SC: NCLT has no authority to ask creditors to settle with defaulter

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NEW DELHI: In an important verdict concerning the Insolvency and Bankruptcy Code (IBC), the Supreme Court on Tuesday ruled that the National Company Law Tribunal (NCLT) has no authority to ask creditors to settle with a defaulter though it has the power to either summarily reject or entertain pleas for initiation of insolvency proceedings.
Agreeing with the contention of advocate Srijan Sinha, who appeared for a number of investors who had moved for bankruptcy proceedings against realtor Bharath Hitech Builders, a bench of Justices D Y Chandrachud and A S Bopanna said, “The IBC is a complete code in itself. The adjudicating authority (NCLT) and the appellate authority (NCLAT) are creatures of the statute. Their jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelises and circumscribes the ambit of such jurisdiction. Thus, while the adjudicating authority and appellate authority can encourage settlements, they cannot direct them by acting as courts of equity.”
Justices Chandrachud and Bopanna said the NCLT has clearly acted outside the terms of its jurisdiction. The bench said NCLT is empowered only to verify whether a default has occurred or if a default has not occurred. On a petition instituted by E S Krishnamurthy and 16 others, the NCLT had declined to admit the petition and instead directed the builder to settle the claims within three months. The NCLAT had upheld the NCLT order.

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