Failure To Issue Notice Is “Larger Than An Ordinary Procedural Breach”: NCLAT Sets Aside Ex Parte NCLT Order

An ex parte order passed without issuing notice cannot be sustained, the National Company Law Appellate Tribunal (NCLAT) has held, setting aside a Mumbai NCLT order that had allowed a preferential transaction application in the liquidation of Euro Ceramics Ltd.

A bench of Judicial Member Justice N. Seshasayee and Technical Member Arun Baroka said that omission to direct notice is larger than some procedural breach.

“It is only when notice is directed on any application or petition, the tribunal makes up its mind to invite an objection from the respondent. When it is omitted to be done, its consequences are larger than an ordinary procedural breach as it directly impacts the doctrine of audi alteram partem,” the tribunal observed.

The appeal arose from an order dated August 28, 2024, passed by the Mumbai bench of the National Company Law Tribunal allowing an application filed under Section 43 of the Insolvency and Bankruptcy Code by the liquidator of Euro Ceramics Ltd. The application was listed on November 24, 2023. However, no notice was ordered.

Subsequently, the Insolvency and Bankruptcy Board of India suspended the liquidator, and his successor assumed charge. The NCLT thereafter allowed the application ex parte, holding the transactions in question to be preferential.

Before the NCLAT, the appellant contended that the order was passed in breach of Rule 37 of the NCLT Rules, 2016, which mandates that the tribunal “shall issue notice to the respondent to show cause against the application or petition on a date of hearing to be specified in the notice.”

The liquidator admitted that no notice had been issued but stated that an advance copy of the application had been served on the appellant. The appellant argued that service of an advance copy does not satisfy the duty cast on the tribunal to order notice under Rule 37.

The appellate tribunal noted that until notice is directed, a respondent is entitled to hold a bona fide impression that the time to respond has not arisen. “This precisely has resulted in this case, and necessarily the impugned order has denied the appellant a right to put forth its case,” it said.

Allowing the appeal, the NCLAT set aside the August 28, 2024 order and remanded the matter to the NCLT after affording the appellant an opportunity to defend the application. No costs were imposed.