Calcutta HC quashes NCLT order imposing a mandatory prescription on all Financial Creditors to submit certain financial information retrospectively

Calcutta HC quashes NCLT order imposing a mandatory prescription on all Financial Creditors to submit certain financial information retrospectively

Calcutta High Court - NCLT - mandatory prescription - financial creditors - Taxscan

The Calcutta High Court quashed the order passed by the National Company Law Tribunal (NCLT) wherein it imposed a mandatory prescription on all financial creditors as defined under the extant provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) to submit certain financial information as a record of default retrospectively.

The writ petitions have been filed by the petitioners in which a stern challenge has been mounted to an impugned order issued by the Registrar of the NCLT at its Principal Bench in New Delhi, wherein it was stated that a mandatory prescription on all financial creditors, as defined under the extant provisions of the IBC, 2016 to submit certain financial information as a record of default before the Information Utility (IU) as a condition precedent for filing any new application under Section 7 of the IBC, 2016.

The order further transcends to impose this purported mandatory prescription retrospectively on all those applicants/financial creditors who have pre-existing applications filed under Section 7 of the IBC, 2016 and pending before the various Benches of the NCLT, prior to such final hearing of these applications.

The High court framed two substantial issues.

Firstly, what is the scope of the powers of the NCLT and whether the exercise of the same in the impugned order May 12, 2020 is de hors the IBC, 2016 and the rules and regulations framed thereunder.

Secondly, In the event, the answer to the above is in the negative, whether the NCLT could enforce the same retrospectively thereby adversely affecting the rights of the petitioner as a financial creditor under the extant provisions of the IBC, 2016.

The single-judge bench of Justice Shekhar B. Saraf held that the NCLT has acted without jurisdiction and exceeded its jurisdiction that is limited within the four corners of Section 424 of the CA, 2013 by passing the impugned order in violation of Section 7(3)(a) of the IBC, 2016.

The court further noted that the impugned order is clearly in confrontation with Rule 4 of AA Rules, 2016, and Regulation 8 of the CIRP Regulations, 2016, and thereby defeats the very purpose for which the IBC, 2016 has been enacted.

“As far as the distinction that was sought to be drawn between substantive and procedural laws whereby the tribunal could regulate its own procedure, such powers of the tribunal regulated by a delegated form of legislation cannot rise above their source, that is the CA, 2013 and thereby obstruct the operation of a statutory provision of the parent Act (a substantive provision) and the Rules formulated thereunder,” the bench said.

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