NCLT Has Inherent Power To Impose Moratorium Before Initiation Of Corporate Insolvency Resolution Process : NCLAT [Read Judgment]

NCLT Has Inherent Power To Impose Moratorium Before Initiation Of Corporate Insolvency Resolution Process : NCLAT [Read Judgment]

The National Company Law Appellate Tribunal (NCLAT) in a matter has recently held that once an application for initiating insolvency proceedings is filed, NCLT does not have to await hearing of the parties to impose moratorium.

The NCLAT Bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Kanthi Narahari, Member (Technical), while hearing the matter [NUI Pulp and Paper Industries Pvt. Ltd. vs. M/s. Roxcel Trading GMBH] affirmed that Rule 11 of the NCLT Rules, 2016 gave NCLT inherent power to impose moratorium, before the matter is admitted, for meeting the ends of justice or to prevent abuse of the process of the Tribunal.

The Tribunal at Chennai, while exercising power under Rule 11 of the NCLT Rules, had passed an ad-interim order restraining NUI Pulp and Paper Industries Pvt. Ltd. (Corporate Debtor) and its Directors from alienating or creating any third party interest on the assets of the Corporate Debtor Company till further orders were passed in the matter.

It was the case of NUI Pulp that before admission of insolvency petition, NCLT has no jurisdiction to restrain the 'Corporate Debtor' (NUI Pulp in this case) and its Directors from alienating, encumbering or creating any third party interest on its assets.

The Tribunal at Chennai held that it could pass an order for interim relief to ensure that NUI Pulp doesn't alienate its assets and defeat the purpose of the Insolvency and Bankruptcy Code, 2016 ('I&B Code').

NUI Pulp had approached NCLAT by way of an appeal challenging the decision of NCLT, Chennai.

The NCLAT Bench asked NUI Pulp whether it intended to alienate or create any third party interest on its assets, to which NUI Pulp submitted that it could not give any such undertaking and will act according to the necessity of the day-to-day functioning of the Company.

It was observed by the Appellate Tribunal that once an application for initiating insolvency is filed by the NCLT, Rule 11 of the NCLT Rules didn't mandate that parties must be heard before passing an order of 'Moratorium' under Section 14 of the 'I&B Code'.

In view of the observations, the NCLAT affirmed that, even before commencement of insolvency proceedings, NCLT has inherent jurisdiction to impose moratorium and dismissed the appeal of NUI Pulp.

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