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The National Company Law Appellate Tribunal (NCLAT) has held that the National Company Law Tribunal (Adjudicating Authority/ NCLT) is empowered to pass ad-interim orders, including an order restraining the Corporate Debtor from alienating its assets, before admitting any application under Sections 7, 9 or 10 of the Insolvency and Bankruptcy Code, 2016.
The judgment was delivered by a two-member Bench of Chairperson Justice SJ Mukhopadhaya and Member (Technical) Kanthi Narahari in an appeal by NUI Pulp and Paper Industries Pvt Ltd (Appellant) against an order passed by the National Company Law Tribunal (NCLT).
The Respondent, M/s Roxcel Trading GMBH, had filed an application under Section 9 IBC against the Appellant. When the matter came up for hearing before the NCLT, Chennai, the Corporate Debtor/Appellant submitted that there was an existence of a dispute between the parties and sought time for filing reply.
NCLT thus adjourned the matter while granting time to the Appellant to file its reply.
Further considering the Respondent’s apprehension that the Appellant might dispose of its assets in the meantime, the NCLT invoked its inherent jurisdiction under Rule 11 of the NCLT Rules, 2016 and restrained the Appellant and its Directors from alienating, encumbering or creating any third party interest on the assets of the Company till further orders.
It ordered that till the time either the Insolvency Application is admitted or rejected, the assets and the accounts of the Company need to be maintained except with respect to the withdrawal of the legitimate expenses required for carrying on the day-to-day expenses.
In appeal against the order, the Appellant argued that before admission of an application under Sections 7 or 9 IBC, the NCLT has no jurisdiction to restrain a Corporate Debtor and its Directors from alienating, encumbering or creating any third party interest on the assets of the Corporate Debtor.
It was further argued that the inherent power under the Rule could be exercised by the NCLT if, after receiving the reply, it comes to its notice that the Corporate Debtor was somehow or the other trying to get an adjournment or alienate the matter after filing of the application under Sections 7 or 9.
Since no such ground was shown by the Respondent, the NCLT had no jurisdiction to pass the interim order, it was contended.
When the NCLAT asked the Appellant if it intended to sell or alienate or transfer or create any third party interest on its assets, it was stated that no such undertaking could be given as it was dependent on the necessity of the Appellant for its day-to-day functioning.
After perusing Rule 11, the NCLAT opined that it was “clear” that the NCLT could make any such order as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.
It thus stated that once an application under Sections 7 or 9 is filed, it is not necessary for the NCLT to await hearing of the parties for passing order of ‘Moratorium’ under Section 14.
The NCLAT observed the Respondent which is an operational creditor under the Insolvency Code had issued Demand Notice under Section 8(1) and after receipt of the reply under Section 8(2), filed an application under Section 9.
It was at this stage that it was apprehended that the Appellant might abuse the process of the IBC to deny the legitimate rights of creditors under insolvency proceedings.
Considering these facts, the NCLAT stated,
“The Appellant having not given any undertaking or made any specific reply and refused to say that they have no such intention, we are of the view that it is always open to the Adjudicating Authority to pass ad-interim order before admitting any application under Sections 7 or 9 or 10 of the ‘I&B Code’.”
It further clarified that once the application is admitted, the order of ‘Moratorium’ under Section 14 would follow, taking away the right of the Board of Directors of the Corporate Debtor to take any decision on its behalf and prohibiting others from taking any action against the Corporate Debtor.
On the other hand, if the application under Sections 7 or 9 or 10 is rejected, the interim order will automatically stand vacated, it was added.
For these reasons, the appeal was dismissed by the NCLAT
The Appellant was represented by Advocates S Santanam Swaminadhan, Nishtha Khurana and Kartik Malhotra.
The Respondent was represented by Senior Advocate Arun Kathpalia, instructed by Ankur Khandelwal, Partner, Kochhar & Co with Associates Gowrang and Vatsal Joshi.