The Hon’ble High Court of Calcutta vide judgement dated 18.08.2020 struck down the order dated 12.05.2020 passed by the National Company Law Tribunal (hereinafter mentioned as NCLT), New Delhi which mandated submission of record of default from Information Utility in Section 7, Insolvency & Bankruptcy Code 2016 (hereinafter mentioned as IBC 2016) applications, both prospectively as well as retrospectively.

The said judgement was pronounced in various writ petitions filed under Article 226 of the Constitution of India, challenging the impugned order of the National Company Law Tribunal (NCLT), New Delhi dated 12.05.2020.

Justice Shekhar B. Saraf’s noted that the said order under appeal was ultra vires the IBC, 2016 and has been enforced by the NCLT without jurisdiction.

The Single Bench however clarified that nothing prevents the Parliament to legislate the same change that was sought to be brought in by the NCLT by its order dated 12.05.2020.

The Court stated that the said order seeks to restrict the legislature’s intent behind section 7(3) of the IBC 2016, which defines a category of documents to be submitted in an application under section 7, instead of one as required by the order.

It was noted as follows, “on a plain reading of the above provision, it is imminent that three different categories of documents are available to a financial creditor to prove proof of default by a corporate debtor.”

A review of Section 4 of the Adjudicating Authority Rules 2016, as well as Regulation 8 of the CIRP Regulations, 2016 of the Indian Insolvency and Bankruptcy Board, together with the Swiss Ribbons Supreme Court ruling, also revealed to the Court that, apart from the Information utilities financial information, eight other categories of documents could be considered sources of financial debt.

Moreover, the Court rejected the contention of NCLT that Section 215 of IBC, 2016 makes it mandatory on operational creditors to file all information including information with regard to assets in relation to which any security interest has been created.

Justice Shekhar B. Saraf thus stated as follows,  “I am of the view that 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 proves the existence of a financial debt.”

The Court ruled that Rule 11 of the NCLT Rules 2016 which stipulates its inherent power to make such orders as may be necessary to serve the ends of justice or to prevent misuse of the Tribunal’s mechanism cannot be above its source or parent act i.e. Companies Act, 2013 and does not hinder the application of a parent law legislative regulation under which these Rules were formulated.

It stated that the impugned order adversely affects the substantive rights of the Petitioners as a financial creditor, envisaged under IBC, 2016 and also goes beyond the statutory limitations of the Companies Act, 2013 and the principles of natural justice and is thus in excess of jurisdiction of the NCLT. The Court stated “The very nature of the impugned order would create barriers for financial creditors and would leave them on the high seas as regards the corporate insolvency resolution process. Under the above circumstances it is apparent that the NCLT has acted without jurisdiction and exceeded its jurisdiction that is limited within the four corners of Section 424 of the CA, 2013 and Section 7(3)(a) of the IBC, 2016.”

The Court thus struck down the impugned order as ultra vires the IBC, 2016 and the Regulations thereunder noting that if the impugned order is allowed to persist ,it shall not only restrict the modes of evidence to showcase or adduce an existence of debt accrued to a financial creditor under the IBC, 2016, before the Adjudicating Authority or NCLT, it would also directly be in confrontation with the Sec. 7(3)(a) read with Regulation 8 of the CIRP, 2016, be inconsistent with the IBC, 2016 and thereby defeat the very purpose for which the IBC, 2016 had been enacted.

Order:WP 5595 (W) OF 2020