NCLAT dismisses NCLT order to make MCA party to every IBC case and Company Petitions
The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the Principal Bench of NCLT that the Ministry of Corporate Affairs (MCA) will have to be made a party to every case under the Insolvency and Bankruptcy Code (IBC).The National Company Law Tribunal (NCLT) had on November 22, 2019, ordered that in all cases of Insolvency & Bankruptcy Code and Company Petition,...
The National Company Law Appellate Tribunal (NCLAT) has set aside an order of the Principal Bench of NCLT that the Ministry of Corporate Affairs (MCA) will have to be made a party to every case under the Insolvency and Bankruptcy Code (IBC).
The National Company Law Tribunal (NCLT) had on November 22, 2019, ordered that in all cases of Insolvency & Bankruptcy Code and Company Petition, the Union of India, Ministry of Corporate Affairs through the Secretary be impleaded as a party respondent so that authentic record is made available by the officers of the Ministry of Corporate Affairs (MCA) for proper appreciation of the matters.
The Union of India (UOI) (the Appellant) contended that the impugned order of the NCLT bristled with numerous infirmities and that the Adjudicating Authority (NCLT) did not possess the powers to pass an order, which was in the ‘nature of rule’ under the guise of an ‘order’. According to the Appellant, the ‘rule making power’ is the exclusive domain of the Central Government (being a subordinate legislation) and the same is required to be placed after notification before the August House of the Parliament.
The impugned order making it applicable throughout the country to all the benches of NCLT is untenable and it suffers from material irregularity and patent illegality in the eye of law, said the judgment.
The MCA had moved the Appellate Tribunal after the Principal Bench of NCLT in Delhi, in the Oriental Bank of Commerce versus Sikka Papers case, ordered that the MCA should be impleaded as a party/respondent through the Secretary so that authentic record is made available by the ministry officers for proper appreciation of the matters.
The three-member bench of NCLAT noted that such “wholesale, blanket and omnibus directions” cannot be issued in a single stroke. “As a matter of fact, there is no necessity to array the appellant/Ministry of Corporate Affairs as a party in respect of the applications filed under Sections 7, 9 or 10 of IBC for the purpose of reliable record or for appreciation of the matter,” said the NCLAT judgment.
Whether the Ministry of Corporate Affairs through the Secretary should be impleaded as a necessary party or as pro forma respondent before the tribunal is to be determined only on a case-to-case basis when the need of a given case arises for rumination of issues, which comes up before the respective tribunals, NCLAT said.
According to the NCLAT, ‘impleadment of parties’ is only a matter of fact and not a matter of Law. “Addition of parties/ striking out parties of course, is a matter of discretion to be exercised by a Tribunal/ Court based on sound judicial principles. The said discretion can be exercised either on the application of a Petitioner/ Respondent or suo-motu or on the application of a person who is not a party to any pending proceedings. However, the said discretion cannot be exercised in a cavalier and whimsical fashion.”
The Appellate Tribunal further observed, “Whether the Appellant through the Secretary, Ministry of Corporate Affairs be impleaded as a necessary Party/ even as proforma Respondent before the Tribunal is to be determined only on a case to case basis when the need of a given case arises for rumination of issues, which comes up before the respective Tribunals and when an order like the impugned one is passed by the ‘Tribunal’ or ‘Competent Authority’ without hearing the party concerned, by not following the ‘principles of Natural Justice’ by not initially ordering notice and not taking into consideration of the objections of that party, certainly, it will result in serious miscarriage of justice, besides causing undue hardship.”
According to the NCLAT, for the alleged violation under Section 68 to 77 of IBC and for taking action as per Section 236(2) of the IBC whether to implead the Central Government as a proforma Respondent it is for the individual applicant to take a call because he is the ‘dominus litus’ although, when no relief is claimed against the Union of India, it need not even be a proforma party in an application filed under IBC, since it is an Otiose one. In public interest/ criminal offences being taken up before the special Court under Section 435 of the Companies Act, 2013 in a Company Petition/ Appeal before the Tribunal, the Union of India through any authorized officer/ person can be added as a party and in other cases it is for the Applicant/ Appellant or for the Tribunal to take an ultimate decision for showing a person as a necessary or proper party.
In the present case, the ‘Ministry of Corporate Affairs’ was neither arrayed as a party nor impleaded in the subject matter before the Adjudicating Authority. Also, that the ‘Registrar of Companies’ had not filed any response/ reply/ counter (in respect of the clarification sought for) prior to the passing of the impugned order.
The NCLAT concluded that the impugned order making it applicable throughout the country to all the Benches of the NCLT is untenable one and the said order suffers from material irregularity and patent illegality in the eye of Law.
The order of the NCLT was set aside.