NCLT don’t have rights to declare any provision ultra vires (Pdf Attach)

In a recent judgment by Delhi High court has observed that NCLT dont have the power of assuming the IBC as ultra vires.

Introduction

In the case of “Insolvency and Bankruptcy Board of India vs. State Bank of India & Ors. (2022),” as reported on ibclaw.in 280 HC, the Delhi High Court, in a significant ruling, has clarified that the National Company Law Tribunal (NCLT) does not possess the authority to unilaterally declare any provision within the Insolvency and Bankruptcy Code, 2016 (IBC) or the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) as unlawful or exceeding its legal authority.

Facts of the cases:

In the legal matter of State Bank of India vs. Su Kam Power Systems Ltd. (2018), documented in ibclaw.in 58 NCLT, State Bank of India sought an extension of 90 days for the Corporate Insolvency Resolution Process (CIRP) through an application to the National Company Law Tribunal (NCLT). This request was prompted by the absence of any resolution plans despite the solicitation of expressions of interest. Consequently, the Insolvency and Bankruptcy Board of India (IBBI) lodged a writ petition with the Delhi High Court, contesting the NCLT’s decision.

In response to this situation, State Bank of India, identified as Respondent No. 1, filed a plea under section 12(2) with the NCLT, seeking a 90-day extension for the completion of the CIRP. During the proceedings, the NCLT noted that an invitation for expressions of interest had been issued, yet no resolution proposals were forthcoming. The pivotal point of contention revolved around the division of the CIRP into two distinct stages: the call for expressions of interest and the subsequent pursuit of resolution plans, as stipulated in Regulation 36A.

The petitioner has challenged the aforementioned order in this Court, raising several grounds, including the argument that the NCLT possesses the jurisdiction and authority to assess the validity and legality of regulations.

Judgement :

The recent judgment handed down by the Delhi High Court carries significant implications for the National Company Law Tribunal’s (NCLT) jurisdiction in matters concerning the Insolvency and Bankruptcy Code (IBC) and its related regulations. The verdict unequivocally establishes that the NCLT does not possess the authority to declare any provisions within the IBC or its regulatory framework as illegal or exceeding their prescribed scope.

Fundamentally, the court underscored that the NCLT, being an entity created by the IBC itself, cannot overstep its boundaries by asserting the power to deem any aspect of the IBC or its regulations as unlawful or beyond their intended purview. This ruling aligns with a prior decision by the National Company Law Appellate Tribunal (NCLAT), emphasizing the vital need to avoid judicial overreach by both the NCLT and NCLAT in order to safeguard the core tenets of the IBC.