Baseless Rejection is Against the Law: A Brief Review of M/s. Unigreen Global Private Limited v. Punjab National Bank(2017)

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Introduction

The Insolvency and Bankruptcy Code, of 2016 is an extraordinary legislation. It aims to regulate the insolvency procedures in India and therefore, any liquidation or related procedures are to be mandated and followed under this Code. However, the problem arises when financial creditors tend to misuse the provisions of the Code for their benefit leaving the companies in chaos and confusion.

In such a situation the aggrieved party may appeal to the National Company Law Tribunal (NCLT) to get himself heard. But what if the application itself is rejected without any reason in the first instance itself? In this case of M/s. Unigreen Global Private Limited v. Punjab National Bank, we find how the aggrieved party was forced to appeal to the National Company Law Appellate Tribunal (NCLAT) for getting justice as the application was rejected wrongfully by the NCLT.

The case reflected the misuse of the provisions of the Code by the financial creditors and the harassment faced by the aggrieved companies. The judgement encompassed a penalty for the respondents as they had misused the provisions.

Facts Of The Case

The appellant of this case is a corporate debtor against whom the financial creditors initiated the Corporate Insolvency Regulatory Process under Section 7 of the Code. The appellant approached the NCLT for the process but their application under Section 10 of the Code was rejected on grounds of suppressing information in Form VI of the application and/or rather the application was found to be incomplete under Section 11.

Further, the Adjudicating Authority imposed a penalty under Section 65 of the Code. Such a rejection forced the appellant to approach the NCLAT for receiving justice. The Appellant authority followed the case with the perspective of the financial creditor and the Adjudicating Authority only to find that the Adjudicating Authority cannot go beyond the scope of Section 10 of the Code and it is implied and expressed from the provisions of Section 10 that any such application made with Form VI shall not require any other information as required by the aforesaid form.

However, after the application submitted by the corporate debtor against whom on default of repaying the debt an action has been initiated according to Section 7 of the Code by the financial creditor; the financial creditor can press for rejection of the application claiming such an application to be invalid under Section 11 of the Code claiming the corporate debtor to be ineligible. The NCLAT observed that if there is a mistake in the information or some more information may be required the Adjudicating Authority may ask the corporate debtor to rectify the application and if he is invalid as per Section 11 then the Adjudicating Authority will automatically reject it, without hesitation.

The Appellate Authority also observed that the questions related to the case are one whether the rejection of the application by the Adjudicating Authority was correct or not and secondly, whether the penalty imposed on the corporate debtor is appropriate or not. The Appellate Authority observed the judgement of the NCLT and the perspective of the financial creditor only to opine that there is no necessity of furnishing information other than those required under Section 10 of the Code and Form VI.

NCLAT claimed that the NCLT cannot go beyond the necessity of information to be furnished in the form, that is, the Adjudicating Authority cannot ask for any more information other than those required by Section 10 and the Form of the Code. It observed that the appellant had delayed the civil suits against it in various courts and is also, trying to delay the acquisition of assets by the financial creditor.

Also, the corporate debtor is under the enquiry of the Department of Revenue Intelligence. The Appellate Authority has observed that the application made to the Adjudicating Authority was made with a clear hand and neither was any information hidden nor was it manipulated or mistaken rather all details furnished were in coherence with the required provisions of the Code. Also, the NCLT did not record any statement concerning fraudulent application or mala fide intention of the appellant rather the appeal was dismissed without noting any of these.

The NCLAT observed the press by the financial creditors to confiscate the assets of the financial debtor(s) and therefore, the rejection of the application stands void. Also, the appellate authority observed other than the provisions in Section 11 of the Code there is no such reason for rejection of the application and only on grounds of suspicion and misinterpretation under the Code the application of Form VI under Section 10 cannot be rejected if the application is furnished with the required details.

Thus, the Appellate Authority allowed the appeal and struck down the order of the Adjudicating Authority thereby releasing the corporate debtor of the obligation of the penalty and asked the respondents to file an affidavit concerning the starting of the liquidation process by any High Court or any lower court or any Tribunal.

Observation

This case brings forth the following questions:

  • Whether the nature of the appellant is necessary for the respondent to avail of benefits?
  • Can the Adjudicating Authority ignore the stand of the corporate debtor?
  • What is the necessity of Section 424 in this case?

Let us take a step back to understand the fact that the corporate debtor is really in debt and has taken a loan from a consortium of banks and in this case, Punjab National Bank has taken the lead. Moreover, the lenders are eager to confiscate the assets of the company and repay the debts for which many civil suits are filed in various courts against the company.

However, the persons involved have been able to delay the suit proceedings and therefore, such an option is stagnant. Next, the consortium of the financial creditors files a petition with the Adjudicating Authority under Section 7 initiating the Corporate Insolvency Regulatory Process and subsequently, an application is made under Section 10 with the requisite form by the company.

However, the application is rejected by the NCLT under Section 11. The aggrieved party appeals to the Appellant Authority for a remedy. The NCLAT closely observes the situation considering the opinion of the NCLT and the perspective of the financial creditors.

The NCLAT finds that the reason for the rejection of the application made by the corporate debtor under the Code is beyond the scope of rejection because all the requisite details were furnished. Moreover, no such statement of fraudulent application or mischievous application was noted as a matter of rejection by the NCLT. Therefore, imposing a penalty on the aggrieved party under section 65 of the Code is baseless and cannot be agreed to.

Moreover, the court noted the actions of the company holders in having the cases delayed in other courts concerning their properties but that cannot be related to this case. This makes the opinion of the court more clear that the application was ought to be accepted and there was no mala fide move by the company which in turn is liable for the debts rather the financial creditors had kept them in pressure.

The Appellate Authority explained the importance of Section 424 of the Companies Act, 2013 and declared with a reference to M/s. Innoventive Industries Ltd. Vs. ICICI Bank & Anr. (2017) that rejection of the application was a loss of chance of hearing the corporate debtor which is void unless Section 11 of the Code is applicable. Therefore, allowing them to be heard is a must.

The NCLAT observed that irrespective of the actions of the corporate debtor, the request made by the financial creditor for Section 11 and the decision of the NCLT is not applicable. Therefore, the decision stands cancelled allowing the appellants to have relief and gain their remedy.

Conclusion

Even when the company is engaged in debt and is bound to face the liquidation process, the opportunity to be heard cannot be denied unless there is an inability under Section 11 of the Code or there is a mistake or concealment of facts in the application by the corporate debtor after the application is made under Section 7 of the Code by the financial creditor.

Moreover, the nature and substance of the case cannot go beyond the scope and ambit of the Code thereby, preventing the NCLT to gain any information above the ones required under the Code. Irrespective of the situation prevalent, the aggrieved party has to be heard and allowed to clarify his stand.

Just because of a misinterpretation of facts penalty cannot be imposed under the ground of Section 65 of the Code after an abrupt rejection of a valid application. The case revealed the importance of the right to stand trial and be heard. It also emphasized that all are equal in the eyes of law and no one can escape the law.

References

  • M/S. UNIGREEN GLOBAL PRIVATE LIMITED V. PUNJAB NATIONAL BANK (2017)
  • M/S. INNOVENTIVE INDUSTRIES LTD. VS. ICICI BANK & ANR.(2017)
  • THE INSOLVENCY AND BANKRUPTCY CODE, 2016
  • THE COMPANIES ACT, 2013

By: Soham Banerjee a student at J.B. Law College , Guwahati


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