Matter: E S Krishnamurthy v. Bharath Hi Tech Builders Pvt. Ltd.
Order dated: 14 December 2021
Summary:
Bharath Hi Tech Builders Pvt. Ltd. (Bharath Builders), had entered into a loan agreement to secure funds for the development of an agricultural land. Owing to Bharath Builders’ inability to repay the loan, an application was filed to initiate insolvency process of Bharath Builders. Before the NCLT, Bharath Builders informed that it had initiated the process to settle the matter with its creditors, and therefore, the NCLT directed Bharath Builders to settle the claims within three months and dismissed the matter. The NCLT’s order was upheld by the NCLAT.
Following an appeal, the SC observed that the NCLT is empowered only to verify whether a default has occurred or not and must accordingly admit or reject an application. The SC further held that although settlements have to be encouraged because the ultimate purpose of the Code is to facilitate the continuance and rehabilitation of a corporate debtor, as distinct from allowing it to go into liquidation, while acting as courts of equity, the NCLT and NCLAT cannot compel a party to the proceedings before it to settle a dispute. The SC accordingly restored the proceedings back to NCLT for fresh consideration.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
