Status as on 21/08/2020
The National Company Law Tribunal (NCLT) Kolkata Bench imposed a mandatory condition on all the financial creditors to file information of their record of default with the National E-Governance Services Ltd. (NESL). This move created unrest among the disgruntled creditors who now had an additional compliance. However, the Single Bench of the Calcutta High Court struck down this additional compliance.
The order dated 12th May, 2020 imposed a mandatory prescription on all financial creditors, to submit certain financial information as a record of default before the Information Utility (hereinafter referred to as, “IU”) as a condition precedent for filing any new application under Section 7 of the IBC, 2016. Not only did the condition become mandatory for filing application 12th May, 2020 onwards but this applied retrospectively on all those applicants/financial creditors who have pre-existing applications filed under Section 7.
The Univalue Projects Pvt. Ltd. being a financial creditor adversely affected by the said Order approached before the Calcutta High Court under Article 226. The petitioners contended that the impugned order has the effect of adversely altering their substantive rights as granted to a creditor under the provisions of the IBC, 2016.
Issues before the Court
Hon’ble Calcutta High court based heard the petitions conjointly and arrived at the conclusion that the issue relates to a point of law. Thus, the court faced broadly two important issues:
- Whether NCLT has the power to pass such an Order?
- Whether the NCLT could enforce the same retrospectively?
The court while dealing with the first issue held that the e NCLT has acted without jurisdiction and exceeded its jurisdiction that is limited within the four corners of Section 424 of the Companies Act, 2013. Therefore, making the 12th May, 2020 patently without jurisdiction.
On dealing with the second issue the Court observed- “the retrospective nature of the impugned order promulgated by the NCLT is bad in law and does in fact, create new disabilities for financial creditors”.
Thus, the court struck down the 12th May, 2020 Order of the NCLT, Kolkata Bench. This comes as major relief to the creditors, as it would have proved to be another hurdle for credit recovery. The court also observed that the registration of default with the Information Utility (IU) is only one of the designated methods of furnishing proof to the AA or NCLT. The debt that is due to a financial creditor may be proved before the NCLT by any of the four classes of documents stated in sub regulation 2(b) of Regulation 8 of the CIRP, 2016. Therefore the judgement delivered by the Calcutta High Court settled a major unrest created among the creditors seeking recovery of longstanding debts.
Disclaimer- The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at firstname.lastname@example.org or call the IP expert at 8383011629