NCLAT Delhi Says Appellant's Past Inaction Can't Influence Merit Adjudication, Restores Company Petition

The Principal Bench of the National Company Law Appellate Tribunal (NCLAT) at New Delhi, has held that a party's past inaction cannot influence adjudication of a matter on merits once the proceedings are being considered on merits.

A Bench comprising Judicial Member Justice Sharad Kumar Sharma with Technical Members Arun Baroka and Indevar Pandey set aside the NCLT's order dismissing a company petition for the appellant's failure to produce a family settlement and remitted the matter for fresh adjudication. It observed:

“When the proceedings have been taken up before court or Tribunal and is being considered on its merits, in that eventuality the past conduct or past in actions on the part of the party to the proceedings is not to be taken into consideration, as they become irrelevant, besides causes bias to pervade, which may effect the final adjudication of the petition because that will go against the spirit of dispensation of an effective justice.”

The proceedings under Section 111 of the Companies Act, 1956, originated before the erstwhile Company Law Board. The dispute concerned the alleged divesting of rights on the basis of a family settlement.

When the matter came before the NCLT, the Tribunal directed the appellant to produce the family settlement during the course of the day. On the appellant's failure to do so, the NCLT dismissed the company petition.

Before the NCLAT, the appellant submitted that its written submissions specifically pleaded the existence of an oral family settlement. It therefore contended that the NCLT erred in proceeding on the basis that the appellant had failed to place the settlement on record.

The respondent argued that the appellant had been given opportunities to place the family settlement on record and that its failure to do so demonstrated a lack of diligence. The NCLAT rejected the contention. It observed:

“If the Tribunal takes into the consideration of past conduct it would reflect the bias on part of the Tribunal while deciding the company petition…”

Relying on the Allahabad High Court's decision in Qaiser Sibtain v. District Judge (1996 SCC OnLine All 137), the Bench reiterated that past conduct may constitute an extraneous consideration when a court is required to determine a matter on its merits.

It noted that the appellant had asserted in its written submissions that an oral family settlement had been entered into. It held that the issue therefore required examination by the NCLT on merits.

Accordingly, the NCLAT quashed the NCLT's order dated 1 June 2026 and remitted the company petition for fresh adjudication.