loader image

Limitation on powers of the National Company Law Tribunal Insolvency & Bankruptcy Code, 2016

Introduction

National Company Law Tribunal (“NCLT”) was introduced in the Companies Act, 1956 in the year 2002. However, despite that, the erstwhile Company Law Board continued to function and NCLTs remained only on the statute book. It was only in late 2016 when the Insolvency & Bankruptcy Code, 2016 (“IBC”) was notified, that the NCLTs became operational.

Exclusive Jurisdiction

As in the case of other specialized statutes, IBC provides that no civil court will have jurisdiction to entertain any suit or proceedings in respect of any matter on which NCLT has jurisdiction under the IBC. Soon after commencement of cases before the NCLT, a residuary provision contained in Section 60(5) of the IBC gained fast popularity amongst litigants as it provided that the NCLT has jurisdiction to decide any questions of fact or law in respect of insolvency or liquidation of a company. The said provision recently became the center of discussion before the Supreme Court of India, and this write up analyses the relevant judgment2 in this regard.

Factual Background

Briefly put, in the case of Tata Consultancy, a party terminated a facility agreement with a company that was undergoing corporate insolvency resolution process (“CIRP”). Upon the Resolution Professional approaching the NCLT for wrongful termination, the NCLT exercised its residuary jurisdiction under the IBC and granted stay on termination. This judgment of the NCLT was carried in appeal all the way upto the Apex Court.

View of the Supreme Court

On analyzing the facts of the case, the Supreme Court placed reliance on one of its earlier judgments3 and clarified that the NCLT has the residuary power to adjudicate only those matters which are related to the insolvency. The Court further cautioned that the NCLT should not interfere with the contractual rights of parties unless they are affecting the insolvency proceedings of a company and are core to the continuation of company undergoing CIRP as a going concern.

KLA View

This judgment has put the controversy to rest and restricted the jurisdiction of the NCLT to issues relating to insolvency and liquidation of the Corporate Debtor. Supreme Court has clarified that NCLT does not have the jurisdiction to decide contractual disputes with the Corporate Debtor. However, the larger controversy to follow would be that whether the Supreme Court intends for creditors to be able to approach civil courts for such disputes once moratorium has been lifted and the interplay of the fresh slate theory propounded by the Supreme Court.

Loading
This page contains general information regarding Khaitan Legal Associates and is not intended as a solicitation or an advertisement of its services or any invitation or inducement of any sort. Nothing contained in this website constitutes legal advice or creation of a lawyer-client relationship. If you have any issues, you must seek legal advice. Khaitan Legal Associates is not liable for the consequences of any action taken by relying on the material/information provided on this website. For more information, please read our terms of use and our privacy policy.