Limitation of the powers of the National Company Law Court – Insolvency and Bankruptcy Code, 2016

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introduction

National Tribunal for Company Law (“NCLT“) was introduced in the Companies Act 1956 in 2002. However, despite this, the old Company Law Council continued to function and the NCLTs remained only in the statute book. that at the end of 2016 that the Insolvency and Bankruptcy Code, 2016 (“IBC”) Has been notified, that the NCLTs have become operational.

Exclusive jurisdiction

As with other specialized laws, the IBC provides that no civil court shall have jurisdiction to hear any action or proceeding relating to any matter within the jurisdiction of the NCLT under the IBC. . Shortly after the commencement of cases before the NCLT, a residual provision contained in Article 60 (5) of the IBC quickly gained popularity among litigants because it provided that the NCLT had jurisdiction to decide any question of fact. or law relating to the insolvency or liquidation of a company. This provision has recently become the focus of discussion before the Supreme Court of India, and this article analyzes the relevant judgment in this regard.

Factual background

In short, in the case of Tata Council, one party terminated a facility agreement with a company that was the subject of a corporate insolvency resolution process (“CIRP“). When the resolution professional approached the NCLT for wrongful termination, the NCLT exercised its residual jurisdiction under the IBC and granted the suspension on termination. This NCLT judgment has been appealed to the Apex Court.

View of the Supreme Court

In analyzing the facts of the case, the Supreme Court relied on one of its earlier judgments and clarified that the NCLT has the residual power to rule only on matters relating to insolvency. The Court further warned that the NCLT should not interfere with the contractual rights of the parties, unless they affect a company’s insolvency proceedings and are essential to the prosecution of the company subject to the CIRP. as a business.

View from the ALK

This ruling ended the controversy and restricted the jurisdiction of the NCLT to matters relating to the insolvency and liquidation of the debtor company. The Supreme Court clarified that NCLT does not have the jurisdiction to settle contractual disputes with the debtor company. However, the biggest controversy to follow would be whether the Supreme Court intends to allow creditors to go to civil courts for such disputes once the moratorium is lifted and the new slate theory interacts as proposed by the Supreme Court.


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