The National Company Law Appellate Tribunal (“NCLAT“) has recently ruled that National Company Law Tribunals have powers of nclt to grant interim relief even before admitting a company petition under Section 7 or 9 of the Insolvency & Bankruptcy Code, 2016 (“IBC“). This decision passed in an appeal filed by NUI Pulp and Paper Industries Pvt. Ltd. (“NUI“) against M/s. Roxcel Trading GMBH (“Roxcel“) has confirmed the decision of the NCLT, Chennai (“NCLT“).
Facts:
Roxcel filed a Section 9 application under the IBC to initiate Corporate Insolvency Resolution Process (“CIRP“) against NUI before NCLT. Through an interim order, NCLT restrained NUI and its directors from alienating or creating third party rights over its assets.
NUI challenged this interim order before the NCLAT.
Controversy before the Court:
The question before the NCLAT was whether NCLT is empowered to grant interim orders even before the Company Petition is admitted and CIRP is initiated.
Ruling of NCLAT:
NUI contended that (i) NCLT has no jurisdiction to restrain a corporate debtor from alienating, encumbering or creating third party rights over its assets before admission of an application under Sections 7 or 9 and no such power can be exercised under Rule 11 of the NCLT Rules, 2016, and (ii) NCLT is empowered to pass interim orders only when the corporate debtor is under CIRP or under liquidation process.
NCLAT disagreed with this and confirmed the decision of the NCLT. NCLAT also distinguished the interim orders passed prior to admission from the interim orders passed after the admission of the Petition when the moratorium has kicked in. On the declaration of the moratorium, no action can be taken by the board of directors of the corporate debtor and third parties are prohibited from taking any action against the corporate debtor.
Analysis:
This judgement of NCLAT is good news to creditors and has affirmed that the inherent powers of NCLT granted under Rule 11 of NCLT Rules, 2016 extend to the grant of interim orders for securing and safeguarding the interest of the parties even before the petition is admitted and the CIRP is initiated.