Case Note & Summary
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, heard an appeal filed by Inkel Limited, represented by its Managing Director, against an order of the National Company Law Tribunal (NCLT), Kochi Bench, dated 26.11.2020. The impugned order was passed in IA No.187/KOB/2020 in IBA/30/KOB/2020, whereby the Adjudicating Authority directed the impleadment of the Appellant in proceedings under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) for the initiation of Corporate Insolvency Resolution Process (CIRP). The Appellant, who was the Managing Director of the Corporate Debtor, contended that he was not a necessary party to the proceedings, as no demand notice was ever issued to him, he was not a party to the original petition, there was no cause of action against him, and the impleadment order was passed without any prior notice to him, thereby violating principles of natural justice. The Respondent No.1, Shaji Mathew, who had filed the application under Section 9 of the IBC against the Corporate Debtor, argued that the Appellant was a necessary party as he was the Managing Director and had executed personal guarantees. However, the NCLAT found that the impugned order did not record any reasons for impleading the Appellant and was passed without affording him an opportunity of being heard. The Tribunal held that the order was in gross violation of natural justice and could not be sustained. Consequently, the NCLAT set aside the impugned order and remanded the matter back to the Adjudicating Authority for fresh consideration, directing that the Appellant be heard before any decision on impleadment is taken. The appeal was allowed with no order as to costs.
Headnote
A) Insolvency and Bankruptcy Code - Impleadment - Natural Justice - Section 60(5) IBC - The Adjudicating Authority impleaded the Appellant (Managing Director of the Corporate Debtor) in CIRP proceedings without issuing any prior notice to him. The Appellant contended that no demand notice was issued to him, he was not a party, and there was no cause of action against him. The NCLAT held that the order of impleadment was passed in gross violation of principles of natural justice and set it aside, remanding the matter for fresh consideration after hearing the Appellant. (Paras 1-17) B) Insolvency and Bankruptcy Code - Necessary Party - Section 60(5) IBC - The Appellant argued that he was not a necessary party to the CIRP proceedings as the debt was owed by the Corporate Debtor, not by him personally. The NCLAT did not decide on the merits of whether he was a necessary party but set aside the impleadment order solely on the ground of violation of natural justice. (Paras 5-17)
Issue of Consideration
Whether the Adjudicating Authority could implead the Appellant (Managing Director of the Corporate Debtor) in CIRP proceedings under Section 60(5) of the I&B Code without issuing prior notice to him.
Final Decision
The NCLAT allowed the appeal, set aside the impugned order dated 26.11.2020 passed by NCLT, Kochi Bench in IA No.187/KOB/2020 in IBA/30/KOB/2020, and remanded the matter back to the Adjudicating Authority for fresh consideration after hearing the Appellant. No order as to costs.
Law Points
- Natural justice
- impleadment without notice
- necessary party
- Section 60(5) IBC
- CIRP proceedings
