NCLTRulingsTribunal & Appellate

NCLT observes that inherent jurisdiction can be applied only in cases where there is no specific provision under the statute

Ravi Shankar Devarakonda vs. Bharat Heavy Electricals Ltd.

Application of Liquidator u/s Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the NCLT Rules, 2016 is allowed by NCLT; says Liquidator failed to obtain necessary approval from NCLT before filing the appeal. 

In the present matter, Liquidator of Corporate Debtor- M/sCoastal Projects Ltd filed an application u/s Section 60(5) of the Insolvency and Bankruptcy Code, 2016 read with Rule 11 of the National Company Law Tribunal (NCLT) Rules, 2016. Corporate Debtor is under liquidation by Order of Hon’ble NCLT, Kolkata Bench and is kept as a going concern. Meanwhile, there was an arbitration proceeding between the Corporate Debtor and the respondent herein i.e. M/s Bharat Heavy Electricals Ltd. In the arbitration proceeding, Sole Arbitrator passed an award and allowed a portion of the amount in favour of Corporate Debtor. Respondent filed application under Section 34 of Arbitration and Conciliation Act, 1996 before the Hon’ble City Civil Judge at Bangalore. The Corporate Debtor also has filed Appeal under Section 34 of Arbitration and Conciliation Act, 1996 before District City Civil Judge at Bangalore. The respondent has filed objection to this application stating that this application ought to be dismissed as misconceived, false and frivolous as this application is filed seeking post-facto leave in view of stipulations contained in Section 33 (5) of the Insolvency and Bankruptcy Code, 2016. Respondent further contends that prior approval hasn’t been obtained by Liquidator from Adjudicating Authority and thus, the application is void ab initio.

NCLT proceeds to examine the following in the present matter :- 

  1.  whether Adjudicating Authority can ratify the Act of the Liquidator subsequently, when the Act has specifically said that “prior approval” is must and if so at what stage the de facto approval can be sanctioned and the effect of the same on the already filed suit/application.

 

  1. whether application under Section 11 of NCLT Rules can be invoked to override the existing provision under the Code. 

NCLT observes that inherent jurisdiction can be applied only in cases where there is no specific provision under the statute, where there is the vacuum in the statute.

Petitioner relies on the decision of Bombay HC in Appeal 270 of 1990 in Vysya Bank Ltd. Vs. Official Liquidator, Shreeniwas Cotton Mills Ltd. and have vehemently argues that sanction the approval is only a formal Act. 

However, NCLT hold that in the interest of justice and the overall view of the enactment for maximisation of the value of the assets of the Corporate Debtor an approval will only amount to regularisation of appeal already filed and pending. NCLT further clarifies that it is a formality to regularise the application which was filed before the District Court.  

NCLT further observes that the permission to go on Appeal against the company under liquidation was obtained by the respondent herein and this Adjudicating Authority by order dated 08.04.2019 has given approval to the respondent to file Appeal against the Corporate Debtor against the Award passed by the Hon’ble Sole Arbitrator. NCLT further states that the Liquidator also could have taken steps at that stage to obtain necessary permission for filing the appeal. However, it is the fact that Liquidator failed to do so. 

However, the application is allowed in the interest of justice, keeping in mind the spirit of IBC, focus of the company in liquidation is to “maximisation of the asset”. 

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