The National Company Law Appellate Tribunal (NCLAT), Principal Bench, on October 08, 2022, while adjudicating an appeal filed in Gandhar Oil Refinery (India) Ltd. v. City Oil Pvt. Ltd., has set aside an order passed by Adjudicating Authority dismissing a petition under Section 9 of the Insolvency & Bankruptcy Code, 2016 (“IBC”), for not being a reasoned order and thus not satisfying the requirements of an order.

In the instant matter, an order was placed by City Oil Pvt. Ltd. (“Respondent/Corporate Debtor”), a private company engaged in manufacturing and trading lubricants and grease with Gandhar Oil Refinery (India) Ltd. (“Appellant/Operational Creditor”), a public limited company engaged in processing petroleum products, through purchase orders. As payments were not made, the Appellant issued a demand notice under Section 8 of IBC on towards Principal amount and interest calculated @ 24% per annum. On receipt of demand notice, the Respondent paid some of the amount but an amount was still due which included the interest component. The Respondent neither paid the outstanding amount nor disputed the debt within 10 days from receipt of demand notice. Later, the Appellant filed a petition under Section 9 of the IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Respondent.

The Adjudicating Authority dismissed the petition without considering the terms of invoice for payment of interest @ 24% on delayed payment, which formed part of operational debt. The Appellant filed an appeal before the NCLAT against the order.

The Bench observed that though no specific form is prescribed under IBC for contents of order or Judgment, but general rules relating to contents shall be followed by Adjudicating Authority. It was further observed that the Tribunal can’t decide question of liability to pay interest either in presence or in absence of contract, without affording a reasonable opportunity to file reply to the petition. As the same would be a violation of principles of natural justice.

The Bench observed:

“When judgment is pronounced without reasoning, it is not a judgment in the eye of law for the reason that the requirement of reasoning either by Original Court or Appellate Authority is to convey the mind of the judge while deciding such an issue before the Tribunal. The object of the Rule in making it incumbent upon the Tribunals to record reasons is only to afford an opportunity in understanding the ground upon which the decision is founded with a view to enabling them to know the basis of the judgment or order and if so considered appropriate and so advised, to avail the remedy of appeal.”

Hence, the Bench set aside the order of Adjudicating Authority for not satisfying the requirements of an order.