No need to hear out 3rd party during insolvency admission, NCLAT tells NCLT

The National Company Law Appellate Tribunal (NCLAT) has said that the National Company Law Tribunal (NCLT) should not hear any third party, other than the applicant who has taken a company to the NCLT and the company which is the corporate debtor itself, at the time of the admission of a case.

 

“We may observe that except the applicant (financial creditor) and the corporate debtor, there is no requirement of hearing a third party including the intervenor at the stage of admission,” the NCLAT said. IDBI Bank had moved the NCLAT against the repeated adjournments in NCLT Kolkata during the corporate insolvency resolution case filed by it against Odisha Slurry Pipeline Infrastructure.

 

In its order, the NCLAT also asked NCLT Kolkata to admit the insolvency application moved against Odisha Slurry Pipeline Infrastructure if there is a clear case of debt owed to the bank and the firm has indeed defaulted in payments. NCLT Kolkata, the NCLAT said, should not get into the issue of whether the debt is disputed, as long as the debt is due.

 

Though the corporate debtor is entitled to point out that default has not occurred in the sense that the debt — which may also include a disputed claim — is not due for the time being, the NCLT should not get into this issue, the NCLAT added.

 

“The adjudicating authority merely has to see the records of information utility or other evidence produced by the financial creditor, to satisfy itself that a default has occurred,” the tribunal said, quoting a judgment from the Supreme Court. The move to curb the number of interventions at the admission stage is a positive move, said Nilesh Sharma, founder of Witworth Insolvency Professionals.

 

“This move will help the NCLT adhere to the 14-day timeline set by the code to dispose off cases by either admitting or dismissing them. If the financial creditor is moving an application, he will submit proof of claims. In such a case, there is no question of dispute. It is unlikely that banks and non-banking financial companies will fudge records,” Sharma said.

 

It is because of repeated interjections that the NCLT takes a minimum of 30 days to either admit or dispose applications for insolvency. It would be interesting to see the approach the adjudicating authority takes in case the application is moved by the operational creditor, insolvency professionals said.

 

“Around the world, if there is a default, insolvency proceedings can be commenced. In India, admission gets delayed as all kinds of people raise all kinds of issues. Admission of cases should be on Day 1 if an advance copy has been served on the debtor and does not dispute debt default,” said Sumant Batra, an insolvency professional.

 

If the corporate debtor’s objections against the default of debt are found to be frivolous, heavy costs should be imposed, he added.

 

Though the decision of not allowing any interventions at the admission stage should help improve timelines under the corporate insolvency resolution process, it could also be against public interest, Saurav Kumar, Partner at IndusLaw said.

 

“An intervenor could, many a time, have an important argument and may need to be heard before a corporate insolvency resolution process is admitted,” he said.

 

The restrictions placed by NCLAT in its judgment is only under Section 7 of the Insolvency and Bankruptcy Code as of now, which ensures that quick hearing is given to the financial creditor when all other avenues seem closed. Hearing third parties at this stage could indeed delay the process, said Daizy Chawla, Senior Partner, Singh & Associates.

 

“Having said so, complete restriction does intrude on rights of litigators or operational creditors. In such cases, however, the adjudicating authority hearing such applications will have to take a judicious approach whether to hear the parties or dispose of such applications, as filed,” Chawla said.

 

The options for operational creditors are open once the claim is admitted, Punit Dutt Tyagi, Executive Partner at law firm Lakshmikumaran & Sridharan, said.

 

“After the petition is admitted, the Resolution Professional will advertise and the operational creditor can always go and place their claims. Only the corporate debtor alone can admit or dispute the claim at the admission stage. An operational creditor has no role at that stage,” Tyagi said.


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