CAN SUPREME COURT USE ARTICLE 142 OF THE CONSTITUTION TO PUT QUIETUS TO THE ISSUE WHEN NCLAT WAS RELECTANT TO TAKE RECOGNITION THE COMPROSISE BETWEEN DEBTOR AND CREDITOR IN THE CIRP PROCEEDIGNS ALREADY COMMENCED UNDER IBC 2016?

CAN SUPREME COURT USE ARTICLE 142 OF THE CONSTITUTION TO PUT QUIETUS TO THE ISSUE WHEN NCLAT WAS RELECTANT TO TAKE RECOGNITION THE COMPROSISE BETWEEN DEBTOR AND CREDITOR IN THE CIRP PROCEEDIGNS ALREADY COMMENCED UNDER IBC 2016?

Lokhandwals Kataria Construction P Ltd vs Nisus Finance and Investment Managers LLP

FACTS OF THE CASE

The Mumbai bench of the National Company Law Tribunal (NCLT) on 15 June initiated a corporate insolvency resolution process against the debtor. 

Later, the company and the creditor approached the National Company Law Appellate Tribunal (NCLAT) saying that the two had settled the dispute and that some of the dues had already been paid.

NCLAT said on 13 July 2017 that under the IBC 2016, a case can be withdrawn before the admission of an insolvency case, and not after that. 

The parties then filed a plea with the Supreme Court, which allowed a settlement to be considered under article 142 of the Indian constitution. 

WHAT IS THE MEANING OF QUITEUS ORDER UNDER ARTICLE 142 OF THE CONSTITUTION?

Article 142 provides that “the Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it”. 

RECOMMENDATION

As of now, there is no provision under IBC 2016 to order a winding up case as closed when the parties to the dispute have made an out-of-court settlement.

The government may also consider amending the IBC to make provisions for settlement of insolvency proceedings once a plea is admitted.

It should be noted that all the creditors should have come into compromise arrangement and not a single creditor in each case. In this case, the settlement is made between a debtor and a creditor. It is not known whether all the creditors have given their consent for the compromise as the compromise has been made with a single creditor.

The amendment should specify that a compromise is to be reached with the all the creditors and not with a single creditor or appellant alone.