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Adjournments in proceedings under IBC
A recent incident at Karkardooma Court Complex – New Delhi has not only reminded us of the famous scene from ‘Damini’, but also has highlighted an age-old malaise of long-drawn judicial proceedings, which has plagued our Justice Delivery Institutions. Unfortunately, from which even proceedings under Insolvency & Bankruptcy Code (which was intended to be a law providing for time-bound resolution of Companies who are unable to pay-off their debts) could not remain immune. The undersigned author by this article series highlights the settled position in law and the binding precedents, relying on which can help minimise the delays in Court proceedings.
|Part-I||:||Arguing Counsel/Senior appearing in the matter is addressing another Court|
|Part-II||:||Long-Extended hearing & Groundless filing|
|Part-III||:||Copies of pleadings not served to the other side/ not available with the Bench|
|Part-IV||:||False statements & Groundless allegations made by Litigants|
False statements & Groundless allegations made by Litigants
One of the major reasons for delays in IBC proceedings is litigants indulging in not only raising groundless insinuations against their adversary, but also resorting to making false submissions during the course of proceedings. To curb this menace of blatant falsehood in courts, the legislature has enacted governing provisions in Chapter XI of the Indian Penal Code, 1860 (OF FALSE EVIDENCE AND OFFENCES AGAINST PUBLIC JUSTICE), which would be a cruel joke with the society unless the courts stop to take an evasive recourse despite proof of the commission of the offence (Ref.: Hon’ble Supreme Court ruling in R. Karuppan, Advocate, Suo Motu Proceedings against In re, (2001) 5 SCC 289, Para 15). Hon’ble Supreme Court in Swaran Singh V/s State of Punjab (2000) 5 SCC 668 noted:
Para 36: … Perjury has also become a way of life in the law courts. A trial Judge knows that the witness is telling a lie and is going back on his previous statement, yet he does not wish to punish him or even file a complaint against him. He is required to sign the complaint himself which deters him from filing the complaint. Perhaps law needs amendment to clause (b) of Section 340(3) of the Code of Criminal Procedure in this respect as the High Court can direct any officer to file a complaint. To get rid of the evil of perjury, the court should resort to the use of the provisions of law as contained in Chapter XXVI of the Code of Criminal Procedure.
Section 424(4) of Companies Act reads as:
(5) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code, and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.
Further, Hon’ble NCLAT in KVR Industries Private Limited V/s. P.P. Bafna Ventures Private Limited (2020) ibclaw.in 407 NCLAT ruled:
Para 17: Section 195 (3) of Cr. P.C. referred above shows that the term “Court” used in the Section includes the Tribunal constituted by or under Central, Provincial or State Act if declared by that Act to be a Court for the purposes of this Section. We have already seen Section 424 which in Sub-Section 4 has included the National Company Law Tribunal and National Company Law Appellant Tribunal under the Companies Act and proceedings before these Tribunals have to be deemed to be Judicial Proceedings within the meaning of Section 193 and 228 and for the purposes of Section 196 of the Indian Penal Code and the NCLT this Tribunal shall be deemed to be Civil Court for the purposes of Section 195 and Chapter XXVI of Cr. P.C. Chapter XXVI contains Section 340 of Cr. P.C. As per Section 5 (1) of IBC the “Adjudicating Authority” for the purposes of Part-II of IBC, means National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013. Under Section 61 of IBC any person aggrieved by the order of the Adjudicating Authority may prefer an Appeal to National Company Law Appellate Tribunal. These Provisions make it clear that Adjudicating Authority was not right in its observations that it did not have jurisdiction to order Prosecution. In our view in appropriate case, the Adjudicating Authority has powers to act in terms of Section 340 of Cr. P.C. read with Section 195 of Cr. P.C. Under Section 340 of Cr. P.C. the Adjudicating Authority can hold preliminary inquiry if it is “of opinion that it is expedient in the Interest of Justice that an inquiry should be made” into the any offence referred in Clause ‘b’ of Sub-Section 1 of Section 195, which appears to have been committed in or in relation to a proceeding in that Court or, as the case may be, in respect of a document produced or given in evidence in a proceeding in that Court, i.e. – Adjudicating Authority, here.
