Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as “IBC”) has been introduced by the Government of India in 2016, as an Act to consolidate and amend the laws relating to reorganization and insolvency resolution in a time-bound manner for maximization of value of assets, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders. The Supreme Court has elaborately discussed the scope and applicability of the IBC. In furtherance to the objectives of the IBC, the Hon’ble Court through the recent judgement of Uttara Foods and Feeds Private vs Mona Pharmachem (Civil Appeal No. 18520 OF 2017) suggested certain modifications to be made by the competent authority in order to increase its efficacy.
Decision and Ratio
Both the parties in the matter had agreed to amicably resolve the dispute between themselves. The Supreme Court set aside the order of the NCLAT and recorded the settlement arrived at between the parties. The Court while arriving at its decision placed reliance on the following points:
- The Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as “IB Rules”), suggest that the Adjudicating Authority may permit withdrawal of the application made by the financial creditor, operational creditor or corporate creditor as the case may be, only on a request made by the applicant before its admission.
- The Rule 8 of the IB Rules, curtails the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) to prima facie avail inherent powers as accorded to it under Rule 11 of the National Company Law Tribunal Rules, 2016 (hereinafter referred to as “NCLT Rules”) to allow effective compromise after admission of insolvency petition.
- As per Rule 11 of the NCLT Rules the NCLAT is conferred with powers to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.
- In the presence of restrictions imposed by the IB Rules, the Supreme Court remains the only forum to deal with all orders of such nature in the exercise of its jurisdiction under Article 142 of the Constitution of India to pass such decree or make such orders/ decrees as are necessary for doing complete justice in any cause or matter pending before its enforceable throughout the territory of India.
- The Court directed the competent authorities thereunder to formulate rules in such manner so as to include inherent powers of the NCLAT, eliminating unnecessary appeals being filed in the matters where settlement has been reached between the parties.
Through this judgement, the Supreme Court has reiterated the dynamism in law and the pragmatic approach in consonance with the principles of natural justice. Focusing on the objective of reducing the burden of litigation, where parties themselves agree to settle and resolve their disputes such settlement should be promoted and be given binding effect thereby encouraging Alternate Dispute Resolution mechanism as is the underlying fundamental of law.