Author: HARAN C
CASE :
Girish Baduni Vs. Punjab National Bank & Ors.[NCLAT Company Appeal no. 290 of 2020]
The bench of the NCLAT:
1. Justice Jarat Kumar Jain, Member (Judicial),
2. Mr. Balvinder Singh, Member (Technical),
3. Mr. V.P. Singh, Member (Technical).
For the appellant – Ms Aparna Iyer, Advocate for the appellant (Girish Baduni)
For the respondents – Mr PBA Srinivasan, Sr. Advocate with Mr. Avinash Mohapatra, Advocate for R1 (Punjab National Bank); Mr Amol Vyas, Advocate for R2 (IRP – Satyendra Prasad Khorania)
Introduction:
The case under consideration for analysis is Girish Baduni Vs. Punjab National Bank & Ors.[NCLAT Company Appeal no. 290 of 2020]. This appeal was filed against the order passed by the National Company Law Tribunal (NCLT), Jaipur in CP No. (IB)- 205/7/JPR/2019, titled PNB Vs Atlas Alloy India Pvt Ltd. The bench of the NCLAT for this case was comprised of Justice Jarat Kumar Jain, Member (Judicial),Mr. Balvinder Singh , Member (technical ), and Mr. V.P. Singh, Member (Technical).
Briefly, the Corporate Debtor (M/s Atlas Alloy India Pvt Ltd) had availed various credit facilities from Punjab National Bank, the Financial Creditor (or the 1st Respondent), such as Cash Credit Facility, Bills Discounting, and Term Loan, which were renewed and enhanced from time to time. To secure the Term Loan, M/s Atlas Alloy India Pvt Ltd had executed various documents, including a Hypothecation Agreement dated 9.11.2011. However, due to non- payment or default on these credit facilities, Punjab National Bank initiated Corporate Insolvency Resolution Process against M/s Atlas Alloy India Pvt Ltd.
The Financial Creditor filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016, before the NCLT, Jaipur, for initiating corporate insolvency proceedings against the Corporate Debtor. Notice was served upon the Corporate Debtor, but despite receiving the notice, the Corporate Debtor did not appear before the NCLT, Jaipur. Therefore, the NCLT Jaipur proceeded ex-parte against the Corporate Debtor and admitted the application of the Financial Creditor and appointed an Insolvency Resolution Professional.
Mr. Girish Baduni, Ex Director, Atlas Alloy (India) Pvt Ltd, filed the present appeal under Section 61 of the IBC, after a delay of nearly 110 days, claiming that the notice was not served to the Corporate Debtor properly by the Financial Creditor, i.e., Punjab National Bank.
This case is significant in the field of insolvency and bankruptcy code, as it pertains to whether the Financial Creditor has duly served the Corporate Debtor under the IBC. The following sections of the case comment will provide a background, including an in-depth analysis of the arguments made by both parties and an explanation of the laws involved in the case. The next section will delve into the analysis of the decision made by the adjudicating authority. Finally, the case comment will conclude with my opinion on the decision made by the NCLAT and determine whether the holding of the tribunal is correct or not. It is essential to mention that the scope of this case comment is limited to the order of NCLAT, as there was no appeal made by the appellant of the present case, Mr. Girish Baduni, to the Hon’ble Supreme Court of India.
Background:
Legal provisions involved:
Having completed the exposition of the case’s particulars, it is relevant to note the pertinent legislation implicated in the present matter. Specifically, there exist three sections which are chiefly relevant to this case, and they are enumerated below:
Section 7 of the IBC, 2016 – Section 7 of the Insolvency and Bankruptcy Code, 2016 provides for a statutory right in favour of a financial creditor to initiate the corporate insolvency resolution process of a corporate debtor on the occurrence of a default. The default referred to herein above is in respect of a financial debt owed to any financial creditor.1
Section 19(2) of the IBC, 2016- Section 19(2) of the Insolvency and Bankruptcy Code, 2016 states that this Tribunal (NCLT) can direct such personnel or other person to
comply with the instructions of the Resolution Professional and to cooperate with him for collection of information and management of the Corporate Debtor.2
Section 424 of Companies act, 2013 – Section 424 of Companies Act 2013 states that the Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down in the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice, and, subject to the other provisions of this Act or any other law for the time being in force.3
Legal Issue
The legal issues involved in this case are not explicitly stated. However, it can be inferred that the appeal seems to be related to insolvency proceedings against Atlas Alloy India Pvt Ltd and whether or not the Financial Creditor (PNB) served the Corporate Debtor (Atlas Alloy India Pvt Ltd) with a notice on the correct address.
