Judicial Custody Of MD No Ground To Claim Natural Justice Violation If Counsel Appeared: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at New Delhi has recently observed that the principle of natural justice is not violated merely because the Managing Director of a corporate debtor was in judicial custody during insolvency proceedings, where the company was duly represented by counsel.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Indevar Pandey observed:

“The Appellant being in custody from 25.10.2025 till 26.11.2025 cannot be any ground for alleging violation of principle of natural justice when on 22.08.2025, Counsel for the Corporate Debtor has appeared and prayed for time to file reply.”

The appeal was filed by a suspended director of Shree Baladevjew Infrastructure Pvt. Ltd., challenging the NCLT Cuttack Bench's order admitting a Section 7 CIRP application filed by Piramal Capital & Housing Finance Ltd. and initiating the Corporate Insolvency Resolution Process (CIRP).

The corporate debtor had taken a loan from DHFL in 2013, with Rs 7.55 crore disbursed over the next two years. The account was declared NPA on 31 May 2015. After Piramal acquired DHFL under a resolution plan approved in June 2021, it moved a Section 7 plea on 1 March 2025 claiming a default of Rs 36.08 crore.

The appellant- director argued that the plea was time-barred since the default dated back to 2014–15. He also claimed there was a breach of natural justice, pointing out that the Managing Director was in judicial custody during parts of the proceedings.

The NCLAT rejected the limitation objection, holding that repeated restructuring requests and One Time Settlement (OTS) proposals amounted to acknowledgment of debt under Section 18 of the Limitation Act, which extended the limitation period.

It noted:

“From the letter accepting the acknowledgment and praying for restructuring which was issued as early as in 2015 which was issued on 02.11.2015 and 18.11.2015 shall give extension of limitation under Section 18. Further OTS proposal was given on 05.01.2018 shall also give extension of the limitation and thereafter OTS proposals given on 28.09.2020, 23.07.2024 shall clearly extend the limitation.”

The tribunal also recorded that a further OTS proposal dated August 23, 2024 extended the limitation up to August 23, 2027. It further held that the period during which DHFL was under CIRP (3 February 2019 to 7 June 2021), along with the Supreme Court's COVID-19 limitation orders in Suo Motu Writ Petition (Civil) No. 3 of 2020, enured to the benefit of the financial creditor.

“We, thus, uphold the finding of the Adjudicating Authority that the application was filed within the limitation,” the bench said.

On the natural justice challenge, the tribunal noted that substituted service was effected through newspaper publication on 8 August 2025. Counsel for the corporate debtor entered appearance on 22 August 2025 and sought time to file a reply. Despite opportunities, no reply was filed, and the NCLT proceeded ex parte.

Holding that adequate opportunity had been granted, the NCLAT dismissed the appeal and upheld admission of the Section 7 application.