Litigants Are Not Trained Advocates, Restoration Application Can't Be Dismissed Due To Counsel's Failure To Inform Of Proceedings: NCLAT

In the present case, the petition under section 7 of the Insolvency and Bankruptcy Code, 2016 was dismissed on the ground that the financial creditor did not appear when the matter was called out. However, the Tribunal held that non appearance of the Litigant due to failure on the part of its counsel to inform them of the proceedings cannot go against such litigant.

Brief Facts:

The present appeal has been filed by M/s Lok Sewak Leasing & Investment Pvt. Ltd (Appellant) challenging the Impugned Order dated 22.01.2025 passed by the National Company Law Tribunal, Mumbai Bench.

In January 2024, the Respondent, M/s GBL Chemical Ltd., approached the Appellant for a short-term business loan of Rs. 7,03,00,000/- at an interest rate of 10.21% per annum, to be repaid in six instalments of Rs. 1,19,16,667/- each, commencing from 08.02.2024 over a 120-day period.

Thereafter, the terms of the loan were incorporated in a Facility Agreement executed on 24.01.2024. A demand promissory note and letter of continuity executed on 19.01.2024. in favor of the Appellant.

An Intimation Letter dated 01.04.2024 and a Demand-cum-Acceleration Notice dated 06.04.2024 were served on the Respondent by which outstanding amount of Rs. 4,77,28,287/- (computed as on 05.04.2024) was claimed within seven days.

Despite receiving the notice, the Respondent failed to clear the dues by 13.04.2024, thereby committing a default under the Facility Agreement.

An application was filed under section 7 of the Code which was dismissed by the Adjudicating Authority for non-prosecution due to the non appearance of the Appellant's counsel.

The Appellant submitted that this dismissal resulted solely from the failure of its then-counsel to appear or inform the Adjudicating Authority of the e-filed affidavit, a circumstance entirely beyond the Appellant's control.

It was further submitted that the Appellant complied with the directions of the Adjudicating Authority and served a copy of the Restoration Application on the Respondent. Additionally, both parties were heard when the matter was taken up for consideration. The Impugned has failed to properly address the submissions advanced thereby violating the principle of natural justice.

Per contra, the Respondent submitted that the Adjudicating Authority rightly dismissed the Restoration Application due to the Appellant's non-compliance with the order dated 04.09.2024, and non-appearance on 30.09.2024, as recorded in the Impugned Order.

It was further submitted that the Restoration Application was filed beyond the mandatory 30-day period prescribed under Rule 48(2) of the NCLT Rules, 2016. The Respondent contended that the dismissal order was passed on 30.09.2024, and the advance copy of the Restoration Application was served on the Respondent only on 25.11.2024, well beyond the permissible period. the Appellant neither sought an extension of time to file the remaining documents nor provided any explanation for its failure to comply fully.

Lastly, it was submitted that the dismissal of the Section 7 Application on 30.09.2024, was not solely for non-prosecution but also for non-compliance with the order dated 04.09.2024. The Respondent submitted that this dual basis for dismissal precludes restoration under Rule 48(2), which applies only to dismissals for non-appearance.

Observations:

The Tribunal noted that the matter was called twice but neither the Appellant nor its representative appeared before the Adjudicating Authority. Additionally, the Appellant was given two weeks time to file the agreement between the parties along with the financial statement and NeSL certificate by way of an additional affidavit. However, the said affidavit was not filed by the Appellant leading to the conclusion that the Appellant was serious for the prosecution of the case therefore the Application was dismissed by the Adjudicating Authority.

It further observed that as per Rule 48(2) of the NCLT Rules, the Restoration Application needs to be filed by the Litigant within 30 days. In the present case, the application was filed within the stipulated period. It rejected the argument of the Respondent that since the copy of the Application was not received by him on time, the application cannot be said to have been filed on time.

The Tribunal further noted that the Adjudicating Authority did not mention anything regarding the non-appearance of the Appellant and its counsel on the date of original hearing while dismissing the Restoration Application. The only reason that has been given by the Adjudicating Authority for dismissing the Application is that the Appellant failed to cure the defects in the original petition and failed to file the additional documents despite obtaining permission of the Authority for the same.

The Tribunal further observed that in the present case it was the Appellant itself which sought to file the additional affidavit enclosing documents including loan agreement etc. after getting permission of the Adjudicating Authority. We note that the additional affidavit was indeed filed, however, remained in defects, which according to the Appellant was due to non active participation of the then counsel of the Appellant, who did not take necessary action for curing defects or brought to the notice of the Appellant.

Based on the above, it held that the Tribunal can allow the restoration application, if sufficient cause is made out by the litigants. In the present case, the reasoning given by the Appellant was non-appearance of the counsel and thereafter non-curing the defects, could have been treated as sufficient cause.

The Tribunal held that “the Rule 48 (2) of uses the word “shall” which signify that if sufficient cause is made out, then it is expected that the Tribunal shall allow restoration application. The purpose of dismissal for non-prosecution is for procurement of the concerned party and his counsel and not to dismiss the appeal without going into the merit. This is a general spirit and courts follow the same including this Appellate Tribunal. At this stage, we also take into consideration that the liberal view is to be taken in such issues provided the litigant is not causal and non-vigilant.”

The Supreme Court in Rafiq & Anr. vs. Munshilal & Anr. held that a litigant who has entrusted his case to his lawyer cannot be penalized for the lapse or negligence of his lawyer” It was finally held in the same case that “unless a litigant is a lawyer by professional or is otherwise a man of law, he cannot be expected to know what is happening in the court unless the lawyer appearing for him informs him.

In light of the above discussion, it concluded that it was the Appellant itself, which sought to file the Additional Affidavits which was allowed by the Adjudicating Authority and not at the initial directions of the Adjudicating Authority. Looking from different angles even if the additional affidavit was not filed, the matter could have been heard on its own merit. Therefore, the dismissal of the restoration application on the ground that the additional affidavit was lying in defects with registry, cannot be allowed to be sustained.

Accordingly, the present appeal was allowed.

Case Title: M/S Lok Sewak Leasing & Investment Private Limited Versus M/s GBL Chemical Limited

Case Number: Comp. App. (AT) (Ins) No. 483 of 2025

Judgment Date: 03/07/2025

For Appellants: Mr. Akshay Srivastava, Mr. Vivek Kumar, Ms. Raveena Paniker, Mr. Krishna Upreti, Mr. Sudhakar Kulwant, Advocates.

For Respondents: Mr. Aditya Dewan, Mr. Parag Khandhar, Mr. Varun Kalra, Mr. Tapan Raokar, Advocates for R-1.

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