Supreme Court : NCLT, NCLAT cannot direct settlement by acting as courts of equity (14.12.2021)

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.


14 Dec 2021