Re-Constituted Bench Cannot Pass An Order Without Re-Hearing The Parties: NCLAT Delhi

Background Facts

Durha Vitrak Pvt. Ltd. (“Corporate Debtor”) was running a hospital named Febris Multispeciality and was admitted into Corporate Insolvency Resolution Process (“CIRP”) on 08.11.2019. Mr. Aishwarya Mohan Gahrana was appointed as the Interim Resolution Professional and later confirmed as the Resolution Professional.

Despite the Corporate Debtor being a going concern, the Resolution Professional did not permit the hospital to run its operations and earn revenue during the Covid-19 pandemic.

The Resolution Professional filed an application under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) before the Adjudicating Authority, seeking liquidation of the Corporate Debtor.

The application for liquidation was first heard by the Division Bench of NCLT consisting of Justice BSV Prakash Kumar (Acting President) and Mr. V.K. Subburaj (Technical Member) and order was reserved. However, before the order could be passed, the Mr. V.K. Subburaj demitted the office. Thereafter, a Bench comprising of Justice Mr. BSV Prakash Kumar (Acting President) and Mr. Hemant Kumar Sarangi (Technical Member) passed an order on 20.05.2021 approving liquidation of Corporate Debtor.

Ex-Director of Corporate Debtor filed an application for rectification of Order dated 20.05.2021. It was argued that the re-constituted Bench did not re-hear the matter which was in violation of principle of natural justice. The Order dated 20.05.2021 was declared void and matter was directed to be reopened and heard by the regular Principal Bench i.e. Acting President and Mr. Hemant Kumar Sarangi (Technical Member). On 31.05.2021, the matter was heard and liquidation of Corporate Debtor was approved. The Resolution Professional was appointed as the Liquidator. However, the Order dated 20.05.2021 was reproduced in Order dated 31.05.2021.

Mr. Rajesh Narang being an Ex-Director of Corporate Debtor filed an appeal before the NCLAT against the order of liquidation. The Ex-Director argued that the Resolution Professional was hand in gloves with the LIC Housing Finance Ltd (Financial Creditor) which holds about 93% voting shares in the Committee of Creditors (“CoC”). The Resolution Professional was not focused on resolution/revival rather liquidation of Corporate Debtor. Further, the Adjudicating Authority also failed to examine viability of Corporate Debtor as a going concern.

NCLAT Verdict

The Bench observed that during the outbreak of Covid-19 pandemic there were shortage of beds in hospitals and citizens died due to the same. The decision of the Resolution Professional to not to run the hospital and facilitate the Corporate Debtor to earn revenue, was detrimental to both society and Corporate Debtor. The Bench held that it is inappropriate to allow liquidation of Corporate Debtor.

Further, the Resolution Professional did not take reasonable steps to continue the Corporate Debtor as going concern, which is mandated under Section 25(2)(h) of the IBC.

It was further observed that when the first order was passed on 20.05.2021, one of the Technical Member was not a party at the time of hearing and reserving orders. For this reason alone, the order dated 20.05.2021 was declared void and fresh hearing was conducted on 31.05.2021. The Bench observed that the order dated 20.05.2021 was reproduced in order dated 31.05.2021, without further hearing or rehearing.

The Bench set aside the Order of liquidation dated 31.05.2021 and remitted the matter back to Adjudicating Authority to re-examine and consider changing the Resolution Professional. The Bench has also directed IBBI to conduct an enquiry on the Resolution Professional and register an FIR if any cognizable offence is disclosed.

Case Title: Rajesh Narang v Durha Vitrak Pvt. Ltd.

Case No.: COMPANY APPEAL (AT)(INS) NO.612/2021

Counsel For Appellant: Mr Rajat Bhardwaj, Advocate.

Counsel For Respondent: Mr Sharad Tyagi, Ms Yukti Makan, Ms K. Gayatri, Ms Anupriya Gupta, Advocates for R1 and R2.

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