Tuesday, December 14, 2021 : The Supreme Court
held that while settlements can be encouraged by the NCLT and NCLAT to achieve
the objectives of the IBC, "they cannot direct them by acting as courts of
equity."
The Supreme Court
has held that the National Company Law Tribunal (NCLT) and the National Company
Law Appellate Tribunal (NCLAT) cannot act as courts of equity by directing
parties to settle (ES Krishnamurthy v. M/S Bharath Hi
Tech Builders Pvt Ltd).
The primary question before the apex court was whether the NCLT
can, without applying its mind to the merits of the petition under Section 7,
simply dismiss the petition on the basis that the corporate debtor has
initiated the process of settlement with the financial creditors.
The Court found that the NCLT and NCLAT had abdicated their
jurisdiction to decide a petition under Section 7 by directing the respondent to
settle the remaining claims within three months, noting that such a course of
action is not contemplated under the IBC.
The Court thus set aside the orders of the NCLT and the NCLAT
and reinstated the Section 7 petition before the NCLT for fresh disposal.
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