Jurisdiction of Adjudicating Authority to issue Non-Bailable Warrant against Suspended Directors/Managements in case non-cooperation during Insolvency Proceedings

Author: Ritu Raj, 4th year, Maharashtra National Law University, Nagpur

Co-Author: Shruti Mandora, 3rd year, Maharashtra National Law University, Nagpur

Background

In the case of Vikram Puri (Suspended Director) v Universal Buildwell Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 1018 of 2021 decided on 28th February, 2022 where National Company Law Tribunal affirmed the decision of National Company Law Tribunal, New Delhi Bench (“Adjudicating Authority”). 

Appeal was filed by the Suspended Board of Directors under section 61 of the Insolvency and Bankruptcy Code, 2016 for cancellation of Non-Bailable Warrants of Arrest before the NCLAT against the order dated 30.09.2021 passed by the Adjudicating Authority.

In the instant case, the Appellant- Suspended Board of Directors of the Corporate Debtor did not co-operate with the Resolution Professional, therefore, an application under Section 19(2) of the Code was filed by the Resolution Professional before the Adjudicating Authority. By order dated 16.07.2021 passed by the Adjudicating Authority, Suspended Directors were directed to surrender before the Tribunal on 20.07.2021 and Non-Bailable Warrants were also issued against them. Suspended Directors moved an Application for cancellation of the Non-Bailable Warrants which Application was dismissed by the Adjudicating Authority vide order dated 03.08.2021. By the same order, Suspended Board of Directors was again directed to surrender before the Registrar, NCLT on or before 06.08.2021 and they were also directed to deliver all the documents. On 30.09.2021, Application filed by the Suspended Directors for exemption of appearance and surrender was decided, since Suspended Directors failed to surrender, the application of Suspended Board of Directors was rejected.

The moot issue to be decided by NCLAT is as to whether the Adjudicating Authority while exercising jurisdiction under the Code have any jurisdiction to issue Non-Bailable Warrant against any person or party.

NCLAT’S DECISION

NCLAT while adjudicating upon the appeal explicitly answered five questions that arose in the appeal.

  • Jurisdiction to issue Non-Bailable Warrant under the Code

NCLAT while ruling on this issue drew its attention towards Rule 77 of NCLAT Rules, 2016 (“2016 Rules”), present in Part XIII provides for ‘Procedure for examination of witnesses, issue of Commissions’. Rule 77 of (“2016 Rules”), specifically provides that the provisions of Order XVI of the Code of Civil Procedure, 1908 (“Code”) shall apply in the matter of summoning and enforcing attendance of any person. Order XVI Rule 10 of the Code of Civil Procedure, 1908 specifically empowers the Court to issue in its discretion at any time warrant either with or without bail for arrest of such person who without any lawful excuse, failed to attend or to produce the document in compliance with such summons.

The tribunal held that from the bare perusal of the facts of case, it becomes clear that in spite of several opportunities given to Suspended Directors, they refused to surrender even though their prayer for cancellation of the Non-Bailable Warrants was rejected. The provision of Rule 77 of the NCLAT Rules, 2016 read with Order XVI Rule 10 of Civil Procedure Code fully empowers the Adjudicating Authority to issue a Non-Bailable Warrant for enforcing attendance of a person. The power exercised by the Adjudicating Authority in issuing a Non-Bailable Warrant to the Appellants is thus well within jurisdiction of the Adjudicating Authority and the Appellants’ submission that Adjudicating Authority is not clothe with any power to issue Non-Bailable Warrant was rejected. 

  • Ex-parte proceeding and personal appearance of the parties

Furthermore, Appellants argued that the Adjudicating Authority could have proceeded ex-parte and passed order against the Corporate Debtor and Suspended Directors and it was not necessary to ask the presence of the Suspended Directors cannot be accepted. The tribunal while answering this question observed that the proceedings under the IBC are proceedings of special nature object of which is resolution of insolvency of Corporate Debtor. The Resolution Professional for discharging various statutory duties as entrusted under the Code should have access to necessary documents and records without which the proceedings under the IBC cannot proceed as per the objective of the Code. The Code empowers the Adjudicating Authority to take appropriate measures for ensuring compliance of the provisions of the Code and for ensuring that all personnel extend co-operation to IRP/ RP. Section 19 specifically empowers the Adjudicating Authority to issue appropriate direction for compliance. The powers under Section 19 have been given to authority for purpose and object and the Suspended Directors cannot escape their liability to submit necessary documents and to explain before the Court.  Thus, appellants’ contention by saying that ex parte order ought to have been passed and their personal appearance should not have been asked was also rejected.

Appellants’ argument pertaining to absence of such provision which requires that a person against whom enforcement is sought must be physically present was rejected in its entirety by observing that present is a case where Tribunal to effectively discharge function by the Resolution Professional under the Code has to issue appropriate direction in the interest of Insolvency Resolution Process. 

For ensuring personal appearance of the parties, the Tribunal was absolutely competent to issue Non-Bailable Warrant and other modes for enforcing the order of Tribunal were not necessary to be adopted. The ingredient that such person has without lawful excuse, failed to attend or to produce the document in compliance with such summons was fully fulfilled and it cannot be said that conditions for issuance of Non-Bailable Warrant were not satisfied.

  • Principles of natural justice

Appellants’ argument that the Tribunal is bound to follow the principles of natural justice, tribunal ruled that there can be no two opinions about the said principle. Section 424(1) of the Companies Act, 2013 specifically provides that the Tribunal while disposing of any proceeding before it shall be guided by the principles of natural justice. Present is a case where principles of natural justice have not been violated. The Appellants were issued notice in response to which they failed to appear. Thereafter, Bailable Warrants were issued but the presence of the Appellants could not be secured and it was thereafter, these repetitive notices and bailable warrants only, Non-Bailable Warrants were issued. Issuance of Non-Bailable Warrants was repeated thereafter as noticed above. When the Appellants in spite of notices and Bailable Warrants opted not to appear before the Tribunal, the Tribunal was left with no option except to issue Non-Bailable Warrants against them.

  • Prosecution under Section 70 of the Code

The tribunal by observing that prosecution under Section 70 of Insolvency ad Bankruptcy Code, 2016 is separate and independent proceedings which in no manner fetter the power of the Tribunal under the Code rejected the Appellant’s contention that they could have been prosecuted under Section 70 of the Code for non-compliance of Section 19 of the Code.

  • Procedures laid down under the CPC

Rejecting the contention of Appellants that the Tribunal is not bound by procedures laid down under the CPC, tribunal ruled that Rule 77 of the NCLAT Rules, 2016 applies various provisions of Civil Procedures Code. NCLAT held that the present case is only concerned with the procedure where a person fails to comply with summons which we have already dealt accordingly. The procedure adopted by the Adjudicating Authority is in conformity with the NCLT Rules, 2016 as well as order XVI Rule 10 of the Code of Civil Procedure, 1908.

  • Decision

NCLAT while dismissing the appeal held that there is no infirmity in the impugned judgment of the Adjudicating Authority rejecting the Application for recall of cancellation of Non-Bailable Warrants.

It also observed that we may further observe that in addition to enforcement of Non-Bailable Warrants, it shall be also open for the Adjudicating Authority to recommend for initiation of prosecution against the Suspended Directors of the Corporate Debtor in event of commission of an offence within meaning of Code.

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