The High Court of Karnataka on Wednesday vacated an interim order, in which it had directed the Bengaluru Bench of the National Company Law Tribunal (NCLT) not to pass any adverse order against a private mall developing company on an insolvency proceedings initiated by Axis Bank Ltd.
Justice A.S. Bopanna passed the order on an application filed by the bank for vacating the interim order, which was passed on August 28 on a petition filed by Lotus Shopping Centres Pvt. Ltd. challenging the insolvency proceedings as well as the constitutional validity of Sections 4 to 77, 214, 215, 231 and 238 of the Insolvency and Bankruptcy Code (IBC), 2016.
‘Hear both parties’
However, the court in its order observed that as per the judicial pronouncements made by other High Courts and the Supreme Court, the NCLT will have to provide reasonable opportunity of hearing both the parties before taking a decision on the insolvency application filed by the bank as the proceeding is “adversarial in nature”.
The petitioner-company will have ample opportunity to defend itself before the NCLT, the court observed.
The court made these observations as the petitioner-company had pointed out out that the NCLT, as per the IBC, was not required to hear the company’s point of view before admitting the proceedings.
On the contention of the petitioner-company, which has been classified as “corporate debtor” by the bank, that it [company] will have no right of appeal if the NCLT decided to appoint insolvency professionals in place of company’s board of management, the court said that “any person” aggrieved from the order of the NCLT can appeal to the appellate tribunal, while pointing out that petitioner-company’s investors too have the right to appeal.
Action against bank
The court also observed that the petitioner-company, which has alleged fraud against the bank in sanction and disbursement of loan amount to its mall project in Mangaluru, can urge the NCLT to invoke penal provision under section 65 of IBC if, in the process, the petitioner-company is able to establish that the initiation of insolvency proceeding “is malicious” as contemplated in the petition.
Further hearing on the petition has been adjourned till the Law Ministry files its statement on the issue of constitutional validity of some of the sections of the IBC.
The petitioner-company and the bank are on legal battle after the petitioner-company issued a legal notice to the bank in June 2017 seeking damages. The bank in July initiated insolvency proceedings against the company, which later filed a civil suit seeking ₹101.77 crore as damages from the bank for allegedly defrauding the company.
