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NCLAT: Ministry of Corporate Affairs Not To Be Added As Party Defendant To IBC And Petitions Filed By Tribunals

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The National Company Law Tribunal (NCLT), Principal bench, passed an impugned order on 22/11/2019, directing to implead Union of India, and Ministry of Corporate affairs (MCA) as a party respondent to all cases under the Insolvency and Bankruptcy Code (IBC) and Company Petitions. The purpose stated by the NCLT was to make authentic records available by the officers of the Ministry of Corporate Affairs for proper appreciation of the matters before the NCLT’s. The NCLT, further ordered to apply the same rule to all petitions before every bench of NCLT’s across the country.

Facts of the Case 

Challenging the validity of the impugned order passed by the Hon’ble NCLT, an appeal was filled by the MCA before the National Company Law Appellate Tribunal (NCLAT). It was asserted by the Appellant that such an order was beyond the powers assigned to the tribunals under the IBC, and other applicable legislations.

Arguments before the Court

The appellants made the following claims before the NCLAT:

i. Ability to pass such orders

The appellants claimed that the ‘rule making powers’ is in the exclusive domain of the Central Government. Rules framed under the IBC, being subordinate legislations require the issuance of specific ordinances by the Central Government for enacting any amendments under them. It was concluded by the appellants that passing of such an order by the NCLT, subject matter of which, concerned about the imposition of a new rule, was beyond the inherent jurisdiction of the NCLT.

ii. Conditions to Implead third party

It was claimed by the appellant that it is axiomatic principle in law that if third party is concerned with a dispute, that party is to be arrayed as a necessary or proper party to the adjudication of main issue centering around the dispute. Thus, impleading another party, like the government, which is unrelated to the dispute, is in a complete violation of the principle.

iii. Violation of principles of natural justice

A claim was made by the appellant that, while presuming the validity of an order to implead the MCA as a third party, an opportunity of being heard must have been given to the MCA. The MCA was impleaded by the NCLT without being given an opportunity of being heard in the subject matter in issue, except directions being issued in regard to the filling of affidavit on the issues therein and the filling of paragraph wise reply. By depriving the MCA with an opportunity of being heard, the NCLT violated the basic principle of natural justice.

Judgment and Reasoning

The NCLAT, while agreeing to the claims raised by the appellant, declared that the MCA cannot be impleaded as a necessary party to every suit filed before all the NCLTs. These were facets of the reasoning equipped by the NCLAT:

i. Conditions to implead a third party

The NCLAT held that addition or striking out of parties, is a matter of discretion to be exercised by a tribunal on sound judicial principles. Such discretion however, cannot be exercised in a cavalier and whimsical fashion. It further held that, a third party can only be impleaded to a case, when his/her inclusion will enable the Authority to efficiently, officiously, comprehensively and adequately adjudicate upon all the controversies centering around a given case.

Thus, declaring wholesale, blanket and omnibus directions cannot be issued in a single stroke, as opined by the NCLT is to be determined only on a case to case basis. Therefore, unless determined by the tribunal by analyzing the facts of a particular matter before it, impleading MCA for all the cases before every NCLT across the country in a ‘whole sale’ one size fits all fashion would be in direct contrast to the basic principles.

ii. Adherence to the Principles of Natural Justice

The NCLAT held that, even after impleading the MCA as a party to an application under IBC before the NCLT, depriving it of an opportunity of defending itself before the tribunal would be a violation of audialterim partem (No one should be unheard), a basic principle of natural justice. Further, while citing from the Judgment rendered by the Kolkata High Court, Sree Metaliks Ltd. V. Union of India, it held any order passed without affording an opportunity of hearing to the parties to be unsustainable in law. is now on Telegram. Follow us for regular legal updates and judgements from the court. Follow us on Google News, InstagramLinkedInFacebook & Twitter. You can also subscribe for our Weekly Email Updates. You can also contribute stories like this and help us spread awareness for a better society. Submit Your Post Now.

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