E S Krishnamurthy & Ors. Vs Bharath Hi Tech Builders Pvt. Ltd. (Supreme Court)
Conclusion: What the Adjudicating Authority and Appellate Authority had proceeded to do was to abdicate their jurisdiction to decide a petition under Section 7 by directing the respondent to settle the remaining claims within three months and leaving it open to the original petitioners, who were aggrieved by the settlement process, to move fresh proceedings in accordance with law. Such a course of action was not contemplated by the IBC. Adjudicating Authority could not compel a party to the proceedings before it to settle a dispute.
Held: The issue which arose for adjudication before this Court was whether, in terms of the provisions of the IBC, the Adjudicating Authority could without applying its mind to the merits of the petition under Section 7, simply dismiss the petition on the basis that the corporate debtor had initiated the process of settlement with the financial creditors and whether the NCLT and the NCLAT were correct in their approach of rejecting the appellants’ petition under Section 7 of the IBC at the ‘pre-admission stage’, and directing them to settle with the respondent within 3 months. It was held that Adjudicating Authority had clearly acted outside the terms of its jurisdiction under Section 7(5) of the IBC. Adjudicating Authority was empowered only to verify whether a default had occurred or if a default had not occurred. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively. These were the only two courses of action which were open to the Adjudicating Authority in accordance with Section 7(5). Adjudicating Authority could not compel a party to the proceedings before it to settle a dispute. The objective of the IBC was to facilitate insolvency resolution “in a time bound manner” for maximisation of the value of assets, promotion of entrepreneurship, ensuring the availability of credit and balancing the interest of all stakeholders. What the Adjudicating Authority and Appellate Authority, however, had proceeded to do in the present case was to abdicate their jurisdiction to decide a petition under Section 7 by directing the respondent to settle the remaining claims within three months and leaving it open to the original petitioners, who were aggrieved by the settlement process, to move fresh proceedings in accordance with law. Such a course of action was not contemplated by the IBC. The IBC is a complete code in itself. The Adjudicating Authority and the Appellate Authority are creatures of the statute. Their jurisdiction is statutorily conferred. The statute which confers jurisdiction also structures, channelizes and circumscribes the ambit of such jurisdiction. The order of the Adjudicating Authority, and the directions which eventually came to be issued, suffered from an abdication of jurisdiction. The Appellate Authority sought to make a distinction by observing that the directions of the Adjudicating Authority were at the ‘pre-admission stage’, and that the order was not of such a nature which was prejudicial to the rights and interest of the stakeholders. The Appellate Authority was cognizant of the fact that even the time schedule for settlement which had been indicated by the Adjudicating Authority had elapsed, but then noted the impact of the outbreak of COVID-19 pandemic on the real estate market, including on the respondent. While acknowledging that the consent terms were “filed by some of the stake holders though may not be all encompassing”, the Appellate Authority nonetheless proceeded to dismiss the appeal as not maintainable. The observation that the appeal was not maintainable was erroneous. Plainly, the Adjudicating Authority failed to exercise the jurisdiction which was entrusted to it. A clear case for the exercise of jurisdiction in appeal was thus made out, which the Appellate Authority then failed to exercise.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