Legal Representatives of the parties
Firstly, it is pertinent to mention the legal representatives involved in this case.
For the appellant – Ms Aparna Iyer, Advocate for the appellant (Girish Baduni)
For the respondents – Mr PBA Srinivasan, Sr. Advocate with Mr. Avinash Mohapatra, Advocate for R1 (Punjab National Bank); Mr Amol Vyas, Advocate for R2 (IRP – Satyendra Prasad Khorania)
Arguments for the appellant:
In the case presented by the appellant, it was argued that the letter notifying the filing of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, dated 26.8.2019, was served at incorrect addresses. The email ID provided in the letter was not the company’s registered email ID, but belonged to former employees of the company, which had not been in use since early 2018. The appellant further claimed that the first respondent was aware of the functional email ID of the former Director and had sent an email on 9.1.2020 using that email ID. The appellant argued that the impugned order was passed without notice to them, which is against the principle of rules of natural justice under Section 424 of the Companies Act. Therefore, they requested the court to set aside the impugned order dated 20.09.2019, remand the matter back to NCLT, Jaipur for adjudication and stay the operation of the impugned order.
Arguments for the respondent 1:
The first respondent argues that the appellant has not provided any evidence to challenge the validity of the order dated 20.9.2019 or to prove the absence of a default. The appeal is also time-barred and should be rejected. The second respondent has confirmed that the order was duly served to the suspended directors of the corporate debtor, including the appellant. The appellant was also served notice at another address where he was found evading service. Proper notice was also sent to the appellant’s email address and the statutory auditor of the corporate debtor. The first respondent further argues that an OTS was received from the appellant and that he attended three out of five Committee of Creditors meetings held after the impugned order was passed. The first respondent requests that the appellant’s prayers be disallowed.
Arguments for the respondent 2:
The second respondent argues that the appeal is time-barred and should be dismissed. The impugned order and CoC meeting minutes were served to the suspended directors on their email and personal mail IDs. The statutory auditors were aware of the order in November 2019, contradicting the appellant’s claim of being unaware until January 2020. The 2nd respondent had requested the appellant to provide complete records and details but the appellant did not cooperate, leading to an application under Section 19(2) of I&B Code. The 2nd respondent has incurred expenses of Rs. 11,98,144 till the date of their reply. The 2nd respondent prays for the dismissal of the appeal.
Tribunals Decision:
The NCLAT noted that the Corporate Debtor had availed credit facilities and failed to maintain financial discipline, and that there was litigation between the parties. The Corporate Debtor had admitted to sending an OTS (One Time Settlement) proposal to the Financial Creditor, which proved that there was debt and default. The NCLAT observed that the email ID printed on the Corporate Debtor’s letterhead could not be dismissed as having been used by the staff and it was the Corporate Debtor’s duty to access its emails. The Financial Creditor had duly served the Corporate Debtor, and the argument that the Corporate Debtor was unaware of the commencement of the Corporate Insolvency Resolution Process had no credibility. The IRP made a public announcement on 1.11.2019, which was for public knowledge, and the appellant should have filed the appeal within 45 days from that date. As the appeal was filed after a delay of 110 days, the NCLAT found no merit in it and dismissed the appeal without any order as to costs.
Analysis and Conclusion
Based on the NCLAT’s decision in this case, I agree with their observation. The appellant’s arguments lacked legal reasoning, with their only legal point regarding section 424 of the Companies Act being disproved by the respondents. Ex-parte proceedings are an exception to the principles of natural justice, but a high standard of proof is required before granting an ex-parte order. Generally, a person who impedes or frustrates the service of notice cannot complain about not receiving actual notice, but if the mistake is due to the applicant’s legal representative, the position is unclear.5
It is important to note that the primary legal issue in this case pertained to whether the financial creditor had served the corporate debtor at the correct address. The purpose of the notice was to inform the corporate debtor, and the respondents had taken every necessary step to serve the notice, including sending it to the email addresses mentioned in the MCA website and the corporate debtor’s sister concerns. This demonstrates the respondents’ good intentions. However, despite receiving the notice, the appellant did not appear before the NCLT and filed this appeal with the appellate tribunal in an attempt to delay the insolvency proceedings.
