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E.S. Krishnamurthy and Ors. vs. Bharath Hi Tech Builders Pvt. Ltd. - (Supreme Court) (14 Dec 2021)

Adjudicating Authority and Appellate Authority under IBC cannot compel a party to the proceedings before it to settle a dispute



In present matter, on a petition which was instituted by the Appellants under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating the Corporate Insolvency Resolution Process in respect of the Respondent, the NCLT declined to admit the petition and instead directed the Respondent to settle the claims within three months. The NCLAT found no merit in the appeal against the NCLT’s order.

The Adjudicating Authority has clearly acted outside the terms of its jurisdiction under Section 7(5) of the IBC. The Adjudicating Authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.

The IBC is a complete code in itself. The Adjudicating Authority and the Appellate Authority are creatures of the statute. Their jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelises and circumscribes the ambit of such jurisdiction. Thus, while the Adjudicating Authority and Appellate Authority can encourage settlements, they cannot direct them by acting as courts of equity.

The order of the Adjudicating Authority, and the directions which eventually came to be issued, suffered from an abdication of jurisdiction. Plainly, the Adjudicating Authority failed to exercise the jurisdiction which was entrusted to it. A clear case for the exercise of jurisdiction in appeal was thus made out, which the Appellate Authority then failed to exercise. The impugned judgment and order of the NCLAT is set aside. The petition under Section 7 of the IBC is accordingly restored to the NCLT for disposal afresh. Appeal allowed.


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