E. S. KRISHNAMURTHY & ORS. VS. M/S BHARATH HI TECH BUILDERS PVT. LTD. : CASE SUMMARY
The Supreme Court in E. S. Krishnamurthy Vs Bharath Hi Tech Builders Pvt. Ltd (2022) 3 SCC 161 held that once an application is filed under Section 7 IBC, the NCLT has only jurisdiction to admit the application or reject it. NCLT cannot compel the parties to settle the matter.
FACTS OF THE CASE
Master agreement was entered into between Bharathi Hi Tech Builders Pvt. Ltd. (Corporate Debtor), IDBI Trusteeship Ltd and Security Trustee and Karvy Realty (India) Ltd. ( Facility Agent) for raising an amount of 50 Crores for development of agricultural land.
The Respondent was to convey plots to the investors/allottes against their loan amount. In case of default in conveyance of plot, the Respondent was to repay the loan amount alongwith interest. The Respondent failed to covey the plots despite several extensions.
Some of aggrieved allottees filed an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiating CIRP against the Respondent. The NCLT declined to admit the application and directed the Applicant to settle the matter. An appeal was filed against the same before NCLAT, which dismissed the same.
FINDINGS OF THE SUPREME COURT
The central issue in the appeal was whether the NCLT and NCLAT were correct in their approach of rejecting the appellant’s Petition under Section 7 of IBC at the pre-admission stage and directing them to settle with the Respondent within three months.
The Supreme Court noted that after application under Section 7 IBC is filed, the Adjudicating Authority may by order admit an application under Section 7 (5) (a) or reject such application under Section 7 (5) (b). Only two courses are open to the Adjudicating Authority. Either it can admit the application or reject the application. The statute does not provide for the Adjudicating Authority to undertake any third action.
The Supreme Court in Innoventive Industries Ltd. Vs ICICI Bank (2018) 1 SCC 407 had observed that the Adjudicating Authority has only to determine whether a “default” has occurred. If Adjudicating Authority is of opinion that “default” has occurred , it has to admit the application unless it is incomplete.
The Supreme Court noted that settlement has not been arrived at between the Applicants before Adjudicating Authority and the Corporate Debtor. The NCLT disposed the Petition by directing the Respondent to settle the remaining claims no later than three months and if any of the remaining original petitioners were aggrieved by the settlement process, they would be at liberty to approach the adjudicating authority again in accordance with law.
The Supreme Court observed that the Adjudicating Authority has acted outside terms of its jurisdiction under Section 7 (5) IBC. The Adjudicating authority is only empowered to verify whether a default has occurred or not. Based on the same, the Adjudicating Authority has either to admit or reject an application respectively. The Adjudicating Authority cannot compel a party to settle a dispute.
Undoubtedly settlement has to be encouraged but in this matter NCLT and NCLAT had abdicated the jurisdiction under Section 7 of the IBC.
NCLT and NCLAT are creatures of statutes. The statutes which confers jurisdiction also structures, channelizes, and circumscribes the ambit of such jurisdiction. While NCLT and NCLAT can encourage settlements, they cannot direct them by acting as Courts of Equity.
The Supreme Court set aside the order of NCLAT and directed the NCLT to determine the Application afresh.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.