In a pivotal legal development, the Supreme Court has overturned a National Company Law Appellate Tribunal (NCLAT) directive instructing the National Company Law Tribunal (NCLT) to admit a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), without a comprehensive examination of the rival contentions on their merits.
The esteemed bench, led by Chief Justice of India Dr. Dhananjaya Y Chandrachud, alongside Justice J B Pardiwala and Justice Manoj Misra, asserted that the NCLAT’s directive was unsuitable. The apex court emphasized the necessity for the NCLT to evaluate the merits of the rival contentions before deciding on the admission of the Section 7 petition under IBC. The court has directed the NCLT to conduct a thorough examination and determine the petition’s admissibility after hearing all concerned parties.
Origins of the Dispute
The case stems from an application filed by the Export Import Bank of India, designated as the Financial Creditor/Respondent No. 1, under Section 7 of the IBC. The application sought the initiation of the Corporate Insolvency Resolution Process (CIRP) against Maneesh Pharmaceuticals Ltd., the Corporate Debtor/Appellant.
On March 25, 2022, the NCLT dismissed the Section 7 petition, citing limitations. Notably, the NCLT acknowledged the existence of debt and default but raised concerns about the timeliness of the petition. The bench contemplated whether the debt was time-barred under the provisions of the Limitation Act, 1963.
Legal Journey and Supreme Court Ruling
Challenging the NCLT’s order, the Respondents appealed to the NCLAT, which, on May 9, 2023, set aside the NCLT order, labeling the finding on the debt being barred by limitation as “patently illegal.” However, the NCLAT also remarked on the absence of dispute regarding the Corporate Debtor’s liability towards the Financial Creditors and the guarantee by the Respondent.
Following an unsuccessful appeal to the Supreme Court on July 4, 2023, the Respondents sought restoration of the Section 7 petition before the NCLT, which was granted on July 5, 2023. Subsequently, a review petition before the Supreme Court remains pending.
In a crucial development on October 25, 2023, the NCLT declined to adjourn proceedings despite a pending review petition. The NCLAT, on December 6, 2023, directed the NCLT to admit the Section 7 petition, leading the Corporate Debtor to appeal this decision before the Supreme Court.
The Supreme Court Verdict
Highlighting the origin of the case, where the NCLT dismissed the Section 7 petition on limitation grounds, the Supreme Court noted that the NCLAT set aside the NCLT order. However, the court emphasized that the NCLAT’s order specifically dealt with the limitation issue and did not conclusively determine the admissibility of the Section 7 petition on its merits.
In conclusion, the Supreme Court allowed the appeal, setting aside the NCLAT’s order dated December 6, 2023. The NCLT is now tasked with determining the admissibility of the Section 7 petition after a comprehensive hearing, keeping all rights and contentions of the involved parties open.
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