NCLAT Sets Aside Adjudicating Authority's Order for Lack of Ingredients Under Section 66 of IBC

NCLAT Sets Aside Adjudicating Authority's Order for Lack of Ingredients Under Section 66 of IBC

Introduction

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that the adjudicating authority cannot invoke Section 60(5) of the Insolvency and Bankruptcy Code (IBC) when the ingredients of Section 66 are not made out. This judgment highlights the importance of satisfying the requirements of Section 66 before exercising powers under Section 60(5) of the IBC.

Factual Background

The adjudicating authority allowed an application by exercising its powers under Section 60(5) of the IBC, citing fraudulent conduct by the respondent. However, the adjudicating authority itself acknowledged that the requirements of Section 66 of the IBC were not satisfied. The appellant challenged this order before the NCLAT.

Procedural Background

The appellant filed an appeal before the NCLAT, challenging the order passed by the adjudicating authority. The appellant contended that the adjudicating authority erred in allowing the application by exercising its power under Section 60(5) of the IBC when the ingredients of Section 66 were not met.

Issues

• The main issue before the NCLAT was whether the adjudicating authority was justified in invoking Section 60(5) of the IBC when the ingredients of Section 66 were not made out.
• The NCLAT had to determine whether the adjudicating authority's order was legally justified and whether the ingredients of Section 66 were essential for exercising powers under Section 60(5) of the IBC.

Contentions of the Parties

Appellant: The appellant argued that the ingredients of Section 60 of the IBC were not met, and the adjudicating authority erred in allowing the application. The appellant also highlighted that prayers (b) to (d) in the application before the adjudicating authority were against the financial creditor, not the appellant.

Respondent: The respondent contended that the fraudulent conduct had already been judicially determined in prior applications, which had not been appealed by the appellant. Therefore, the adjudicating authority rightly passed the impugned order by exercising its power under Section 60(5) of the IBC.

Reasoning and Analysis

The bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) observed that there was no justification for allowing the application, especially when the adjudicating authority had itself observed that the ingredients of Section 66 had not been made out. The tribunal noted that the relief sought was either not related to the appellant or pertained to the financial creditors and hence, was not sustainable. The NCLAT agreed that the impugned order applies only to I.A. No. 1305/2020 and does not impact other cases.

Implications

The judgment highlights the importance of satisfying the ingredients of Section 66 of the IBC before invoking Section 60(5). The NCLAT's decision underscores that the adjudicating authority's power under Section 60(5) is not unfettered and must be exercised in accordance with the provisions of the IBC. This judgment provides clarity on the scope and limitations of Section 60(5) and Section 66 of the IBC.

Relief Sought

The appellant sought to set aside the adjudicating authority's order, which the NCLAT granted. The appeal was allowed, and the impugned order was set aside.

In this case the appellant was represented by Mr. Chirag Mody and Mr. Minesh K. Shah, Advocates. Meanwhile the respondent was represented by Mr. Ravi Raghunath, Advocate.