NCLT Cannot Sit In Appeal Over Civil Court Consent Decree In Insolvency Proceedings: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has held that the National Company Law Tribunal (NCLT) cannot disregard or invalidate a consent decree passed by a competent civil court during insolvency proceedings.

It ruled that if a resolution professional or financial creditors seek to challenge such a decree, they must approach the civil court.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed,

“The Adjudicating Authority does not have any power to question the Consent Decree passed by the Civil Court. The Adjudicating Authority does not have the statutory authority to sit in appeal over a judgment and decree passed by a Civil Court or entertain or decide interim applications arising out of such civil appeals or judgments. When the Adjudicating Authority is not vested with jurisdiction to review or overturn the decision of Civil Courts, the RP/Financial Creditors ought to have sought appropriate remedy through the Civil Court.”

The ruling came on appeals filed by AKJ Metals Pvt. Ltd. against NCLT orders directing it to hand over possession of two industrial properties to the resolution professional of RCI Industries and Technologies Ltd., which was undergoing the corporate insolvency resolution process.

Before the insolvency proceedings began, AKJ Metals entered into agreements to purchase the Nalagarh and Baddi properties. It paid the agreed consideration and obtained possession of both properties. When the transfers were not completed, it filed suits for specific performance. Those suits ended in consent decrees passed by a civil court, with a Court Receiver appointed to complete the remaining formalities.

The resolution professional argued that the transactions were collusive and undervalued and sought possession of the properties. AKJ Metals contended that the NCLT lacked jurisdiction to disregard rights already recognised by a competent civil court.

The tribunal noted that the agreements to sell, payment of consideration and delivery of possession all predated the commencement of CIRP. It also noted that the civil court had recognised AKJ Metals' possessory rights through the consent decrees.

Referring to the Supreme Court's decision in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, the tribunal observed:

“Once the rights have already been crystallized through judicial pronouncements, the provisions of IBC cannot be leveraged to nullify a decree passed by a competent Civil Court. The Consent Decree cannot be declared a nullity by the Adjudicating Authority on its own...”

Allowing the appeals, the tribunal set aside the NCLT's directions requiring AKJ Metals to hand over possession of the properties. It directed AKJ Metals to maintain status quo and not transfer, alienate or create any encumbrance over the properties until the pending Section 66 application is decided.