The process that is required to be followed by the Adjudicating Authority when the application U/s 424(4) Companies Act r/w U/s 340 Cr.P.C. is filed has been discussed by Adv. Partho Sarkar in his article Applicability of Perjury Provisions (340 of CrPC) in NCLT Proceedings.
In the context of holding ‘Preliminary Inquiry’, Hon’ble Calcutta High Court in Hungerford Investment Trust Limited V/s Turner Morrison & Co. Ltd. 2017 SCC OnLine Cal 3375 ruled:
Para 10: Under the aforesaid provisions of the 1973 Code, the Court is required to make a preliminary inquiry and come to a prima facie finding about the offence alleged and Mr. Khosla’s submission, as I have already recorded, is that no service of notice ought to be effected on the persons in respect of whom his client wants proceedings to be commenced. None of the four authorities cited by Mr. Khosla, however, lays down that a Court considering an application brought under Section 340 of the 1973 Code is enjoined from hearing any of the accused persons, against whom inquiry is asked for. These authorities lay down the proposition that the persons against whom an inquiry is contemplated do not have the right of prior opportunity of hearing before such an inquiry is directed. The legislature has not provided in what manner an inquiry contemplated in Section 340 of the 1973 Code is to be conducted. It is for the Court making preliminary inquiry for the purpose of formulation of opinion that it is expedient in the interests of justice that an inquiry should be made to decide in what manner such preliminary inquiry ought to be made. If the Court at that stage considers it necessary to issue notice to any of the proposed accused persons to clarify on certain aspects of the controversy involved for the purpose of forming its opinion, I do not think in such a situation the Court would go beyond its jurisdiction.
Reference to the afore-stated ruling, though legislature has not provided in what manner an inquiry contemplated, but the ruling of Hon’ble Supreme Court Constitution Bench in A.K. Roy V/s Union of India (1982) 1 SCC 271 noted that where there is a lis to be adjudicated upon, Cross-examination is a powerful weapon for showing the untruthfulness of an evidence, excerpts reproduced:
Para 98: … The principle that witnesses must be confronted and offered for cross-examination applies generally to proceedings in which witnesses are examined or documents are adduced in evidence in order to prove a point. Cross-examination then becomes a powerful weapon for showing the untruthfulness of that evidence. In proceedings before the Advisory Board, the question for consideration of the Board is not whether the detenu is guilty of any charge but whether there is sufficient cause for the detention of the person concerned. The detention, it must be remembered, is based not on facts proved either by applying the test of preponderance of probabilities or of reasonable doubt. The detention is based on the subjective satisfaction of the detaining authority that it is necessary to detain a particular person in order to prevent him from acting in a manner prejudicial to certain stated objects. The proceeding of the Advisory Board has therefore to be structured differently from the proceeding of judicial or quasi-judicial tribunals, before which there is a lis to adjudicate upon.
Hon’ble Supreme Court in Telstar Travels (P) Ltd. V/s Enforcement Directorate (2013) 9 SCC 549 has ruled:
Para 25: … It is only when a deposition goes through the fire of cross-examination that a court or statutory authority may be able to determine and assess its probative value. Using a deposition that is not so tested, may therefore amount to using evidence, which the party concerned has had no opportunity to question. Such refusal may in turn amount to violation of the rule of a fair hearing and opportunity implicit in any adjudicatory process, affecting the right of the citizen. …
The power of NCLT to order cross-examination arises from Rule 39 of NCLT Rules, 2016 reproduced as under:
Production of Evidence by Affidavit. –
(2) Notwithstanding anything contained in sub-rule (1), where the Tribunal considers it necessary in the interest of natural justice, it may order cross-examination of any deponent on the points of conflict either through information and communication technology facilities such as video conferencing or otherwise as may be decided by the Tribunal, on an application moved by any party.
