NCLAT quashes NCLT order making Corp Affairs Ministry a party to all IBC cases

New Delhi | Updated on May 25, 2020

Rule making power rests with govt and not with NCLT, says Ministry

The National Company Law Appellate Trobunal (NCLAT) has set aside a principal Delhi bench of NCLT’s order requiring the Secretary in the Ministry of Company Affairs (MCA) to be impleaded as a party respondent in all cases of Insolvency and Bankruptcy Code (IBC) before such Tribunals throughout the country.

It has concluded that NCLT’s direction to implead the MCA Secretary in all cases of IBC is nothing but beyond the power of the Tribunal and is tantamount to imposition of a new rule in a compelling fashion.

The NCLT order making it applicable throughout the country to all the benches of Tribunal is an untenable one and it suffers from material irregularity and patent illegality in the eye of law, the NCLAT has said.

MCA had approached NCLAT soon after the principal bench of NCLT had directed that MCA Secretary be impleaded as party respondent so that authentic record is made available by the officers of MCA for proper appreciation of the matters.

MCA had contended that the Adjudicating Authority (NCLT) does not possess the powers to pass an order, which was in the ‘nature of rule’ under the guise of an ‘order’. The rule making power is the exclusive domain of the Central government and the same is required to be placed after notification before the House of Parliament, MCA had said.

Experts’ views

Richa Roy, Partner, Cyril Amarchand Mangaldas, a law firm, said the NCLAT judgement ruling that the Secretary MCA is not required to be a necessary party to all fillings under the IBC is a well-reasoned one.

“The NCLAT ruled that the MCA need not be a party to all. Although the MCA has been central in the implementation of the IBC, their being a party to every single IBC fillings is not only excessive but perhaps counterproductive. The NCLAT order is therefore a welcome decision that reaffirms the correct position.” she said.

Bikash Jhawar, Partner, L&L Partners, a law firm, said it (NCLAT ruling) is the proper and correct thing to do.

“An IBC proceeding is between a corporate and its creditors and unless there is some specific intervention of any government body needed, there is no need to make them a party; the Code doesn’t mandate or contemplate it. There would have been an unnecessary logistical issue and would have put additional pressure on maintaining sanctity of timelines,” he said.

Published on May 25, 2020

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