News Updates

NCLAT Sets aside NCLT Order To Add MCA As Party In All IBC Cases And Company Petitions [Read Order]

Nilashish Chaudhary
25 May 2020 11:07 AM GMT
NCLAT Sets aside NCLT Order To Add MCA As Party In All IBC Cases And Company Petitions [Read Order]
Your free access to Live Law has expired
To read the article, get a premium account.
    Your Subscription Supports Independent Journalism
Subscription starts from
(For 6 Months)
Premium account gives you:
  • Unlimited access to Live Law Archives, Weekly/Monthly Digest, Exclusive Notifications, Comments.
  • Reading experience of Ad Free Version, Petition Copies, Judgement/Order Copies.
Already a subscriber?

The National Company Law Appellate Tribunal (NCLAT) set aside an order of National Company Law Tribunal (NCLT) which mandated the impleadment of the Union Ministry of Corporate Affairs (MCA) as a party in all Insolvency and Bankruptcy Code (IBC) matters and Company petitions.

NCLAT was of the view that the order was tantamount to the imposition of a new rule, which was beyond the powers of NCLT. Thus, allowing the Union Government's appeal, the Tribunal held that the said order was untenable as it suffered from material irregularities and was patently illegal in the eyes of law.

"This Tribunal comes to an inevitable and irresistible conclusion that the directions issued in respect of Application No.2024/ 19 filed by the Resolution Professional to implead the 'Secretary of Ministry of Corporate Affairs' as party Respondent in all cases of I&B Code is nothing but beyond the power of the Tribunal and it tantamounts to imposition of a new rule in a compelling fashion. In short, the impugned order making it applicable throughout the country to all the Benches of the National Company Law Tribunal is untenable one and the said order suffers from material irregularity and patent illegality in the eye of Law. As a logical corollary, this Tribunal, this Tribunal set aside the impugned order dated 22.11.2019 in (IB)-939(PB)/2018 in furtherance of substantial cause of justice. Consequently, the present Appeal succeeds", ordered NCLAT.

In November 2019, the Principal Bench of NCLT had issued directions that MCA, through its Secretary, would be impleaded as a respondent party in all cases of the IBC and Company Petitions, on grounds that authentic records would then be made available by the officers of MCA for proper appreciation of the matter. The same was to be applicable throughout the country, to all the Benches of NCLT. Aggrieved by the same, the Centre preferred an appeal in NCLAT and the operation of the Order was stayed.

In its challenge, the Centre argued that NCLT could not pass an order which was in the "nature of rule", as rule making powers were the exclusive domain of the Government. Averring to the same, it was urged that the order was "bristled with numerous infirmities" as the Tribunal did not even issue a notice to the Centre before passing such an order.

With regard to the issue of availability of authentic records, the Centre apprised the Tribunal that the Companies (Registration of Offices and Fees) Rules, 2014 and Section 399(1) (a) & (b) of the Companies Act, 2013 had provided for inspection and furnishing the certified copies of the documents kept by the Registrar on payment of requisite fees.

It was further submitted that a Corporate Insolvency Resolution Professional is bound to produce the record, which is available in public for analysis and scrutiny on the MCA Portal.

Taking note of these submissions, the 3-member Bench headed by Justice Venugopal M held that impleading a party is a subjective issue which must be considered carefully on a case to case basis. Emphasizing that such "wholesale, blanket and omnibus directions cannot be issued in single stroke", the Bench enunciated that a notice must always be issued to a newly impleaded party, when such impleadment is deemed necessary. It was thus held:-

"Whether a party is a proper/ necessary party for an effective and efficacious adjudication of the controversy involved in a given case, although it is for the concerned Tribunal/ Court/ Authority to subjectively consider the same based on facts and circumstances of a case, which float on the surface. In this regard, with an utmost care, caution and circumspection a finding has to be rendered by passing necessary orders in a objective and dispassionate manner for impleading a party to take part in the main arena of proceedings. Undoubtedly, a notice will have to be issued to the newly impleaded party and a just, fair and final order can only be passed after hearing the Objections/ Reply of the said party."

The Bench also went on to opine that observing the tenets of natural justice was of paramount importance. In the present case, the Bench held, these tenets had not been followed as the Centre had not been afforded an adequate opportunity to be heard.

"In the instant case on hand, this Tribunal on going through the impugned order dated 22.11.2019 passed by the National Company Law Tribunal, New Delhi, Principal Bench in (IB)-939(PB)/2018, is of the considered opinion that the Appellant was not provided with an adequate opportunity of being heard in the subject matter in issue, except directions being issued in regard to the filing of affidavit on the issues therein and the filing of parawise reply."

It went on to lay down that if a Tribunal were to pass an order, without affording an opportunity of hearing to the parties, the same would be unsustainable in law. Only upon providing a reasonable opportunity of being heard to the other side can a Tribunal pass appropriate orders, it added. To this end, it was held that:-

"…when an order like the impugned one is passed by the 'Tribunal' or 'Competent Authority' without hearing the party concerned, by not following the 'principles of Natural Justice' by not initially ordering notice and not taking into consideration of the objections of that party, certainly, it will result in serious miscarriage of justice, besides causing undue hardship."

Click Here To Download Order

[Read Order]

Next Story