NCLT Cannot Decide Legality Of A Foreign Decree, Rules NCLAT [Read Judgment]

The National Company Law Appellate Tribunal has held that NCLT, the 'adjudicating authority' under the Insolvency and Bankruptcy Code, was not a 'court' or a 'tribunal' and hence cannot decide the legality of a foreign decree.

"we hold that the Adjudicating Authority not being a Court or 'Tribunal' and 'Insolvency Resolution Process' not being a litigation, it has no jurisdiction to decide whether a foreign decree is legal or illegal. Whatever findings the Adjudicating Authority has given with regard to legality and propriety of foreign decree in question being without jurisdiction is nullity in the eye of law", held the judgment authored NCLAT Chairman Justice Sudhansu Joshi Mukhopadhyaya.

The appeal was filed against the refusal of the NCLT to admit a petition filed under Section 9 of IBC. The appellant's claim of being an operational creditor was founded on default of the respondent-company in complying with a money decree passed by a US Court.

The NCLT;s Principal Bench at New Delhi found that the decree was passed in violation of laws prevalent in India and hence not executable by Indian courts as per Sections 13 and 14 of the Code of Civil Procedure. It also found that procedural requirements under Section 44A CPC were also not fulfilled by the foreign decree. The further finding was that the decree did not give rise to any claim of 'operational debt'. On these grounds, the application was rejected.

In appeal, the NCLAT criticised the approach of NCLT in deciding the legality of foreign decree. Referring to the NCLAT decision in Binani Industries Limited Vs. Bank of Baroda & Anr, the bench, also comprising Justice Bhansi Lal Bhat,  held that the objective of IBC was resolution of the corporate debt. It was not a litigation process for adjudicating competing claims. It's purpose is "maximisation of value of assets of the 'Corporate Debtor to promote entrepreneurship, availability of credit and balance the interests of all stakeholders".

The adjudication of merits of foreign decree undertaken by NCLT was held to be not in consonance with the spirit and objectives of IBC.

However, the Appellate Tribunal concurred with the finding that appellant was not an 'operational creditor'. The money decree did not relate to supply of goods or services and, therefore, the application under Section 9 was not maintainable. Hence, the appeal was dismissed.