SCI (202411.07) in State Bank of India & Ors. Vs. The Consortium of Mr. Murari Lal Jalan & Mr. Florian Fritsch & Anr. [Civil Appeal Nos. 5023-5024 of 2024] held that;
“Any claim seeking an exercise of the adjudicating authority's residuary powers under Section 60(5)(c) IBC, NCLT's inherent powers under Rule 11 of the NCLT Rules or even the powers of this Court under Article 142 of the Constitution must be closely scrutinized for broader compliance with the insolvency framework and its underlying objective.
Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by the IBC framework and have grave implications on the outcome of the CIRP, the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a Corporate Debtor.
This Court in Glas Trust (supra) only went so far as to say that, where there is a prescribed procedure in place for a particular purpose, then that particular thing must be done only in the manner prescribed. It no way lays a dictum that even where cogent reasons exist warranting such deviation, the court would be powerless to exercise such inherent powers.
that in the absence of any exceptional circumstances or extraordinary reasons necessitating a deviation from the procedure laid down, the court should refrain from invoking its inherent jurisdiction to do something which otherwise could have been validly done in accordance with the procedure.
Excerpts of the Order;
# 157. Rule 15 of the NCLT and NCLAT Rules, 2016 grants power to the NCLT and NCLAT respectively, to extend the time limits for doing any act which have been fixed, either by the rules or by an order, as the justice of the case may require. However, such power must not be exercised mechanically without any application of mind. An extension on the strict timelines fixed under the resolution plan must be done by adequately weighing the period of extension sought with the consequences of such extension on the continued implementation of the Resolution Plan. After all, such a discretion cannot be exercised to the detriment of the resolution plan and its implementation itself. While one of the reasons supporting the grant of extension would be to ensure the successful revival of the corporate debtor, multiple extensions may seriously hamper the economic feasibility of the Resolution Plan and also lead to an increase in the debts of the corporate debtor. Not to mention, during the extended period, there are several costs incurred towards maintaining the corporate debtor as well. The feasibility and practicability of the resolution plan adjudged by the “commercial wisdom” of the CoC might no longer remain in cases where incessant extensions are granted by the NCLT and NCLAT under their discretionary powers.
# 158. The discretion in extending the time limits fixed under the Resolution Plan must be exercised in a much more circumspect manner, especially in cases such as the present, which pertains to the aviation sector, wherein timely resolution and revival of the Corporate Debtor is all the more crucial since the sector operates in such a way that a continuous flow of cash is required to maintain the company in a position of status quo.
# 159. We are now left to finally consider whether in view of the gross facts on record, we should, in exercise of our plenary jurisdiction under Article 142 of the Constitution, direct that the corporate debtor be taken in liquidation.
# 160. This Court in Ebix (supra) had opined that the exercise of powers, even under Article 142, must be broadly compliant with the insolvency framework and its underlying objective. It was highlighted therein that the Court must remain cautious in granting reliefs that may run counter to the timeliness and predictability that is central to the IBC, 2016. The relevant observations made are reproduced hereinbelow:
“101. Any claim seeking an exercise of the adjudicating authority's residuary powers under Section 60(5)(c) IBC, NCLT's inherent powers under Rule 11 of the NCLT Rules, 2016 or even the powers of this Court under Article 142 of the Constitution must be closely scrutinised for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to IBC. Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by IBC framework and have grave implications on the outcome of the CIRP, the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a corporate debtor.” (Emphasis supplied)
# 161. We are conscious of our recent decision Glas Trust Company LLC v. Byju Raveendran and Others reported in 2024 SCC OnLine SC 3032, taking the view that the Court must be circumspect in deviating from the prescribed procedure, especially in the context of the IBC, 2016. However, if such a deviation is made, then the Court must justify as to why the deviation was necessary to prevent the abuse of the process of the Court. The relevant observations are reproduced hereinbelow:
“70. When a procedure has been prescribed for a particular purpose exhaustively, no power shall be exercised otherwise than in the manner prescribed by the said provisions. In such cases, the court must be circumspect in invoking its ‘inherent powers’ to deviate from the prescribed procedure. If such deviation is made, the court must justify why this was necessary to “prevent the abuse of the process of the Court”.
71. The need to be circumspect while invoking “inherent powers”, when there is an exhaustive legal framework is amplified in the context of a legislation like the IBC. In Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (CoC), a two judge bench of this Court, speaking through one of us (DY Chandrachud, J), affirmed this position and observed as follows:
“Any claim seeking an exercise of the adjudicating authority's residuary powers under Section 60(5)(c) IBC, NCLT's inherent powers under Rule 11 of the NCLT Rules or even the powers of this Court under Article 142 of the Constitution must be closely scrutinized for broader compliance with the insolvency framework and its underlying objective. The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to the IBC. Any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by the IBC framework and have grave implications on the outcome of the CIRP, the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a Corporate Debtor.”
(emphasis supplied)
# 162. However, the aforementioned decision should in no manner be read so as to restrict the exercise of plenary powers under Article 142 of the Constitution even while in deviating from the statutory procedure and framework of the IBC, 2016 or the rules and regulations thereunder, if such deviation is very much necessary. This Court in Glas Trust (supra) only went so far as to say that, where there is a prescribed procedure in place for a particular purpose, then that particular thing must be done only in the manner prescribed. It no way lays a dictum that even where cogent reasons exist warranting such deviation, the court would be powerless to exercise such inherent powers. In other words, Glas Trust (supra) only went to the extent of saying that in the absence of any exceptional circumstances or extraordinary reasons necessitating a deviation from the procedure laid down, the court should refrain from invoking its inherent jurisdiction to do something which otherwise could have been validly done in accordance with the procedure.
# 163. We are of the considered view that where there exists extraordinary circumstances warranting the exercise of such powers in order to ensure that the very salutary purpose of the Code, 2016 is not frustrated, then the Court would be well-within its prerogative to exercise them to secure the object of the IBC, 2016. If the proposition that there ought to be no exercise of the inherent powers where a procedure is laid down were to be blanketly accepted then it may have a very chilling effect whereby the very purpose of vesting this Court with inherent powers under Article 142 and tribunals Rule 11 of the NCLT Rules would be rendered otiose and meaningless.
# 164. On account of the inordinate delay in due implementation of the Resolution Plan, several dues including the CIRP costs of the Corporate Debtor have continuously multiplied. The Appellants are incurring huge expenditure and costs each month towards maintenance of the Corporate Debtor. The fundamental concern of this Court must not only be of doing substantial and complete justice but also to ensure expeditious resolution of the issues in the
interests of the underlying objective of the IBC, 2016 and all the stakeholders involved. We must obviate the possibility of the Corporate Debtor being stuck,embroiled and its resolution being further delayed, especially in light of the delay that has already ensued.
# 168. Scrupulous following of the provisions of the Code along with behavioural and ethical discipline is especially required from the key participants of the IBC who are central to its design i.e., the Adjudicating Authorities, Corporate Debtor, Resolution Professionals, Committee of Creditors, potential and Successful Resolution Applicants, Approved valuers and Liquidators.
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