NCLAT cannot utilise the inherent power recognised by Rule 11 of the NCLAT Rules, 2016 to allow a compromise before it by the parties after admission of the matter- Lokhandwala Kataria Construction (P) Ltd. (Corporate Debtor) Vs. Nisus Finance & Investment Manager LLP- Supreme Court

Case Reference:

Case Name : Lokhandwala Kataria Construction Private Limited Vs. Nisus Finance And Investment Managers LLP
Appeal No. : Civil Appeal No. 9279 of 2017
Appellant(s) : Lokhandwala Kataria Construction Private Limited
Respondent(s) : Nisus Finance And Investment Managers LLP
Date of Judgment : 24-Jul-17
Tribunal/Court : Supreme Court of India

Brief about decision:

In view of Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal (NCLAT) could not utilise the inherent power recognised by Rule 11 of the National Company Law Appellate Tribunal Rules, 2016.
The Supreme Court in this case ruled that a settlement can be considered and a case can be
withdrawn even after insolvency proceedings have started against a company on the merit of the case.

Analysis of case:

Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 – Withdrawal of Application

Facts of the case & NCLAT Verdict:

An appeal was filed by the appellant/Corporate Debtor against the order passed by the Adjudicating Authority (NCLT, Mumbai Bench) whereby the application under section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) has been admitted. The parties submitted before the NCLAT that they have settled the dispute and part amount has already been paid. The NCLAT, however, held that such settlement cannot be ground to interfere with the impugned order in absence of any other infirmity. The NCLAT further held that Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 has not been adopted for the purpose of the Code and only Rules 20 and 26 have been adopted in absence of any specific inherent power and where there is no merit, the question of exercising inherent power does not arise.

Supreme Court Verdict:

In view of Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal (NCLAT) could not utilise the inherent power recognised by Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 to allow a compromise before it by the parties after admission of the matter.

Full text of the judgment:

O R D E R

1) Heard the learned Senior Counsel appearing for the parties.

2) The present appeal raises an interesting question as to whether, in view of Rule 8 of the I&B (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal could utilize the inherent power recognized by Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 to allow a compromise before it by the parties after admission of the matter.

3) By the impugned order dated 13.07.2017, the National Company Law Appellate Tribunal was of the view that the inherent power could not be so utilized. According to us, prima facie this appears to be the correct position in law.

4) However, since all the parties are before us today, we utilize our powers under Article 142 of the Constitution of India to put a quietus to the matter before us. We take the Consent Terms dated 28.06.2017 and 12.07.2017 entered into between the parties on record and also record the undertaking of the appellant before us to abide by the Consent Terms in toto. The appellant also undertakes to pay the sums due on or before the dates mentioned in the aforesaid Consent Terms.

5) With this, the present appeal is disposed of.

6) In view of our order made today, nothing further survives in the aforesaid appeal.

……………………. J.
(ROHINTON FALI NARIMAN)
…………………….. J.
(SANJAY KISHAN KAUL)

New Delhi;
July 24, 2017.

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