Appellant's Application Alleging Collusive Proceedings Must Be Heard to Ensure Fairness and Justice
In a significant development, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has directed the adjudication of an application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC) before passing a final order in the ongoing insolvency proceedings. The case involves Shri Sant Eknath Co-operative Sugar Factory Ltd. and Sachin Ghayal Sugar Pvt. Ltd., with Buldana Urban Cooperative Credit Society Limited as the financial creditor.
The appellant, Shri Sant Eknath Co-operative Sugar Factory Ltd., was not initially a party to the insolvency proceedings initiated under Section 7 of the IBC by Buldana Urban Cooperative Credit Society Limited against Sachin Ghayal Sugar Pvt. Ltd. The appellant contended that these proceedings were collusive and sought intervention under Section 60(5) of the IBC, which allows for adjudication of any question of law or facts arising out of or in relation to insolvency proceedings.
The NCLAT emphasized the importance of ensuring that all stakeholders are given a fair opportunity to present their case. The Tribunal noted that the appellant's application alleging collusive proceedings had not been adjudicated before moving forward with the company petition, which could potentially prejudice the rights of the appellant and its stakeholders, including over 18,000 farmers associated with the cooperative.
Justice Sharad Kumar Sharma, along with Members Arun Baroka and Indevar Pandey, highlighted that the Tribunal should have deferred the final decision on the company petition until the Section 60(5) application was resolved. The NCLAT directed the lower tribunal to adjudicate the appellant’s application within three months to ensure that justice is served and the rights of the appellant are not compromised.
The Tribunal's decision underscores the necessity of adhering to principles of natural justice and procedural fairness in insolvency proceedings, especially when allegations of collusion are raised. This ruling acts as a reminder for tribunals to consider all pending applications that could affect the outcome of insolvency proceedings, thereby safeguarding the interests of all involved parties.
Bottom Line :
Insolvency and Bankruptcy Code (IBC) - Application under Section 60(5) of the Code must be adjudicated before passing a final order in proceedings under Section 7 of the Code to ensure a fair opportunity for all stakeholders.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 7, 60(5)
