NCLT Jurisdiction under Rule 11 of NCLT Rules, 2016

The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

# 10. Filing of application and application fee.- 

(1) Till such time the rules of procedure for conduct of proceedings under the Code are notified, the application made under subsection (1) of section 7, sub-section (1) of section 9 or sub-section (1) of section 10 of the Code shall be filed before the Adjudicating Authority in accordance with rules 20, 21, 22, 23, 24 and 26 of Part III of the National Company Law Tribunal Rules, 2016.

Author’s Comments; This rule restricts the applicability of NCLT Rules, 2016 only to rules 20, 21, 22, 23, 24 and 26 of Part III of the National Company Law Tribunal Rules, 2016. 

National Company Law Tribunal Rules, 2016.

# 11. Inherent Powers.- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.

The question of applicability of NCLT rules in insolvency proceedings has been answered by Hon’able Supreme Court & NCLAT..

i). SCI (24.07.2017) Lokhandwala Kataria Construction Private Limited Vs. Nisus Finance and Investment Managers LLP (Civil Appeal No. 9279 OF 2017) held that;

• 2) The present appeal raises an interesting question as to whether, in view of Rule 8 of the I&B (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal could utilize the inherent power recognized by Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 to allow a compromise before it by the parties after admission of the matter. 

• 3) By the impugned order dated 13.07.2017, the National Company Law Appellate Tribunal was of the view that the inherent power could not be so utilized. According to us, prima facie this appears to be the correct position in law. 

ii). SCI (13.11.2017) Uttara Foods and Feeds Private Limited v. Mona Pharmacem, [Civil Appeal No. 18520/2017]

• “In an earlier order dated 24.07.2017, this Bench had observed that in view of Rule 8 of the I & B (Application to Adjudicating Authority) Rules, 2016, the National Company Law Appellate Tribunal prima facie could not avail of the inherent powers recognised by Rule 11 of the National Law Appellate Tribunal Rules, 2016 to allow a compromise to take effect after admission of the insolvency petition”.

iii). SCI (25.01.2019) in  Swiss Ribbons Pvt. Ltd. & Anr.Vs.Union of India & Ors.[Writ Petition (CIVIL) NO. 99 OF 2018] held that;

• 52. It is clear that once the Code gets triggered by admission of a creditor‘s petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case.

iv). NCLAT (17.07.2019) NUI Pulp and Paper Industries Pvt. Ltd. Vs. M/s. Roxcel Trading GMBH [Company Appeal (AT) (Insolvency) No. 664 of 2019] held that;

• # 8. Rule 11 of the National Company Law Tribunal Rules, 2016 deals with ‘inherent powers’ of the National Company Law Tribunal and reads as follows: 

- “11. Inherent Powers.- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Tribunal to make such orders as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal.”

• # 9. From the aforesaid Rule 11, it is clear that the Tribunal (Adjudicating Authority herein) can make any such order as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Tribunal. 

• # 10. From the aforesaid provisions, it is clear that once an application under Sections 7 or 9 is filed by the Adjudicating Authority, it is not necessary for the Adjudicating Authority to await hearing of the parties for passing order of ‘Moratorium’ under Section 14 of the ‘I&B Code’. To ensure that one or other party may not abuse the process of the Tribunal or for meeting the ends of justice, it is always open to the Tribunal to pass appropriate interim order.

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