NCLT cannot assume power to declare IBC 2016 provisions and Regulations as illegal and Ultra Virus

Last updated: 07 December 2022

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The Delhi High Court has ruled that the National Company Law Tribunal (NCLT) does not possess the authority to declare provisions of the Insolvency and Bankruptcy Code (IBC) 2016 or its associated Regulations as illegal or ultra vires. The court clarified that the NCLT, as an adjudicating body created by the IBC, cannot assume powers beyond those explicitly granted to it. Consequently, an earlier NCLT order declaring Regulation 36A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, as ultra vires was set aside.

Court :
Delhi High Court

Brief :
The operative portion of the impugned order reads as under: "We are further of the view that Section 25 (2) (h) added on 23.11.2017 by way of amendment does not contemplate floating of any expression of interest. It is beyond our understanding as to how the IBBI has taken upon itself the task of framing Regulation 36A of IBBI (Insolvency Resolution Process for Corporate Persons), Regulations, 2016 using the expression 'invitation of expression of interest' along with Form 'G'. Such an assumption of power would be beyond the competence of IBBI as the source of power to frame Regulation under the IBC is drawn from Section 240 of IBC, 2016. Section 240(1) in categorical terms provides that the IBBI may by notification make regulation consistent with the Insolvency and Bankruptcy Code, and further subject to the Rulesframed by the Government under Section 239 of IBC, 2016 for carrying out the provisions of the Code. It has been repeatedly emphasised culminating in the rendered in aforesaid judgment that speed is the essence of CIR Process and inviting 'expression of interest' would impede to the speed. In the case of Innoventive Industries Ltd. v. ICICI Bank Ltd. (2018) 1 see 407 passed by Hon'ble Supreme Court has highlighted that the speed is one of the salient features of the IBC, 2016. By use of the words 'expression of interest' the speed is retarted and time is wasted. In the present case on 04.06.2018 'expression of interest' was invited and last date for expressing interest to submit the resolution plan was 18.06.2018 without in fact inviting any resolution plan. Such a course is negation of the salient features highlighted by Supreme Court that the speed is essence of the IBC, 2016, therefore, we have no other option except to declare Regulation 36A as ultra-vires of Section 240(1) of IBC, 2016. The IBBI is directed to frame Regulation according to its competence and the source of power as given to it by the Code. We do not say anything more on this aspect."

Citation :
W.P.(C) 10189/2018 & CM APPL. 39715/2018

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