Supreme Court holds NCLT's power to admit CIRP as discretionary

Supreme Court holds NCLT's power to admit CIRP as discretionary

It held the adjudicating authority and appellate tribunal responsible for not admitting the petition of the appellant under IBC

The Supreme Court has held that the power of the National Company Law Tribunal (NCLT) to admit an application for the initiation of the Corporate Insolvency Resolution Process (CIRP) by a financial creditor under the Insolvency and Bankruptcy Code (IBC) is discretionary and not mandatory.

The bench of Justice Indira Banerjee and Justice JK Maheshwari stated, "When admission is opposed on the ground of existence of an award or a decree in favor of the corporate debtor, and the awarded/decretal amount exceeds the amount of the debt, the adjudicating authority (NCLT) would have to exercise its discretion under the IBC to keep the admission of the application of the financial creditor in abeyanc, unless there is a reason not to do so."

The case pertained to Vidarbha Industries Power Limited vs Axis Bank Limited.

The appellant is a power generation company that was in a tariff dispute with the Maharashtra Electricity Regulatory Commission (MERC). The Appellate Tribunal of Electricity (APTEL) passed an order in favor of the appellant (corporate debtor) stating that a sum of Rs.1,730 crores was payable to the appellant by MERC. Aggrieved by the order, MERC filed an appeal, which is pending before the Supreme Court.

As the appellant expressed its inability to pay off the debts, Axis Bank (the financial creditor) filed an application under IBC. Both NCLT and the National Company Law Appellate Tribunal (NCLAT) ordered the initiation of the CIRP against the appellant, prompting it to appeal before the top court.

The question before the court was whether IBC was a mandatory or a discretionary provision.

The court noted that although no extraneous matter should come in the way of a speedy resolution on matters under IBC, the fact that an appeal was pending, and it also mattered that the financial health of the appellant was not extraneous.

It said that NCLAT erred in holding that NCLT was only required to see whether there was a debt and the appellant had defaulted in making the debt repayment.

The bench stated, "NCLT was required to apply its mind to relevant factors including the feasibility of initiation of CIRP against an electricity generating company operated under a statutory control."

The court also delved into the use of the word 'may' in IBC. It held that had it been the legislative intent that the IBC should be a mandatory provision, the legislature would have used the word 'shall' and not 'may'.