Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Chennai has reiterated that litigants cannot be penalised for their lawyer’s failure to appear and directed the National Company Law Tribunal (NCLT), Bengaluru, to rehear a liquidation-related application alleging preferential transactions by former directors of Sagar Power (Neerukatte) Private Limited after granting them a proper opportunity of hearing. The ruling reinforces the fundamental principle of natural justice that no party should be condemned unheard.

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The appeal was preferred by Narappa Manohar Reddy and Narappa Sharada Reddy, former directors and shareholders of Sagar Power, along with New Age Infrastructure Private Limited, challenging the NCLT order dated November 30, 2022, which had allowed the liquidator Pankaj Srivastava’s application alleging preferential payments and issued adverse directions against the appellants during the liquidation proceedings. The main grievance of the appellants was that the petition was decided in their absence because their counsel did not appear when the matter was finally taken up for hearing.

The NCLAT bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Indevar Pandey (Technical Member) observed that the non-appearance of counsel should not automatically result in adverse orders against the party, particularly when pleadings, replies and supporting documents were already on record. The bench stressed that the litigant should not suffer because of the personal inconvenience or omission of counsel, especially when such lapse is not attributable to the party.

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The appellate tribunal recorded that even when a party is unrepresented at the time of final hearing, the adjudicating authority must deal with the pleadings and contentions already available on record. It held that the NCLT Bengaluru had failed to undertake this essential responsibility and instead decided the liquidation application ex parte without first passing an order notifying that the proceedings would continue in the absence of the party.

Invoking the well-established rule of audi alteram partem — that no person should be condemned without being heard — the NCLAT placed reliance on the Supreme Court judgment in Rafiq & Anr. v. Munshilal & Anr., wherein the Court held that a litigant should not be punished for the lapse of his advocate. The NCLAT emphasised that such principles take on special significance in insolvency proceedings where consequences can be irreversible and financially severe.

Accordingly, the NCLAT set aside the impugned NCLT order in its entirety and remitted the matter back for fresh adjudication on merits after granting a reasonable opportunity to both sides to present their case. As a condition for restoration of the right of hearing, the tribunal directed the appellants to deposit ₹50,000 into the Prime Minister’s Relief Fund within ten days.

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By reaffirming that procedural fairness is indispensable even in time-bound insolvency proceedings, the judgment reinforces that default of counsel cannot be equated with default of the litigant and that principles of natural justice must remain at the core of adjudication under the Insolvency and Bankruptcy Code.

Appearance

For Appellants: Mr. Chandramouli Prabhakar, Advocate

For Respondent: Mr. Abhishek Anand & Mr. Karan Kohli, Advocates

Cause Title: Narappa Manohar Reddy & Ors v Pankaj Srivastava, Liquidator of Sagar Power (Neerukatte) Private Limited

Case No: Company Appeal (AT) (CH) (Ins) No. 28 / 2023 (IA Nos. 94 & 96 / 2023)

Coram: Justice Sharad Kumar Sharma (Judicial Member), Indevar Pandey (Technical Member)