The Supreme Court's three judges, led by Chief Justice of India (CJI) DY Chandrachud, Justices PS Narasimha and JB Pardiwala, are scheduled to hear a petition on January 16 that questions the correctness of the ruling in Vidarbha Industries Power Limited v. Axis Bank Limited, which held that the NCLT has the discretion to admit or reject CIRP applications filed by Financial Creditors under Section 7(5)(a) of the Insolvency and (IBC). In the matter, a bench issued a notice returnable by February 6th. On Monday, Solicitor General of India (SG) Tushar Mehta, who was present in court during the hearing, expressed concern about the ruling, claiming that the principle established in the Vidarbha Industries case has the potential to dilute the substance of the IBC.

The Court took this submission under consideration and agreed to hear the case further.

The appellants claimed that they were creditors of the debtor, having extended loans totaling $1,65,29,500 that were in default.

The NCLAT granted the debtor's plea on the condition that the debtor pay the entire amount owed to one of the financial creditors. However, because they declined this offer, an unfavourable inference was drawn.

“..we find it a fit case where CIRP should not be allowed to continue when Financial Creditor proceeded for 'CIRP' not for purposes of Resolution of Insolvency of the Corporate Debtor but for other purposes with some other agenda,” the NCLAT had held.

The creditors claimed that this reasoning was a "serious error" because it failed to recognise that the debtor owed large sums to other creditors as well. As a result, there was no reason to remove the debtor from the CIRP.

“The appropriate course was to allow the Committee of Creditors (“CoC”) to be constituted and direct the Corporate Debtor to place its offer for settlement before the CoC, for consideration, in accordance with provisions of the IBC”, said the plea.

The case of ES Krishnamurthy v Bharath Hi Tech Builders was also cited, in which the Supreme Court ruled that the NCLT and NCLAT, as creatures of statute, were not courts of equity and could not compel parties to settle.

Senior Advocate AM Singhvi, Dhruv Mehta, and advocates Aman Raj Gandhi, Parthasarathy Bose, Nidhiram Sharma, Saloni Kumar, Pranay Tuteja, and Pranaya Goyal represented the appellants.
Advocates Anirudh Sanganeria and Patitha Paban Biswal represented the respondents.

Case Title: Maganlal Daga HUF v Jag Mohan Daga
Citation: CIVIL APPEAL Diary No(s). 38798/2022

Link: https://main.sci.gov.in/supremecourt/2022/38798/38798_2022_1_22_40996_Order_16-Jan-2023.pdf