Whether NCLT order under IBC can be set aside – Due to Settlement

Whether NCLT order under IBC
can be set aside – Due to Settlement

Short Summary:

In this flash tabloid, the writer initiates by speak of the provisions of Insolvency & Bankruptcy Code, 2016 (hereafter referred as “I&B Code”) in relation to Power of NCLT OR NCLAT to set aside order after settlement between both the parties.

The main drive of the broadsheet, on the other hand, is upon the “Whether order of admission of application u/s 9 or 7 issued by Hon’ble NCLT can be set aside by settlement between both the parties?”

This is article no. 295 of the series of editorials written by the author on corporate laws
{Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.

While two parties litigate out their dispute before a court of law, there is always a possibility that a mutual settlement may be arrived at during the course of proceedings. There may also be a case that the parties were already negotiating for settlement of dispute; however either of the parties moves the court / tribunal as a matter of abundant caution.

In this editorial author discuss the provisions I&B Code, 2016 in relation to “Set Aside” order of admission of Petition u/s 9 or 7 of I&B Code, 2016.

Example: In case Hon’ble NCLT has passed order in favour of Operational / Financial Creditor and issued moratorium and appointed Insolvency Resolution Professional. In such case if Creditor and Corporate Debtor make settlement after admission of case. Whether they can approach NCLT for set aside its order of admission of application?

Legal Provision:

Rule: 8 Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016:

“The Adjudicating Authority may permit withdrawal of the application made under rules 4, 6 or 7, as the case may be, on a request made by the applicant before its admission”

Hence, it is open to the Operational Creditor to withdraw the application under Section 9 before its admission but once its admitted, it cannot be withdrawn even by the Operational Creditor, as other creditors are entitled to raise claim pursuant to public announcement under Section 15 read with Section 18 of the I&B Code, 2016

In the case of Mother Pride Dairy India Pvt. Ltd. Versus Portrait Advertising & Marketing Pvt. Ltd.” Parties move to NCLAT for set aside the order of adjudicating authority as dispute amongst the parties to the proceedings had been settled after admission of the application. In such case NCLAT reject the application on the basis of Rule 8.

The same happened in the case of Uttara Foods and Feed Private Limited V/s Mona Pharmachem. They moved the application before the Hon’ble Supreme Court

Whether order of admission of application u/s 9 or 7 under I&B Code, 2016 whether set aside or not due the settlement between the parties finally decided by Hon’ble Supreme Court in its land mark judgement as below:

Case element:

Case Name
Uttara Foods and Feed Private Limited V/s Mona Pharmachem.
Hon’ble Supreme Court
Order Date
13th November, 2017
Appeal Against
NCLAT order

A.  Factual Background:

§  Ld. Council appeared on behalf of Appellant and respondent both agree that the matter has since been settled amicably between the parties.

§  NCLAT: As per rule 8The Adjudicating Authority may permit withdrawal of the application made under rules 4, 6 or 7, as the case may be, on a request made by the applicant before its admission” However, NCLAT doesn’t have power to set aside order after admission.

Inherent Power of NCLAT: As per Rule 11 of NCLAT Rules, Noting in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal.

B.  Finding of Hon’ble Supreme Court:
Hon’ble Supreme Court states that,
§  In view of Rule 8 of the I & B (application to adjudication authority),Rules 2016, the NCLAT prima facie could not avail the inherent powers recognized by Rule 11 of NCLAT Rules, 2016 ‘to allow a compromise to take effect after admission of the insolvency petition.”

§  Hon’ble Supreme Court states that, It may utilize its power under Article 142 of the Constitution of India, the relevant Rules of I&B Code, 2016 be amended by the competent authority so as to include such inherent powers.

Legal Provision Article 142 of Constitution of India:
142. Enforcement of decrees and orders of Supreme Court and unless as to discovery, etc ( 1 ) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or orders so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe

(2) Subject to the provisions of any law made in this behalf by Parliament, the Supreme Court shall, as respects the whole of the territory of India, have all and every power to make any order for the purpose of securing the attendance of any person, the discovery or production of any documents, or the investigation or punishment of any contempt of itself

Therefore, Supreme Court states that, this will obviate unnecessary appeal filed before this court in the matter where such agreement has been reached. On the fact of the case, we take on record the settlement between the parties and set aside the NCLAT order.
As a result, the appeal is allowed in the aforesaid terms.

In above mentioned case Hon’ble Supreme Court have give direction to Ministry of Law and Justice and appropriate authority of the I&B Code, 2016 to make the amendment in the rules to allow set aside of order of adjudicating authority after settlement between parties..

(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

 Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.


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