The Supreme Court observed that the Adjudicating Authority and Appellate Authority under Insolvency and Bankruptcy Code, cannot compel a party to the proceedings before it to settle a dispute. Agreeing with the contention of Advocate Srijan Sinha, who appeared for a number of investors, who had moved for bankruptcy proceedings against realtors Bharat Hitech Builders, a bench of Juctices D Y Chandrachud and A S Bopanna said “The IBC is a complete code in itself. The Adjudicating Authority (NCLT) and the Appelate Authority (NCLAT) are the creatures of the statute. The jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelises and circumscribes the ambit of such jurisdiction. Thus while the Adjudicating Authority and Appelate Authority can encourage settlements, they cannot direct them by acting as court of equity.”

  • The Hon’ble Supreme Court overturning the decisions of the NCLT & NCLAT held that “AA is only empowered to verify if a default has occurred under section 7 of the Code. Based upon the observations and finds of the matter, it can only either accept or reject the petition filed before it, however it cannot direct the parties to the petition to settle the matter pending before it. Section 7(5) of the Code only empowers the statute to determine the if a default has actually occurred. This is the only course of action available with any statute.

 

Judicial Pronouncements

  • E S Krishnamurthy & Ors Vs. M/s. Bharat Hitech Builders Pvt Ltd

The Supreme Court in the light of the recent judgement passed in the matter of E S Krishnamurthy & Ors Vs. M/s. Bharat Hitech Builders Pvt Ltd, analysed the powers of the Statute as bestowed under the Code by going through the averments of the decision. In the instant matter, a Master Agreement was executed between the parties of the matter to obtain Rs. 50 Crores for the development for 100 acres of agricultural property. Since the required funds could not be obtained under the Master agreement the respondent, herein after referred to as “IDBI Trusteeship Limited” entered into a Syndicate Loan with the Facility Agent to obtain term laon amounting to Rs. 18 Crores from the prospective lenders. The loan agreement contained a clause that the loan amount has to be re-payable within 24 months. In addition to this, the respondent is liable to interest at the rate of 1% per month in the event of a default has occurred. Due to the respondents failure to repay the sum, a number of appellants together with the number of petitioners preferred to in initiate an application under section 7 of the IBC with the NCLT. The said petition was dismissed by the Hon’ble NCLT on submission of the mutually agreed terms, however the said settlement was not approved by all of the petitioners. The court ordered the respondents to resolve the matter within three months and told the initial petitioners that they might initiate fresh proceedings in case they feel dissatisfied. The petitioners then filed an appeal with the Supreme Court.

The Apex Court while acting as a court of equity, held that the NCLT & NCLAT has not been empowered under any stautute to compel the parties to the petition to settle the dispute, however it can only encourage them. The power of the NCLT is restricted to analyse whether the default has actually occurred. It stated that the settlement must be promoted because the ultimate goal of the IBC is to allow the corporate debtor to remain operational rather than forcing them to go into liquidation.

 

  • Innoventive Industries Ltd. v. ICICI Bank

The Court comprising of the Bench of two judges explained the scope of section 7 of the IBC, which stated that under the Code, the NCLT is statutorily enacted to determine whether a default has actually taken place in the instant matter, even if the debt, which is in question is under dispute, was due and remained unpaid. Under section 7 of the IBC, 2016, the Hon’ble NCLT hereinafter referred to as the Adjudicating Authority is expected to verify, the happening of the default and if the default exists, the said AA should accept the petition unless the said petition is incomplete. In such a case, the NCLT should give a notice to the parties to rectify the defects within 7 days of the receipt of the notice. the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.

 

  • Pratap Technocrats (P) Ltd. and Others v. Monitoring Committee of Reliance Infratel Limited and Others:

It was decided by the learned judges of the Court, that neither the NCLT nor NCLAT is empowered under the jurisdiction to intervene in the merits of the business decision arrived on the basis of the majority of the members of the CoC during the course of its exercising the commercial wisdom. Both the statutory bodies have no residual equity based jurisdiction to intervene the in the business decisions unless it is in accordance with the terms of the IBC and the regulations framed under the law. As far as the, the legal requirements of the IBC are met, the statues are obligated to follow the discipline laid down under the Code. It goes without saying that neither the Adjudicating Authority nor the Appellate Authority has uncharted equity jurisdiction.

 

Conclusion

In view of the aforesaid pronouncements, it can be concluded that the Adjudicating Authority and the Appellate Authority has acted outside the purview of the jurisdiction as given under the Code. When examining an application under section 7, it is only obligated under the Code, to determine the presence of the default and the same must be evaluated on the basis of the evidence to substantiate the said petition.