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Ex-parte order without the knowledge of Corporate Debtor not sustainable: NCLAT (New Delhi)

The Adjudicating Authority shall reject the application so filed if the Operational Creditor has received a notice of a dispute from the Corporate Debtor. The Court allowed the Insolvency application filed by the Respondent filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 held by Justice Jarat Kumar Jain in the case of Prakash Kailash v. Apeejay Surrendra Park Hotels [Company Appeal (AT) (Insolvency) No. 1462 of 2019].

The appellant started a hotel with the respondents being the operational creditor in charge of the management of the hotel. The respondents had filed a claim for insolvency in the NCLAT due to non-payment of salary. The respondent also stated that the notice was returned owing to an insufficient address of the corporate debtor and NCLAT by way of order given the substituted service of publication in the newspaper where the corporate debtor has his office. There was no claim regarding any other dispute mentioned before the adjudicating authority. After the publication of the notice in the local newspaper, NCLAT accepted the application by the respondent in an ex-parte proceeding. Aggrieved by this decision the Corporate Debtor had approached by way of an appeal.

According to the appellant, the respondents did not fulfil their duty and there were inadequacies in their service provided. The respondents were in charge of taxes payable by the hotel which was not paid by the respondent and without prior information to the appellant the respondents had issued a post-dated cheque in their name. The appellant also contended not being aware of the proceeding filed in NCLAT as there was no official communication.

The respondent submitted that this appeal exceeded the statutory limit of appealing within 30 days of any order. They also denied any conflict arising before the initiation of the insolvency proceeding. It was further stated that the notice was duly posted in the newspaper following the order of NCLAT.

The tribunal noted that “notice issued against the Corporate Debtor could not be served on account of insufficient address; after that, the Adjudicating Authority passed an order of publication of notice in the newspaper. Based on the publication of notice in the newspaper, service was held sufficient, and the Court passed an order to proceed the case ex-parte against the Corporate Debtor. Thus, it is clear that before the publication of notice in the newspaper, no effort was not made for serving the notice through email.”

NCLAT held that the appeal has been filed within 30 days of the order and thus is sustainable. Various e-mails exchanged between the appellant and the respondent were produced from where it is clearly mentioned that the appellant is not satisfied with the service provided. In the email, it can also be seen that the appellant had opposed the issue of post-dated cheque when it came to his knowledge. The tribunal also observed that in the original application filed by the respondent there is no mention of the disputed cheque amounting to Rs 76 Lakh.

The tribunal relied on the judgement of the Hon’ble Supreme Court in the case of Neerja Realtors (P) Ltd. Vs. Janglu [2018 (2) SCC 649], where it was held that “for ordering substituted service the Court is required to be satisfied that there is reason to be read that Defendant is keeping out of the way for the purpose of avoiding service or for any other reason, the summons cannot be served in an ordinary way.”

In such circumstances, the passing of an order for an ex-parte hearing against the Corporate Debtor, based on substituted service, cannot be held proper in the light of the law laid down by the Supreme Court. Thus, the appeal was allowed and the proceeding in the NCLAT was to be set aside.

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Judgement reviewed by-Sarita Kumari

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