CPC will not strictly apply to Proceedings under I & B Code: NCLAT Grants Opportunity to File Objection to Principal Proceedings u/s 9 [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has held that CPC will not strictly apply to proceedings under Insolvency Bankruptcy Code ( I & B Code), 2016  and granted opportunity for filing objection against proceedings under section 9  of  the code. The Tribunal quashed the impugned order rejecting the recall application dated 04.11.2024 as well as order dated 31.07.2024 of forfeiture of opportunity to file an objection.     

 M/s. Dunzo Digital Pvt. Ltd., the Appellant filed appeal under Section 61 of I & B Code, 2016, is being aggrieved as against the Impugned Order dated 04.11.2024, as it was passed in IA No.789/2024, preferred in CP(IB) No.36/BB/2024, whereby the application seeking recall of the order dated 04.09.2024, has been rejected by the Adjudicating Authority, NCLT, Bangalore, and as a consequence thereto the Appellant has been deprived to oppose the proceedings of Section 9 of the I & B Code, as his opportunity to file objection/reply was forfeited. Few facts and dates would be relevant to note at this point.

According to the records, the proceeding under Section 9 stood initiated on 01.12.2023, and after putting in the first appearance, the Appellant was granted time for the first time to file an objection on 20.02.2024. There was a simultaneous proceeding going on amongst the parties for venturing into the possibilities of making a settlement of the dispute between the parties.

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The Tribunal had made an observation that, if no settlement matures, the Appellant will file the counter as directed earlier, failing which the right of the Appellant/Respondent, to file an objection to the Company Petition, will be fortified. In the subsequent proceedings, the Adjudicating Authority has observed that there was a non-compliance of its earlier order owing to the fact that, the settlement did not occur, nor it was placed on record, and that contrary to its directions to file objections in the event of non-finalization of the settlement, the Appellant has not filed his counter and hence his opportunity to file the counter was closed in furtherance of the order of 31.07.2024.

Subsequently, the Appellant filed the recall application seeking recall of the order dated 04.09.2024, which closed his opportunity to file his counter in the proceedings under Section 9 of I & B Code, 2016. The Appellant had raised various contentions in his recall application, particularly those which he has referred to during the course of the argument as contained in para 6 onwards of the said application. He has contended that the Adjudicating Authority while considering the recall application being IA No.789/2024 dated 27.09.2024, has dismissed the same without making any observations on the grounds submitted by the Appellant and that as a consequence of such, he has been deprived to file an objection to the Section 9 Application of the Respondent on merits.

The Appellant submitted that the Impugned Order suffers from the Appellant vices for the reason being that, the grounds which has been pleaded by him, in the application preferred on 27.09.2024 for recalling the order of 04.09.2024, have neither been referred to nor have been considered by the Learned Adjudicating Authority, while rejecting his recall application and thus the order happens to be perverse, on account of non-consideration of the grounds taken in the recall application.

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The process of filing of the objection to the principal proceedings under Section 9 of the I & B Code, should not be placed in a time bound straight jacketed formula, and in case, if there are one or two instances of failure in filing the objection to the principal proceedings, that may not be derived as to be a reason to deprive a person of the opportunity to participate in a proceeding on merits.

A two member bench of Justice Sharad Kumar Sharma, Member (Judicial) and Jatindranath Swain, Member (Technical) viewed that though CPC will not strictly apply to the proceedings under I & B Code, the principles laid down will still continue to guide the proceedings in the instant case. Accordingly, the Appellant ought to have been granted an opportunity to file an objection to the principal proceedings under Section 9 of the I & B Code, 2016.

The Tribunal quashed the Impugned Order rejecting the recall application dated 04.11.2024 as well as order dated 31.07.2024 of forfeiture of opportunity to file objection. The Appellant is granted two weeks’ time by way of the last opportunity to file his objection to the proceedings under Section 9 of I & B Code, on merits.

Further held that failure to file an objection within the aforesaid time period of two weeks from the date of receipt of the certified copy of this Judgment will amount to the closure of this opportunity to file counter and Section 9 proceedings will proceed exparte against him. In the event, he files the objection within a period of two weeks from the date of receipt of the certified copy of this Judgment, the proceedings under Section 9 would be carried on its own merits as per law.

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