NCLAT Quashes NCLT Order Due to Procedural Flaws, Upholds Principles of Natural Justice

Tribunal emphasizes fair hearing; directs fresh adjudication of preferential transaction case under IBC.

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) Chennai has quashed a previous order by the National Company Law Tribunal (NCLT), Bengaluru, due to procedural irregularities and a failure to adhere to principles of natural justice. The case, involving Mr. Narappa Manohar Reddy and others against Mr. Pankaj Srivastava, Liquidator of M/s Sagar Power (Neerukatte) Private Limited, centered around alleged preferential transactions under Section 43 of the Insolvency and Bankruptcy Code (IBC) 2016.

The appeal arose from an order dated November 30, 2022, which directed the appellants to restore certain amounts deemed preferential. The appellants contended that they were not given a fair opportunity to be heard due to their counsel's absence during the hearing. They argued that their counsel was unavailable due to personal constraints and that this absence should not be attributed to them.

Justice Sharad Kumar Sharma and Indevar Pandey, presiding over the appeal, underscored the importance of the audi alteram partem principle, a fundamental tenet of natural justice that ensures no party is condemned unheard. The Tribunal highlighted the necessity for adjudicatory bodies to allow effective representation and to give due consideration to the pleadings submitted by parties, even if their counsel is absent.

The NCLAT criticized the NCLT for not setting the proceedings ex parte and for failing to refer to or address the pleadings filed by the appellants. Citing precedents, the Tribunal reiterated that parties should not suffer for their lawyers' lapses or absence and emphasized the duty of the Tribunal to ensure fair hearing and procedural fairness.

The NCLAT ordered the NCLT Bengaluru to rehear the case, providing the appellants with a chance to represent their case comprehensively. The ruling also imposed a cost of Rs. 50,000 on the appellants, payable to the Prime Minister's Relief Fund.

This decision reaffirms the judicial commitment to upholding natural justice principles and ensures that procedural fairness is not compromised in insolvency proceedings under the IBC.

Bottom Line:

Principles of natural justice - Tribunal must ensure fair opportunity to the affected party to be heard before determining their rights or liabilities.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 43, Companies Act, 2013 Section 424, Code of Civil Procedure.

Mr. Narappa Manohar Reddy v. Mr. Pankaj Srivastava, (NCLAT)(Chennai) : Law Finder Doc Id # 2812485