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NCLAT sets aside NCLT order on making MCA party in all IBC cases

A three-member Bench of the NCLAT held that the NCLT order asking the Ministry to be made a party in all IBC cases, without giving the MCA a chance to present its side would have resulted in “serious miscarriage of justice, besides causing undue hardship”.

By: ENS Economic Bureau | New Delhi | Published: May 26, 2020 3:00:03 am
The Principal Bench of NCLT had, on November 22, directed that the MCA as well as the central government be made a respondent party in all cases of insolvency as well as Companies Act filed across the country. (File Photo)

In a relief to the Ministry of Corporate Affairs (MCA), the National Company Law Appellate Tribunal (NCLAT) set aside an order of the Principal Bench of the National Company Law Tribunal (NCLT) which had directed that the MCA be made a party in all cases filed under the Section 7, 9, and 10 of the Insolvency and Bankruptcy Code (IBC).

A three-member Bench of the NCLAT held that the NCLT order asking the Ministry to be made a party in all IBC cases, without giving the MCA a chance to present its side would have resulted in “serious miscarriage of justice, besides causing undue hardship”.

“In short, the impugned order making it applicable throughout the country to all the Benches of the National Company Law Tribunal is an untenable one and the said order suffers from material irregularity and patent illegality in the eye of law. As a logical corollary, this Tribunal sets aside the impugned order,” the NCLAT said.

The Principal Bench of NCLT had, on November 22, directed that the MCA as well as the central government be made a respondent party in all cases of insolvency as well as Companies Act filed across the country. The adjudicating authority had then observed that the same was needed so that authentic records of companies undergoing insolvency are made available by the officers.

The said directions were passed by the NCLT in a case where despite repeated reminders from the tribunal, the Registrar of Companies had failed to update the master data regarding the status of the company under the IBC.

Explained

MCA can have more time for policy formulation

The NCLT ruling in November was called by many as counterproductive as it would have required the MCA to keep track of thousands of IBC cases without it being a party to the case, thereby cutting down on its time for the formulation of new policies. With the NCLAT quashing the tribunal’s order, it is likely to send a signal to adjudicating authorities to stick to the rule book in case of IBC cases, experts said.

In its response, MCA officials had initially said that the NCLT order would increase the workload of the Ministry. Later, the MCA had moved the NCLAT challenging the jurisdiction of the lower tribunal and said that “rule making power” was the exclusive domain of the Centre and thus the same could be done only by the Parliament.

“Adjudicating Authority before passing the impugned order ought to have issued notice to the Union of India, since the subject matter in issue concerns about the imposition of a new rule, which the said authority has no power to make especially its direction to implead,” the NCLAT order noted.

Last November, the NCLT had also asked the MCA to update the master list containing the data of companies undergoing insolvency or liquidation, so as to keep the “public at large” informed about the status of the company.

After the nudge from NCLT, the MCA had said that it had initiated the process of updating the master data of companies undergoing corporate insolvency or facing liquidation under IBC.

The MCA had then also said that it had started working on a framework that would enable the interim resolution professional (IRP) or resolution professional (RP) of a company to upload necessary regulatory filings for compliance with the Companies Act.

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