the Corporate Debtor under invoices containing a stipulation for interest on delayed payments, and that despite issuance of a statutory demand notice, the admitted dues remained unpaid even after adjusting partial payments first towards interest and thereafter towards principal. It was asserted that the rejection of the Section 9 application on the ground of absence of a formal purchase order was legally unsustainable, as there was no statutory requirement under the Code mandating production of a purchase order to establish operational debt. Reliance was placed on settled principles that contractual interest formed part of operational debt and that quasi-judicial authorities were bound to pass reasoned and speaking orders, as emphasised in decisions such as Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan, Ramkrishna Forgings Limited v. Ravindra Loonkar, Resolution Profession of ACIL Limited and Another, REEDLAW 2023 SC 11542, and other pronouncements of the Appellate Tribunal.
On behalf of the Respondent, it was argued that the principal amount had already been discharged and that the application was essentially for recovery of disputed interest, which could not form the basis for initiation of insolvency proceedings. Reliance was placed on decisions holding that the insolvency mechanism could not be invoked as a substitute for debt recovery, particularly in respect of disputed interest claims. However, the Respondent expressed no objection to remand of the matter, provided no observations were made on the merits, and all issues were kept open.
Upon consideration, the Appellate Tribunal found that the Adjudicating Authority had failed to assign reasons, had not issued notice to the Corporate Debtor, and had not recorded or examined the submissions and documents placed by the Operational Creditor. It was reiterated that the recording of reasons was the lifeblood of judicial and quasi-judicial orders, serving both the parties and the appellate forum. In the interest of justice, the impugned order was set aside, and the matter was remanded to the Adjudicating Authority for fresh consideration after granting an opportunity of hearing to both sides, with all issues expressly kept open and without any influence from the appellate order, and the appeal was allowed accordingly without costs.
Ms. Aishwarya Nabh, Advocate, represented the Appellant.
Mr. Shamik Sanjanwala, Mr. Aditya Tripathi and Ms. Aarushi Gupta, Advocates, appeared for the Respondent.
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