Pertinent to indicate that Hon’ble Supreme Court in Rajiv Arora V/s Union of India (2008) 15 SCC 306 ruled that examination of the maker of a document is analogous to the principles of natural justice, excerpts as under:
Para 13: No explanation has been offered as to why the witnesses concerned could not be examined. … The principles analogous to the provisions of the Evidence Act as also the principles of natural justice demand that the maker of the report should be examined, save and except in cases where the facts are admitted or the witnesses are not available for cross-examination or similar situation. No reason has been assigned as to why the named witnesses who only could prove the charges had not been examined. Indisputably, they were the prime witnesses.
Para 14: The High Court in its impugned judgment proceeded to consider the issue on a technical plea, namely, no prejudice has been caused to the appellant by such non-examination. If the basic principles of law have not been complied with or there has been a gross violation of the principles of natural justice, the High Court should have exercised its jurisdiction of judicial review. Before a court martial proceeding is convened, legal requirements therefor must be satisfied. Satisfaction of the officer concerned must be premised on a finding that evidence justified a trial on those charges. Such a satisfaction cannot be arrived at without any evidence. If an order is passed without any evidence, the same must be held to be perverse.
The mandate on a litigant to appear in a witness box to state on oath the bonafides of his case has been emphatically upheld by Hon’ble Supreme Court in Vidhyadhar V/s Manikrao, (1999) 3 SCC 573
Para 17: Where a party to the suit does not appear in the witness-box and states his own case on oath and does not offer himself to be cross-examined by the other side, a presumption would arise that the case set up by him is not correct as has been held in a series of decisions passed by various High Courts and the Privy Council beginning from the decision in Sardar Gurbakhsh Singh v. Gurdial Singh [AIR 1927 PC 230 : 32 CWN 119] . This was followed by the Lahore High Court in Kirpa Singh v. Ajaipal Singh [AIR 1930 Lah 1 : ILR 11 Lah 142] and the Bombay High Court in Martand Pandharinath Chaudhari v. Radhabai Krishnarao Deshmukh [AIR 1931 Bom 97 : 32 Bom LR 924] . The Madhya Pradesh High Court in Gulla Kharagjit Carpenter v. Narsingh Nandkishore Rawat [AIR 1970 MP 225 : 1970 MPLJ 586] also followed the Privy Council decision in Sardar Gurbakhsh Singh case [AIR 1927 PC 230 : 32 CWN 119] . The Allahabad High Court in Arjun Singh v. Virendra Nath [AIR 1971 All 29] held that if a party abstains from entering the witness-box, it would give rise to an adverse inference against him. Similarly, a Division Bench of the Punjab and Haryana High Court in Bhagwan Dass v. Bhishan Chand [AIR 1974 P&H 7] drew a presumption under Section 114 of the Evidence Act, 1872 against a party who did not enter the witness-box.
The afore-stated ruling was relied by Hon’ble Supreme Court in Mohinder Kaur V/s Sant Paul Singh (2019) 9 SCC 358, wherein it was ruled that in matters where only the Principal alone can have personal knowledge, it is only the principal who can be cross-examined, excerpts infra:
Para 7: In Janki Vashdeo [Janki Vashdeo Bhojwani v. Indusind Bank Ltd., (2005) 2 SCC 217], it was held that a power-of-attorney holder, who has acted in pursuance of the said power, may depose on behalf of the principal in respect of such acts but cannot depose for the principal for the acts done by the principal and not by the power-of-attorney holder. Likewise, the power-of-attorney holder cannot depose for the principal in respect of matters of which the principal alone can have personal knowledge and in respect of which the principal is entitled to be cross-examined. In our opinion, the failure of the respondent to appear in the witness box can well be considered to raise an adverse presumption against him as further observed therein as follows: (SCC p. 223, para 15)
“15. Apart from what has been stated, this Court in Vidhyadhar v. Manikrao [Vidhyadhar v. Manikrao, (1999) 3 SCC 573] observed at SCC pp. 583-84, para 17 that:
‘17. Where a party to the suit does not appear in the witness box and states his own case on oath and does not offer himself to be cross-examined by the other side, a presumption would arise that the case set up by him is not correct.…’ ”
Securing personal presence of litigants by NCLT along the lines afore-stated is not without precedence. In fact, Hon’ble NCLT, New Delhi Bench, Court – VI in Arihant Evergreen Agro V/s Microsys Polymers, IB-329/ND/2019, dt/- 19th Aug’ 2019 issued non-bailable warrants for appearance before the Tribunal. The order reads as under:
“Heard the submission of the Interim Resolution Professional and based on the submission made by him regarding the non-co-operation of the directors as well as applicant, issue non-bailable warrants for their appearance before the Tribunal. … Dasti order is also issued in the matter.”
