NCLAT observed that the dismissal of the Restoration Application was erroneous as It was based on merit evaluation rather than assessing cause for non-appearance.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan, J. (Chairperson) and Arun Baroka (Technical Member) was hearing an appeal and determined that the Adjudicating Authority erred by addressing the merits of the Section 94 application rather than focusing on the sufficient cause for the applicant's non-appearance, leading to an unjustified dismissal of the Restoration Application.
The National Company Law Appellate Tribunal (NCLAT) dealt with two appeals filed by the Personal Guarantor of a Corporate Debtor challenging two orders from the National Company Law Tribunal (NCLT) dated 01.05.2024 and 22.05.2024. The NCLT had dismissed the Application under Section 94 of the Insolvency and Bankruptcy Code (IBC) on 01.05.2024 for non-prosecution and subsequently rejected the Restoration Application on 22.05.2024.
The facts revealed that the Appellant’s application under Section 94 of the IBC was initially filed on 27.02.2024. The first hearing was scheduled for 17.04.2024 but was postponed due to a Bar resolution, and rescheduled to 01.05.2024. On the day of the hearing, the Appellant’s Counsel, Shri Karan Gaba, sent an email requesting an adjournment due to a family bereavement but failed to appear in court. Consequently, the application was dismissed for non-prosecution. The Counsel appeared later that day but was informed that the matter had already been dismissed. A Restoration Application was filed the same day citing the Counsel’s bereavement as the reason for his absence.
The Adjudicating Authority considered the Restoration Application on 08.05.2024 and granted time for the Union Bank of India, the Financial Creditor, to file a reply. The Bank had initiated proceedings under the SARFAESI Act for the secured assets. The Adjudicating Authority's decision on 22.05.2024 dismissed the Restoration Application, leading to these appeals.
In the appeals, the Appellant argued that the Adjudicating Authority should not have considered the merits of the Section 94 application while deciding the restoration request. They contended that sufficient cause for non-appearance was shown, which was unfairly disregarded by the NCLT. The Appellant asserted that the Adjudicating Authority’s consideration of prior litigations and observations about forum shopping was premature and inappropriate at this stage.
The Union Bank of India opposed the appeal, arguing that the Section 94 application was intended to delay their SARFAESI proceedings and that the Appellant's actions were indicative of forum shopping and non-bonafide intent. The Bank highlighted multiple procedural deficiencies and previous legal actions taken by the Appellant.
NCLAT reviewed the case, noting that the Adjudicating Authority had dismissed the application based on the Counsel’s failure to substantiate the adjournment request and procedural irregularities. The NCLAT found that the Adjudicating Authority’s observations regarding the Appellant’s clean hands and forum shopping were not appropriate for the restoration context, as the focus should have been solely on the reason for the Counsel’s non-appearance on 01.05.2024.
The NCLAT concluded that the Appellant had provided sufficient cause for the Counsel's absence, and the dismissal of the Restoration Application on grounds not relevant to the immediate issue was not justified. Hence, the NCLAT set aside the order rejecting the Restoration Application and directed that the case be restored for consideration.
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