Status as on- 20/10/2022
Since the Insolvency and Bankruptcy Code of is in its nascent stage, several questions have arisen pertaining to the various facets of the code which also includes the powers of the NCLT (hereinafter referred to as ‘Tribunal’) which are imparted upon it by the legislature. One such issue is the Tribunal’s jurisdiction to probe into the legality of a foreign decree. Several precedents have made it settled that the above question is answered negatively. Whereas, on the other side, inherent powers conferred upon the Tribunal may permit it to check into the legality of the foreign pronouncement. However, the right answer may lie in the Supreme Court’s case which was penned a lot prior to the coming of the code.
Tribunal’s Limited Power
It is an undisputed concern that the Tribunal cannot go into the merits of a foreign decree in order to scrutinize its legality. And the same has been emphasized in various precedents.
NCLAT vide its judgment in Usha Holdings L.L.C. & Anr. v Francorp Advisors Pvt. Ltd. held that the Tribunal has no purview to question the legitimacy and appropriateness of an alien decree in an application filed under the Code. The rationale behind the same is that the Adjudicating Authority is not equivalent to a court and the Corporate Insolvency Resolution Process [hereinafter referred to as ‘CIRP’] is not litigation.
Subsequently, a body that doesn’t have the forces of a ‘Court’ cannot scrutinize the legitimacy of a foreign declaration, regardless of whether there is compliance with Indian laws or not. Hence, regardless of whether a foreign judgment has not been executed by an Indian Court according to Section 13 and 44A of the CPC, the Tribunal doesn’t have the ability to decide upon its lawfulness and enforceability.
Inherent Powers of the Tribunal
However, the Tribunal is vested with inherent powers in accordance with Section 11 of the NCLT rules, 2016 which gives the Tribunal the power to “make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process.” This is part-material to the power given to the Civil Court under Section 151, CPC. This might be a valid argument to advocate that since the inherent powers given to the Tribunal are tantamount to that given to the Civil Court, it was the intent of the legislature to allow the Tribunal to function on the same pedestal as that of the Civil Court and hence they can look into the legality of the foreign decree. There are numerous decisions advocating the exercise of the inherent powers of the Tribunal.
Drawing a parallel between the two arguments, it can be established that the Tribunal cannot go into the merits of a decree pronounced by a foreign court or tribunal as it is not an apt forum to decide the propriety of a foreign decree. However, where a foreign court has rendered the judgment without considering the evidence and in the absence of the party against whom the decree is awarded would not be called a judgment on merits. The proponents of ‘wide powers of the Tribunal’ would call this the need of the Adjudicating Authority to go into the intricacies of the foreign case and pass an order accordingly. This was just an instance that has barely scratched the surface of the extensive and multifarious incidents and scenarios, where one may think an order by the Tribunal to go into the merits of the foreign decree, is plausible. However, one might have to wait for an Apex Court’s decision which would address the issue and hit a nail in the coffin. Till then, relying on the Usha Holdings LL.C. & Anr v Francorp Advisors Pvt Ltd. is the call of the hour.