CALCUTTA HC STRIKES DOWN NCLT ORDER MANDATING FILING OF DEFAULT RECORD FROM INFORMATION UTILITY FOR SEC 7 IBC PLEA

“I AM OF THE VIEW THAT FINANCIAL CREDITORS CAN RELY ON EITHER OF THE MODES OF EVIDENCES AT HAND TO SHOWCASE A FINANCIAL DEBT, THAT IS, EITHER A RECORD OF DEFAULT FROM THE IU OR ANY OTHER DOCUMENT AS SPECIFIED WHICH PROVES THE EXISTENCE OF A FINANCIAL DEBT.”

CALCUTTA HIGH COURT HAS CLARIFIED.

The Judgment was passed by a Bench of Justice Shekhar B. Saraf in petitions troublesome. The order was passed by the Principal Bench of National Company Law court (NCLT) on May twelve, 2020 on the side of filing of record from information Utility.

The order had an obligatory prescription on all financial creditors below IBC to submit financial information from the information utility as a condition precedent for filing associate application below Section seven IBC.

The order extended the mandate retrospectively on all unfinished applications below Section seven of the IBC, 2016 before the various Benches of the NCLT.

Aggrieved by the order, the Petitioners argued that the NCLT didn’t possess the statutory or regulatory backing to issue the order below challenge.

Broadly, the submissions created throughout this regard were as follows:

– Section 424 of the companies Act, 2013, conferred no powers to NCLT/NCLAT to makes such rules of such procedure that alter the statutory provisions of companies Act, the IBC or the laws framed IBC.

– Section 7(3)(a) IBC states that a record of default recorded with the information Utility is just one in every of the chosen ways of furnishing proof to the Adjudicating Authority.

– Regulation eight of the IBBI (Insolvency Resolution technique for company Persons) laws, 2016 lists various relevant documents that may be submitted by a financial mortal to prove the financial claims of such a mortal.

– Section 215(2) IBC does not build it obligatory for all classes of creditors to fill inside the information Utility and additionally identical had to be done only by those financial creditors UN agency have a ‘security interest’ created with respect to this financial debt.

In response, the Respondents lay to rest alia argued as follows:

– Section 424 of the companies Act vests NCLT/NCLAT with the powers to manage their own procedures.

– The order was nothing but the implementation of the obligatory and necessary desires and compliance of various provisions of IBC.

– Section 215(2) makes no distinction between a secured mortal or associate unsecured mortal and knowledge utility had to be filed by all financial creditors.

– Interpretation of section seven establishes all three classes of documents mentioned in it had to be submitted, and so information Utility was obligatory.

FINDINGS:

Powers of NCLT

The Court examined totally the extent of the powers granted to and available with the NCLT and NCLAT and expressed,

“..while every the NCLT and NCLAT square measure conferred with powers to manage their own procedure, such use of its power is circumscribed and subject to lay to rest alia, the principles of natural justice additional as a result of the provisions of CA, 2013 or the IBC, 2016, comprehensive of any rules/ laws created below the IBC, 2016 by the regulatory body, IBBI.”

Analysis of Law:

The Court, thereafter, proceeded to work out the scope of Section 7(3)(a) IBC and once reading the relevant provisions, it determined that the Section used the term “or” that’s various in nature and indicated that the conditions separated by its unit of measurement to browse inside the various.

It any processed that the term “as is additionally specified” inside the Section didn’t apply to any or all or any the three categories but only to the proof in default.

“In conclusion, on a clear reading of the on prime of provision, it’s imminent that three wholly totally different categories of documents unit of measurement available to a financial mortal to prove proof of default by an organisation debtor”, the Court remarked.

The Court any noted that visible of various provisions of IBC, Regulation eight (2)(b) of IBBI (Insolvency Resolution technique for company Persons) laws, 2016 and additionally the observations of the Supreme Court in Swiss Ribbons case, it had been clear that apart from the financial information of the information Utility, there are as many as eight classes of documents that may be thought-about to be sources that proof a “financial debt”.

The Court then thought-about Section 215 IBC on “Procedure for submission, etc., of financial data” and command that submitting information to the information Utility wasn’t obligatory for all classes of people.

“..all factors being taken in consonance and on a harmonious reading of section 215 of the IBC, 2016 with section seven of the IBC, 2016 along with the principles and Regulation mentioned on prime of, I return to the conclusion that the law-makers didn’t shall build it obligatory for financial creditors to submit financial information to the IU. This browse of mine is fortified by the particular proven fact that the Supreme Court had to boot thought-about the relevancy of the IU supported the IU laws, 2017 and specifically expressed that various sources of the proof unit of measurement gift apart from the record maintained by the IU. It ought to so be inferred that Section 215 of the IBC, 2016 is not obligatory in nature.” it said.

Inherent Powers of NCLT and Retrospective Rules:

The Court to boot command that associate order that obstructs the operation of the statutory provision of the parent Act and its Rules cannot be passed in travail of NCLT’s inherent powers below Rule eleven of the NCLT Rules.

It is adscititious that the delegatee, like NCLT or even the IBBI, could not frame laws that unit of measurement retrospective and build new disabilities for financial creditors.

Thus, career the order a “prickly thorn”, the Court everywhere,

“..it is apparent that the NCLT has acted whereas not jurisdiction and exceeded its jurisdiction that is restricted at intervals the four corners of Section 424 of the CA, 2013 and Section 7(3)(a) of the IBC, 2016. moreover, the impugned order is clearly putting a discord with Rule four of AA Rules, 2016 and Regulation eight of the CIRP laws, 2016. Hence, the impugned order is so plain, whereas not a jurisdiction that it cannot be allowed to stand.”

They may twelve order was so smitten down for being ultra vires the IBC and Companies Act.

Reported By:

Vaishnavi Kaishav

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