NCLT Cannot Assume Power To Declare IBC Provisions, 2016 Regulations As Illegal Or Ultra Vires: Delhi High Court

The Delhi High Court has ruled that the National Company Law Tribunal (NCLT) cannot assume the power to declare as illegal or ultra vires any of the provisions of Insolvency and Bankruptcy Code (IBC), 2016 or Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Justice Pratibha M Singh said that the jurisdiction to deal with the validity and legality of the Regulations framed under the IBC is not conferred upon the NCLT.

"The NCLT being a creature of the IBC, cannot assume to itself the power of declaring any provisions of the IBC or the Regulations as illegal or ultra vires," the court said.

The court referred to a ruling of the NCLAT in the case of M/s Mohan Gems & Jewels Pvt. Ltd. v. Vijay Verma & Anr. wherein it was observed that the need for judicial intervention or innovation from NCLT & NCLAT should be kept at its bare minimum and should not disturb the foundational principles of the IBC.

Justice Singh thus set aside an order passed by the NCLT on September 5, 2018 to the extent of holding Regulation 36A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 as ultra vires, while disposing of a plea moved by Insolvency and Bankruptcy Board of India challenging the impugned order.

However, it clarified that no challenge was raised on merits to the validity or legality of the regulation in question before the High Court. 

The court said NCLT is vested with the power of adjudicating any application or proceeding before it and also deciding on questions of law or fact arising out of the insolvency resolution or liquidation proceedings.

It added that a closer reading of section 60(5)(c) of IBC would show that questions of law or facts ought to be in respect of those proceedings which are pending before the NCLT and that they must arise out of or in relation to the resolution or liquidation proceedings.

"This in the opinion of the Court cannot include the power to declare a Regulation itself as being ultra vires. Moreover, the rules and regulations which are framed by the Central Government or the IBBI are to be placed before Parliament in terms of Section 241 of the IBC."

Stating there was no challenge to Regulation 36A before the NCLT in the matter, the court said the NCLT had "gone ahead" and declared the regulation as ultra vires while dealing with an application seeking extension of time to complete the CIRP process.

"In view of the aforementioned discussion, since Regulation 36A has been amended and passed in accordance with law by the IBBI, the NCLT did not have the power to declare the same as being ultra vires merely on the ground that the two stage process provided in it i.e., of inviting an expression of interest first and then the financial bids, would be contrary to the speedier resolution of the Insolvency Resolution Process," the court said.

Title: INSOLVENCY AND BANKRUPTCY BOARD OF INDIA v. STATE BANK OF INDIA & ORS

Citation: 2022 LiveLaw (Del) 1138

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