The Supreme Court has held that the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) cannot act as courts of equity by directing parties to settle the dispute before it.
While setting aside orders passed by the NCLT and NCLAT dismissing a petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC) for initiating the Corporate Insolvency Resolution Process (CIRP) in a case, the Bench of Justices DY Chandrachud and AS Bopanna held:
"The Adjudicating Authority is empowered only to verify whether a default has occurred or not. Based upon its decision, the Adjudicating Authority must then either admit or reject an application. These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5). The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute."
The Bench opined that while settlements can be encouraged by the NCLT and NCLAT to achieve the objectives of the IBC, "they cannot direct them by acting as courts of equity."
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