Can an ex parte order be passed against a Corporate Debtor after substituted service through newspaper publication? NCLAT answers

The National Company Law Appellate Tribunal (NCLAT) has held that an ex parte order after substituted service through publication in a newspaper, without exploring modes like email, is not permissible merely because the notice remains unserved because of "insufficient address" of a Corporate Debtor. (Prakash Kalash vs Apeejay Surrendra Park Hotels).The order was passed by a three-member bench of Justice Jarat Kumar Jain, Member (Judicial); Balvinder Singh, Member (Technical) and V. P. Singh Member (Technical)..M/s Apeejay Surrendra Park Hotels Ltd, Operational Creditor/Respondent had initiated the proceedings under Section 9 Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, M/s Gurusukh Vintrade Service Pvt Ltd for alleged unpaid dues arising out of the services performed under a Management and Technical Service Agreement. .The plea was admitted ex parte by the National Company Law Tribunal, Cuttack and corporate insolvency resolution process was initiated against the Corporate Debtor..Aggrived by the order, a representative of the Corporate Debtor filed an appeal before the NCLAT. .The Appellant argued that the amount payable to the Respondent was disputed and that there was a pre-existing dispute between the parties..The Respondent, on the other hand, submitted that the appeal ought to be dismissed for being filed beyond 30 days from the date of passing of the impugned order and that there was no pre-existing dispute between the parties. .It was also argued that the Appellant had sufficient knowledge of initiation of proceedings under Section 9 IBC. .The Respondent pointed out that the Demand notice was accepted by the Corporate Debtor and pursuant to the order passed by NCLT, service of notice was done through its publication in newspapers..Such a service, the Appellant contended, was not in line with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudication Authority) Rules, 2016..The NCLAT first held that the appeal was filed within the statutory period of limitation prescribed under Section 61(2) IBC as it was filed within 30 days from the date of order..The NCLAT thereafter examined the issue of service of notice through publication in newspaper..The NCLAT noted that as per records, the notice issued against the Corporate Debtor could not be served on account of insufficient address and thereafter, the NCLT/Adjudicating Authority passed an order of publication of notice in the newspaper..Holding that the publication of notice in the newspaper was sufficient, an ex-parte order was passed against the Corporate Debtor by the NCLT, it added. .The NCLAT, however, observed that before the publication of notice in the newspaper, no effort was made for serving the notice through email to the Corporate Debtor..Relying on the Supreme Court’s judgement in Neerja Realtors (P) Ltd. Vs. Janglu, the NCLAT recorded that to order substituted service, a court has to be satisfied that the defendant was avoiding service and thus, service through an ordinary way was not possible. .In the present case, since the notice was being returned due to "insufficient address" and the possibility of service by other modes like email were not explored, the NCLAT held.In such circumstances, passing of an order for an ex-parte hearing against the Corporate Debtor, based on substituted service, cannot be held proper in the light of the law laid down by Hon‟ble Supreme Court in the Neerja Realtors (P) Ltd.NCLAT.Looking to material before it, the NCLAT also concluded that there is a pre-existing dispute between the parties before the issuance of the demand notice. .The appeal was thus allowed and the NCLT order was set aside. .Advocate Krishna Mohan K Menon appeared for the Appellant. .Advocate Vijay Kandel appeared for the Respondent. Advocate Divyanshu Srivastava appeared for the Resolution Professional..Read the Order: