The NCLAT held that Rule 11 of the National Company Law Tribunal Rules 2016 (NCLT Rules) recognises that the National Company Law Tribunal (NCLT) has inherent powers to pass orders for ensuring substantial justice and preventing abuse of process.
In the instant case titled NUI Pulp and Paper Industries Pvt Ltd v Roxcel Trading GmbH the issues that were raised before NCLAT for clarification were:
The NCLT has no jurisdiction to restrain the Corporate Debtor, and its directors, from alienating, encumbering or creating third party rights with respect to its assets before the application under S7 or S9 of the IBC, as the case may be, is actually admitted. Rule 11 of the NCLT Rules do not contemplate the exercise of such powers.
In the alternative, such orders in the exercise of its inherent powers can be exercised by the NCLT only when, after a reply to the application has been filed, it notices that the Corporate Debtor is trying to alienate assets or is taking adjournments to defeat the objective of the proceedings. Since no such grounds were shown by the Operational Creditor on the first day of the hearing the NCLT did not have any jurisdiction to grant interim relief.
With regard to the first issue, the NCLAT concluded that the NCLT's inherent powers under Rule 11 of the NCLT Rules are unrestricted. Rule 11 empowers the NCLT to issue whatever orders are necessary to achieve the goals of justice and prevent misuse of the legal system. The NCLAT went on to say that if the NCLT believes interim orders are needed because there is a risk that the Corporate Debtor will abuse the IBC procedure to deny creditors their rightful rights, it can do so at any time and does not have to wait for the application to be admitted.
With regard to the second issue, The NCLAT also observed that the Corporate Debtor not only refused to give an undertaking but also failed to specifically deny that it has no intention of alienating its assets. In such circumstances, interim relief could be granted.
It has been ruled that since the NCLT has inherent powers, it is competent to pass interim orders of protection at any stage after an application under Sec7, Sec9 or Sec10 of the Insolvency and Bankruptcy Code 2016 (IBC), as the case may be, has been filed and before an order admitting the application has been handed down.