It is not the case being made out that in every proceeding/s instituted, cross-examination must be a sine qua non; but as was ruled in K.L. Tripathi V/s State Bank of India (1984) 1 SCC 43,
Para 32: … If the credibility of a person who has testified or given some information is in doubt, or if the version or the statement of the person who has testified, is, in dispute, right of cross-examination must inevitably form part of fair play in action …
In the event the cross-examination reveals that false averments were resorted to by the litigant, the said act is not only punishable U/s 182 of the Indian Penal Code (False information, with intent to cause public servant to use his lawful power to the injury of another person), but also the provisions contained in Chapter XI of the Indian Penal Code (Ref.: Sanjeev Kumar Mittal V/s State, (2010) 174 DLT 214).
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It is no secret that delays in proceedings has indeed been an unfortunate reality which has plagued our Justice Delivery Mechanisms. Hon’ble Supreme Court in Ramrameshwari Devi V/s Nirmala Devi (2011) 8 SCC 249 has suggested steps to improve such situation, reproduced as under:
Para 52: The main question which arises for our consideration is whether the prevailing delay in civil litigation can be curbed? In our considered opinion the existing system can be drastically changed or improved if the following steps are taken by the trial courts while dealing with the civil trials:
A. Pleadings are the foundation of the claims of parties. Civil litigation is largely based on documents. It is the bounden duty and obligation of the trial Judge to carefully scrutinise, check and verify the pleadings and the documents filed by the parties. This must be done immediately after civil suits are filed.
B. The court should resort to discovery and production of documents and interrogatories at the earliest according to the object of the Act. If this exercise is carefully carried out, it would focus the controversies involved in the case and help the court in arriving at the truth of the matter and doing substantial justice.
C. Imposition of actual, realistic or proper costs and/or ordering prosecution would go a long way in controlling the tendency of introducing false pleadings and forged and fabricated documents by the litigants. Imposition of heavy costs would also control unnecessary adjournments by the parties. In appropriate cases the courts may consider ordering prosecution otherwise it may not be possible to maintain purity and sanctity of judicial proceedings.
D. The court must adopt realistic and pragmatic approach in granting mesne profits. The court must carefully keep in view the ground realities while granting mesne profits.
E. The courts should be extremely careful and cautious in granting ex parte ad interim injunctions or stay orders. Ordinarily short notice should be issued to the defendants or respondents and only after hearing the parties concerned appropriate orders should be passed.
F. Litigants who obtained ex parte ad interim injunction on the strength of false pleadings and forged documents should be adequately punished. No one should be allowed to abuse the process of the court.
G. The principle of restitution be fully applied in a pragmatic manner in order to do real and substantial justice.
H. Every case emanates from a human or a commercial problem and the court must make serious endeavour to resolve the problem within the framework of law and in accordance with the well-settled principles of law and justice.
I. If in a given case, ex parte injunction is granted, then the said application for grant of injunction should be disposed of on merits, after hearing both sides as expeditiously as may be possible on a priority basis and undue adjournments should be avoided.
J. At the time of filing of the plaint, the trial court should prepare a complete schedule and fix dates for all the stages of the suit, right from filing of the written statement till pronouncement of the judgment and the courts should strictly adhere to the said dates and the said timetable as far as possible. If any interlocutory application is filed then the same be disposed of in between the said dates of hearings fixed in the said suit itself so that the date fixed for the main suit may not be disturbed.
Para 53: According to us, these aforementioned steps may help the courts to drastically improve the existing system of administration of civil litigation in our courts. No doubt, it would take some time for the courts, litigants and the advocates to follow the aforesaid steps, but once it is observed across the country, then the prevailing system of adjudication of civil courts is bound to improve.
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