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E.S. Krishnamurthy v. M/s Bharath Hi Tech Builders Pvt. Ltd.

Civil Appeal · 2021 INSC 884Decided 14 Dec 2021
Civil Appeal No. 3325 of 2020
Dr. Justice D.Y. Chandrachud · Justice A.S. Bopanna

Background

A group of homebuyers/investors who had lent money to a real-estate developer under a Master Agreement and a Loan Agreement filed a petition before the National Company Law Tribunal (NCLT) seeking to initiate insolvency proceedings after the developer defaulted on repayment. Instead of admitting or rejecting the petition, the NCLT disposed of it by simply directing the developer to settle all remaining claims within three months, noting that many investors had already been paid off. The National Company Law Appellate Tribunal (NCLAT) upheld this approach, and a subset of the original petitioners appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 7(5) of the IBC gives the Adjudicating Authority only two options once a petition is filed, admit it if a default is shown, or reject it if no default is shown, and no third option to dispose of the case by directing a settlement timeline. By doing so, the NCLT had effectively abdicated its statutory jurisdiction and acted like a "court of equity," which neither it nor the NCLAT is empowered to do. The Court set aside both the NCLT and NCLAT orders and sent the original insolvency petition back to the NCLT to be decided afresh strictly on whether a default had occurred.

Lesson Learnt

Insolvency tribunals cannot sidestep a creditor's insolvency petition by simply ordering the debtor to "go settle" with everyone: the law requires them to actually decide, within a defined time, whether a default has occurred and either admit or reject the case.

Official source (sci.gov.in)View Judgment (PDF)

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