LI Network
Published on: January 7, 2024 at 01:26 IST
The Supreme Court has revoked a National Company Law Appellate Tribunal (NCLAT) decision that directed the National Company Law Tribunal (NCLT) to accept a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Chief Justice of India Dr. Dhananjaya Y Chandrachud, along with Justice J B Pardiwala and Justice Manoj Misra, stated that the NCLAT’s directive for the NCLT to instantly accept the Section 7 IBC application without a thorough assessment of opposing arguments was inappropriate.
The Bench instructed the NCLT to examine the admissibility of the Section 7 IBC petition after hearing both sides.
Background:
The Export Import Bank of India filed a petition under Section 7 of the IBC, seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Maneesh Pharmaceuticals Ltd.
Initially, on 25.03.2022, the NCLT dismissed the Section 7 petition, citing it as time-barred. However, the NCLAT overturned this decision on 09.05.2023, stating that the debt limitation ruling by NCLT was “patently illegal.”
While setting aside the NCLT order, the NCLAT also noted that there was no dispute regarding the liability of the Corporate Debtor towards the Financial Creditors and the guarantee by the Respondent.
Later, the NCLT approved the restoration of the Section 7 petition on 05.07.2023, which was challenged before the Supreme Court and dismissed on 04.07.2023.
The NCLAT’s order directed the NCLT to admit the Section 7 petition, leading to an appeal by the Corporate Debtor in the Supreme Court against the NCLAT order dated 06.12.2023.
Supreme Court’s Decision:
The Supreme Court pointed out that the NCLT initially dismissed the Section 7 petition on the grounds of debt being time-barred. When the matter reached the NCLAT, they annulled the NCLT’s decision, terming it “patently illegal.”
However, the Court highlighted that the NCLAT’s decision was confined to the debt’s limitation status and shouldn’t be misconstrued as a final judgment on the admissibility of the Section 7 application.
It emphasized that the NCLAT’s passing reference regarding the dispute in the debt status must be viewed within the context of the appeal based on NCLT’s time-barred ruling. Consequently, the Court deemed the NCLAT’s instant direction to the NCLT for Section 7 petition admission as inappropriate, lacking a thorough consideration of opposing contentions.
The Court allowed the appeal, overturning the NCLAT’s order dated 06.12.2023. It instructed the NCLT to evaluate the admissibility of the Section 7 petition after hearing all parties involved, preserving their rights and contentions on the matter.