Parties Cannot Be Penalised for Lawyer's Absence: NCLAT Orders Rehearing In Sagar Power Preferential Deal Case

The National Company Law Appellate Tribunal (NCLAT) at Chennai has reaffirmed that parties cannot be penalised because their lawyer failed to appear, and has directed the National Company Law Tribunal (NCLT) Bengaluru to rehear the liquidator's application alleging preferential transactions by former directors of Sagar Power after giving them an opportunity to be heard.

The appeal was filed by Narappa Manohar Reddy and Narappa Sharada Reddy, shareholders and former directors of Sagar Power (Neerukatte) Private Limited, along with New Age Infrastructure Private Limited, against Pankaj Srivastava, the liquidator of Sagar Power (Neerukatte) Private Limited.

The NCLT had on November 30, 2022 allowed the liquidator's plea and issued directions against the directors after their counsel failed to appear when the petition was finally heard, resulting in the matter being decided without hearing them

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Indevar Pandey however,  observed that such a failure on the part of their counsels on account of personal reasons cannot be attributed to them.

“However, the Counsel's inability to appear on date of hearing as already expressed above, was owing to counsel's personal inconvenience and the same cannot be attributed to the Appellants, and thus under the settled principles of cannot be attributed to the Appellants above and under the certain principles of audi alteram partem, no party to the proceedings can be condemned unheard.”

The tribunal held that even when a party is unrepresented, the tribunal must address the pleadings on record,

"Even in those eventualities where the counsel is not representing at the stage of hearing though the pleadings are already on record then too, it becomes more responsibility of the Tribunal, that the Tribunal(s), should have at least referred to the pleadings raised by the parties, whose counsel, is not representing his cause when the matter was taken up, should have given reason to accept or not to accept the same"

The tribunal noted that when counsel does not appear at the final hearing, the NCLT should first issue an order directing that the proceedings will continue ex parte against the party, and that the failure to do so amounted to a violation of the procedure contemplated under Order VIII of the Civil Procedure Code.

Quoting the Supreme Court ruling in Rafiq & Anr. v. Munshilal & Anr., the bench reproduced the principle that a litigant cannot be punished for an advocate's lapse.

Allowing the appeal, the NCLAT set aside the NCLT's order and directed that the company petition be heard again after giving the parties a proper opportunity to present their case on the condition that they deposit Rs 50 thousand into the Prime Minister's Relief Fund within 10 days. 

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