NCLAT Delhi Affirms NCLT Rule 49 Grants Authority For Ex Parte Proceedings When Corporate Debtor Fails To Appear

NCLAT Delhi Affirms NCLT Rule 49 Grants Authority For Ex Parte Proceedings When Corporate Debtor Fails To Appear

The National Company Law Appellate Tribunal ('NCLAT') Delhi bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), ruled that Rule 49 of the NCLT Rules, 2016, provides sufficient jurisdiction to the adjudicating authority to proceed ex parte when the corporate debtor fails to appear. According to Rule 49(1), "appearance" refers to the corporate debtor or an authorized representative appearing before the tribunal.

DBS Bank India Ltd., acting as the financial creditor, filed a case against Vyam Technologies Ltd., the corporate debtor, for defaulting on financial facilities. The Debt Recovery Tribunal (DRT) issued an order on July 15, 2019, awarding a sum of Rs. 23.29 crore along with interest. Additionally, a recovery certificate was issued in favor of the financial creditor.

DBS Bank initiated the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor under Section 7 of the Insolvency and Bankruptcy Code (IBC), alleging a default amounting to Rs. 48.31 crores as of September 22, 2021. The bank also relied on the recovery certificate as part of its claim.

The corporate debtor received notices issued by NCLT New Delhi on March 7, 2022, but failed to file a response. When the CIRP application was listed on March 25, 2022, no reply had been submitted, and no authorized counsel appeared. As a result, NCLT New Delhi proceeded to hear the application on its merits and admitted the Section 7 application by order dated March 25, 2022.

A subsequent application was filed requesting the recall of the order dated March 25, 2022. The adjudicating authority heard this application and rejected the request through an order dated January 15, 2024. Dissatisfied with this decision, the present appeal has been filed.

The NCLAT Delhi dismissed the appeal, affirming that Rule 49 of the NCLT Rules, 2016 confers adequate jurisdiction upon the adjudicating authority to proceed ex parte if the corporate debtor fails to appear. According to Rule 49(1), "appearance" entails representation by the corporate debtor or an authorized representative.

Furthermore, the Appellate Tribunal cited Rule 49(2) of the NCLT Rules, 2016, which stipulates that if a petition or application is heard ex parte against the respondent(s), the respondent may seek to set aside such an ex parte order. This can be accomplished by demonstrating that proper notice was not served or by providing evidence of sufficient cause preventing their appearance during the hearing of the petition or application.

The NCLAT noted that notices were indeed issued to the corporate debtor in the Section 7 application under the IBC, which came up before the Adjudicating Authority. However, the corporate debtor failed to file a reply to the said Section 7 application. Additionally, it was undisputed that the notice was served on the appellant on March 7, 2022, and the appellant did not contest the service of notice.

Highlighting the second ground for recalling an order, the Appellate Tribunal emphasized that an order may be recalled if the respondent was prevented by sufficient cause from appearing. However, in this instance, the corporate debtor did not demonstrate any sufficient cause for its failure to appear, as the notice had been duly served. No valid reason was provided for their absence.

Consequently, the NCLAT dismissed the appeal, rejecting the corporate debtor's counsel's argument that their recent engagement and failure to file a Vakalatnama constituted sufficient cause. The Tribunal held that the corporate debtor was accountable for not appointing legal representation promptly to make the requisite submissions before the Court. Rule 49(1) of the NCLT Rules, 2016 mandates appearance by the corporate debtor or an authorized representative.