Summary
The Court held that the NCLT could not dispose of a Section 7 insolvency application by directing settlement of unresolved claims instead of deciding admission or rejection under the Code. Settlement with some creditors did not justify that course where others remained unpaid and opposed it. The tribunals could encourage consensual settlement but lacked an independent equitable power to compel it. The NCLT and NCLAT orders were set aside and the application restored for fresh decision, leaving other maintainability questions, including the amended creditor threshold, open.
Issues
- Whether the NCLT could dispose of a Section 7 application at a purported pre-admission stage by directing settlement rather than deciding it under the Code.
- What issues remained for decision after restoration of the application.
Provisions considered
- Sections 3(11), 3(12) and 7, particularly Section 7(5), Insolvency and Bankruptcy Code, 2016The authority had to examine debt, default and the statutory admission requirements and then admit or reject; directing settlement was not an alternative disposal. (¶ 20-27)
Held
- Section 7 provided admission or rejection upon examination of the statutory conditions. The authority could not bypass that inquiry and direct the debtor to settle unresolved claims within a fixed period, requiring dissatisfied creditors to begin proceedings again. (¶ 20-28)
- Settlements may be encouraged to advance rehabilitation and resolution, but the tribunals’ powers arise from and remain confined by the Code. They do not possess an unstructured equity jurisdiction to compel parties to settle. (¶ 28-30)
- The consent terms did not bind all original petitioners and the dispute had not been settled with all appellants. Describing disposal as occurring before admission did not cure the failure to exercise jurisdiction or make the appeal against it non-maintainable. (¶¶ 19, 26, 31-32)
- The Section 7 application was restored for fresh disposal. Other rights and contentions, including issues arising from the amended threshold for creditor applications, were left open rather than finally decided. Impleadment applicants were given liberty to take appropriate proceedings before the authority or another advised forum. (¶ 33-35)
Result
Appeal allowed; NCLT and NCLAT orders set aside and Section 7 application restored for fresh disposal, with other maintainability and merits issues left open.