The petitioners have challenged the order dated May 12, 2020, issued by the
approval of the Hon'ble Acting President of the NCLT, New Delhi which imposes a
mandatory prescription on all financial creditors to submit certain financial
information as a record of default before the Information Utility as a condition
precedent for filing any new application under Section 7 IBC, 2016 and further
transcends to impose this prescription retrospectively on all
applicants/financial creditors who have pre-existing applications filed under
section 7 of IBC, 2016 and pending before various benches of NCLT.
What is the scope of the powers of the NCLT and whether the exercise of the same
in the impugned order May 12, 2020, is de hors the IBC, 2016 and the rules and
regulations framed there under?
In the event the answer to the above is in the negative, whether the NCLT could
enforce the same retrospectively thereby adversely affecting the rights of a
financial creditor under the extant provisions of the IBC, 2016?
Section 7 of The Insolvency and Bankruptcy Code, 2016, Insolvency and Bankruptcy
(application To Adjudicating Authority) Rules, 2016, National Company Law
Tribunal Rules, 2016 Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, and The Constitution of India.
In light of the decisions of the Supreme Court on the exercise extent of
powers granted and available with the NCLT and NCLAT, even the exercise of
incidental or ancillary powers by tribunals are permitted unless proscribed by
any indication which speaks to the contrary through the statute governing the
tribunal so constituted.
On a reading of section 424(1) of the Companies Act,
2013 in light of the abovementioned decisions, it can be inferred that while
both NCLT and NCLAT has been conferred with powers to regulate their own
procedure, such use of its power is circumscribed and subject to the principles
of natural justice as well as the provisions of Companies Act, 2013 or the
Insolvency and Bankruptcy Code, 2016, inclusive of any rules/ regulations made
under the IBC, 2016 by the regulatory body, IBBI.
Therefore, the powers of the NCLT and NCLAT is limited both by principles of natural justice as well as
statutory provisions and regulations framed under such legislations. Thus, the
impugned order had become a fait accompli for the petitioners, which did indeed
adversely affect their substantive rights as a financial creditor, as envisaged
under the IBC, 2016. Thus, the impugned order is de hors the CA, 2013, the IBC,
2016 and the rules and regulations framed there under.
For the question of the legal propriety of the impugned order, the test for its
validity is subject to fulfillment of two conditions:
- It must conform to the provisions of the statute under which it is
- It must also come within the scope and purview of the rule making power
of the authority framing the rule.
If either of these two conditions is not fulfilled, the rule so framed would be
void. When the rule-making power is conferred by legislation on a delegate, the
latter cannot make a Rule contrary to the provisions of the parent legislation.
The rule-making authority does not have the power to make a Rule beyond the
scope of the enabling law or inconsistent with the law.
However, the impugned order is silent on the enabling provision of law, that is,
either the statutory or delegated source of power which enabled the NCLT to
issue the order. Thus in order to answer the same, interpretative scope of legislative intent
 of Section 7(3)(a) must be looked into. For the
ascertainment of the interpretative scope of legislative intent of Section
7(3)(a), it is evident that the clause is disjunctive in nature and the
conditions are therefore to be read in alternative.
Following the principle of literalegis, it can be seen that if the intention of
the legislature was to make the term as
may be specified
applicable to all three categories a comma would have been
inserted after the word default
. Therefore, the legislature had no intention
to extend the term to all three categories. In light of the abovementioned
reasoning, the impugned order falls foul as it seeks to limit the intent of the
legislature to the submission of only one document, that is, category (a) above.
The suit was resolved squarely in the favor of the petitioners as it was found
that the impugned order is held to be ultra virus the IBC, 2016 and the
Regulations thereunder, since the inherent powers of the NCLT under Rule 11 of
the NCLT Rules, 2016 do not permit the NCLT to pass the impugned order and the
NCLT has acted without jurisdiction and exceeded its jurisdiction that is
limited within the four corners of Section 424 of the CA, 2013 by passing the
impugned order in violation of Section 7(3)(a) of the IBC, 2016.
the impugned order is clearly in confrontation with Rule 4 of AA Rules, 2016 and
Regulation 8 of the CIRP Regulations, 2016 and thereby defeats the very purpose
for which the IBC, 2016 has been enacted, and is accordingly struck down.
- Financial creditors can rely on either of the modes of evidences at hand
to showcase a financial debt, that is, either a record of default from the IU OR
any other document as specified which showcases the existence of financial debt.
Such other documents may belong to any of the four classes of documents stated
in sub-regulation 2(b) of Regulation 8 of the CIRP, 2016 or all the eight
classes of documents stated in Part-V to Form-1 appended with the AA Rules,
- Based on the above, it may therefore be inferred that Section 215 of the
IBC, 2016 is not mandatory in nature.
- Inherent powers of the NCLT:
- The NCLT could not exercise its inherent powers under Rule 11 of the
NCLT Rules, 2016 to promulgate the impugned order dated May 12, 2020.
- Substantive and Procedural Laws:
- As far as the distinction that was sought to be drawn between
substantive and procedural laws whereby the tribunal could regulate its own
procedure, such powers of the tribunal regulated by a delegated form of
legislation cannot rise above their source, that is the CA, 2013 and thereby
obstruct the operation of a statutory provision of the parent Act (a
substantive provision) and the Rules formulated there under.
- Retrospective power in a delegated legislation:
- Any delegatee under the IBC, 2016, and the CA, 2013, that is, the
Central Government, the IBBI and the NCLT cannot make regulations that have a
- Engineering Mazdoor Sabha v Hind Cycles Ltd. AIR 1963 SC 874; State Bank of
India v Jah Developers Pvt. Ltd. (2019) 6 SCC 787; Grindlays Bank Ltd. 1980
(Supp) SCC 420; Union of India v Paras Laminates Ltd. (1990) 4 SCC 453
- As stated by Salomon v Salomon & Co.  A.C. 22 at page 38 � legislative
intent can only be ascertained from that which it has chosen to enact, either in
express words or by reasonable and necessary implication.