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NCLT, NCLAT can't compel parties to settle disputes: SC

A bench presided over by Justice D Y Chandrachud said that the NCLT is empowered only to verify whether a default has occurred or not
Last Updated 14 December 2021, 17:28 IST

The Supreme Court on Tuesday held that the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) cannot compel parties to settle their dispute while acting as “courts of equity”.

A bench presided over by Justice D Y Chandrachud said that the NCLT is empowered only to verify whether a default has occurred or not.

In its decision, the NCLT “must either admit or reject an application respectively. These are the only two courses of action which are open to the adjudicating authority, which cannot compel a party to the proceedings before it to settle a dispute", the bench said.

The top court stressed that while settlements can be encouraged by the NCLT and NCLAT to achieve the objectives of the Insolvency and Bankruptcy Code (IBC), they cannot direct any settlement by acting as courts of equity.

It said that settlements have to be encouraged because the ultimate purpose of the IBC is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation.

The court passed its judgment on a petition by E S Krishnamurthy where both NCLT and NCLAT had rejected a plea for initiating the insolvency proceedings against M/s Bharath Hi Tech Builders Pvt Ltd.

The court dealt with the legal question of whether the NCLT and the NCLAT were correct in their approach of rejecting the petition under Section 7 of the IBC at the ‘pre-admission stage’, and directing them to settle with the company within three months.

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(Published 14 December 2021, 17:28 IST)

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