NCLAT: Jurisdiction and IBC Regime

Introduction

National Company Law Appellate Tribunal (NCLAT) was constituted under Section 410 of the Companies Act, 2013 for hearing appeals against the orders of National Company Law Tribunal(s), under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the orders passed by Insolvency and Bankruptcy Board of India under Section 202 and Section 211 of IBC. It is also the Apex Tribunal dealing with all aspects of corporate law in India. The judgments pronounced by the Appellate Tribunal in the areas of Insolvency, Competition and Company law regulate all elements of a company’s functioning in India; from its registration to its operation to its interaction with the market and various stakeholders, to its insolvency and revival.

The establishment of NCLT and NCLAT as specialized Quasi-Judicial Bodies have the following beneficial effects:

(i) reduce pendency of winding up cases and shorten the period of winding-up process;

(ii) avoid multiplicity and levels of litigation before High Courts and quasi-judicia Authorities like Company Law Board (CLB), Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR) as all such matters will then be heard and decided by NCLT;

(iii) the appellate procedure will be streamlined with an appeal against order of the NCLT lying before NCLAT and with further appeal against the order of NCLAT lying with the Supreme Court only on points of law, thereby reducing the delay in appeals; and
(iv) the burden on High Courts will be reduced and BIFR and AAIFR will be dissolved.

Jurisdiction and Powers of NCLAT

When a group or an individual is not satisfied with the orders passed by the Tribunal Court, the next option is filing an appeal to the Appellate Court (NCLAT) where the decisions of NCLT are reviewed and checked from the point of law. The Tribunal Court is in charge of finding and gathering evidence while the Appellate Court decides cases based on the already collected evidence. If the outcome is not satisfactory even then, the last resort for redressal is Supreme Court.

• The issue of jurisdiction as to whether a Civil Court or the National Company Law Tribunal (NCLT) under the Act came up for consideration before the Delhi High Court in SAS Hospitality Pvt Ltd v Surya Constructions Pvt Ltd The Court in its order found that the NCLT has exclusive jurisdiction, it also made significant observations in regard to the aspects of jurisdiction: The powers given the tribunals are extremely broad and are more than what a Civil Court can do. The orders can only be passed by the NCLT, which has the exclusive jurisdiction to deal with the affairs of the company. Moreover, the powers of the NCLT being broader and wider than what can be exercised by this Court in exercise of civil jurisdiction under Section 9 CPC. The NCLT is a specialised Tribunal constituted for the purpose of speedier and effective regulation of the affairs of the companies.

• Jurisdiction clause in a contract cannot oust the rights of NCLT/NCLAT under the I&B Code. Excel Metal Processors Limited Vs. Benteler Trading International GMBH and Anr[Company Appeal (AT) (Insolvency) No. 782 of 2019], NCLAT

• With regard to the issue of jurisdiction, the NCLAT held that in terms of Section 408 of the Companies Act, 2013, the Central Government has notified and vested the power on the NCLT having the requisite territorial jurisdiction to deal with the matter where the registered offices of the Companies are situated. In  Naresh Kumar Sharma vs. Oriental Bank of Commerce & Anr., the NCLAT reiterated that it is the NCLT having jurisdiction over the registered office of the corporate debtor that would have jurisdiction with regard to an application for initiation of insolvency proceedings against the corporate debtor and not the NCLT where properties of the corporate debtor may be situated.

• The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging its functions have the same powers as vested in a civil court under the Code of Civil Procedure, 1908. It also has the power to punish for contempt. The Appellate Tribunal shall have the same jurisdiction, powers and authority in respect of contempt of itself as the High Court has and may exercise, for this purpose under the provisions of the Contempt of Courts Act, 1971 (70 of 1971).

NCLAT and the Jurisprudential Aspect of IBC Regime

Section 61(1) of the IBC gives power to hear Appeals of NCLT and it reads as:

Notwithstanding anything to the contrary contained under the Companies Act 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.

Following are Case Laws determining important points of law in the IBC Regime:

Mr. Hemang Phophalia vs The Greater Bombay Co-operative Bank Limited., the NCLAT held that an application for initiation of Corporate Insolvency Resolution Process was maintainable against a company whose name had been struck off from the Register of the Companies under Section 248 of the Companies Act, 2013. It was also held that the National Company Law Tribunal (NCLT) is empowered to restore the name of the company and all other persons in their respective position for the purpose of initiation of ‘Corporate Insolvency Resolution Process’ under Sections 7 and 9 of the Code based on the application, if filed by the creditor.

In Hero Fincorp Ltd. vs. Rave Scans Pvt. Ltd. & Ors., the NCLAT held that similarly situated secured financial creditors cannot be discriminated against on the ground that a secured financial creditor has dissented to the resolution plan.

ESSAR STEEL CASE: Analysis

Some of the key points affecting the working of IBC code given by the Supreme Court:

• Neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been given the jurisdiction to reverse the commercial wisdom of the CoC. SC further held that Section 60(5)(c) of the IBC is in the nature of a residuary jurisdiction vested in the NCLT so that the NCLT may decide all questions of law or fact arising out of or in relation to insolvency resolution or liquidation under the Code
• NCLAT judgment had applied an ‘equality principle’ stating that different classes of creditors should be treated as one group of creditors, as a result of which no differences can be made in terms of the amount of debt to be repaid to them. Supreme Court noted that reading the amended Regulation 38 does not lead to the conclusion that all classes of creditors must be paid the same amounts, percentage wise, under the resolution plan. The equality principle cannot be stretched to treating ‘unequals equally’, as that will destroy the objective of the Code to resolve stressed assets.
• SC further observed that corporate resolution is ultimately in the hands of the majority vote of the CoC. The CoC decides the “feasibility and viability” of a resolution plan, after taking into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors.

Conclusion

NCLAT has wide Appellate powers given to it under Section 61 of IBC and using that power the Appellate Tribunal has laid down numerable principals and nuances of Insolvency Code and Companies Act. It has also exercised its power to widen the scope of IBC by constantly evolving new principles. It has exclusive appellate jurisdiction with regards to Company Affairs. It functions like a court but in truer sense it is a body of justice and good conscience for the speedy trial of Company matters.