IBBI vs SBI & Ors.
W.P.(C) 10189/2018 & CM APPL. 39715/2018
Facts:
1.During a application filed under Section 12(2) of the IBC by the (SBI) where extension was sought for the completion of the Corporate Insolvency Resolution Process (CIRP) by a further period of 90 days. During the course of hearing this application, the NCLT noticed that an expression of interest was floated however, no resolution plans were filed response to the same. The splitting of the CIRP into inviting expression of interest and then seeking resolution plans as provided in Regulation 36A became the subject matter of the impugned order.
2.NCLT held that Regulation 36A to be ultra vires of Section 240(1) of the IBC, despite there being no specific challenge to the said Regulation. Petitioner is challenging the order passed on 05th September 2018.
Issue: Whether NCLT have the power to declare provisions as ultra vires?
Argument:
For petitioner: Counsel appearing for the Petitioner submits that the power of the Petitioner – IBBI can be traced to Section 196(1)(t) and Section 240 of the IBC. He further submits Section 25(2)(h) of IBC is also important in the context of the Regulation 36A. He further submits that in the scheme of the IBC, the NCLT does not have any power to rule on the vires of any Regulations. He relies upon the judgment of the NCLAT in M/s Mohan Gems & Jewels Pvt. Ltd. v. Vijay Verma & Anr. being Company Appeal (Insolvency) No. 849 of 2020 to submit that the NCLAT has categorically held that the legality and propriety of a Regulation cannot be ruled upon by the NCLT.
Decision: NCLT does not have the power to declare the provisions as ultra vires to the act.
Rationale:
1.Court relying on the power of IBBI noted that IBBI is in effect an authority which is carrying out a large number of functions related to the implementation of the IBC.
2.It also noted that On first blush, it appears that Section 60(5)(c) of the IBC would include any question of law or facts. However, a closer reading of the provision would show that questions of law or facts ought to be in respect of those proceedings which are pending before the NCLT and they ought to arise out of or in relation to the resolution or liquidation proceedings. This in the opinion of the Court cannot include the power to declare a Regulation itself as being ultra vires.
3.There was no challenge to Regulation 36A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 before the NCLT. Therefore, in an application seeking extension of time to complete the CIRP process, the NCLT has gone ahead and declared the Regulation 36A as ultra vires.
4.Regulation 36A has been amended and passed in accordance with law by the IBBI, the NCLT did not have the power to declare the same as being ultra vires merely on the ground that the two stage process provided in it i.e., of inviting an expression of interest first and then the financial bids, would be contrary to the speedier resolution of the Insolvency Resolution Process.
Order copy:
