What Is the Process for Challenging an NCLT Order in Insolvency Cases?

The National Company Law Tribunal (NCLT) plays a central role in the insolvency process under the Insolvency and Bankruptcy Code (IBC), adjudicating various issues such as the initiation of Corporate Insolvency Resolution Process (CIRP), approval of Resolution Plans, and liquidation orders. However, stakeholders who disagree with an NCLT order have the right to challenge it. The process for challenging NCLT orders is well-defined under the IBC and involves an appeal to the National Company Law Appellate Tribunal (NCLAT), which acts as an appellate body.

Process for Challenging an NCLT Order in Insolvency Cases

Appealing to the NCLAT:

The primary forum for challenging an NCLT order is the National Company Law Appellate Tribunal (NCLAT), which hears appeals against NCLT’s decisions related to insolvency and bankruptcy matters.

As per Section 61 of the IBC, a party aggrieved by an order of the NCLT can file an appeal to the NCLAT within 30 days of the NCLT's order. The NCLAT may extend this time limit by up to 15 days in certain circumstances, if the appellant demonstrates sufficient cause for the delay.

Who Can Challenge the NCLT Order:

Parties aggrieved by the order of the NCLT can file an appeal. This may include:

• Corporate debtor
• Resolution applicants
• Creditors (both financial and operational)
• Resolution professional (RP)
• Government authorities (in some cases)

For example, a creditor might appeal if they feel the Resolution Plan is not in their best interest, or a debtor may challenge a decision regarding their company's liquidation.

Grounds for Challenging an NCLT Order:

An appeal may be filed on various grounds, including but not limited to:

• Procedural irregularities in the NCLT's decision-making process.
• Jurisdictional issues, where the NCLT might not have had the authority to pass the order.
• Errors in law or misinterpretation of the Insolvency and Bankruptcy Code (IBC).
• Violation of natural justice (e.g., failure to hear one of the parties or insufficient time given for making representations).
• Improper approval or rejection of a Resolution Plan, if it violates the provisions of the IBC.
• Insolvency process not followed correctly, leading to an unfair resolution.

Filing the Appeal with NCLAT:

The aggrieved party must file a written appeal to the NCLAT.

The appeal must be filed along with the required fee and relevant documents, including:

• A copy of the NCLT's order being appealed.
• Supporting documents that substantiate the grounds for the appeal.
• Proof of payment of the fee.

The appellant is required to outline the specific issues or errors in the NCLT's order that warrant the appeal.

NCLAT’s Role in Hearing the Appeal:

The NCLAT will examine the appeal, and it may either:

• Uphold the NCLT’s order if it finds the decision to be correct.
• Modify the order based on the appeal.
• Set aside the order and remand the matter back to NCLT for reconsideration or further action.

The NCLAT has the authority to pass interim orders or direct specific actions to be taken during the pendency of the appeal.

Judicial Review by Supreme Court:

If any party is dissatisfied with the NCLAT's decision, they can further challenge the decision before the Supreme Court of India under Section 62 of the IBC.

However, the Supreme Court’s review will primarily focus on legal questions rather than the factual matrix of the case. The Supreme Court typically entertains appeals only in exceptional cases, often relating to substantial questions of law or the interpretation of the IBC.

Impact of Appeal on the Insolvency Process:

The filing of an appeal does not automatically stay the implementation of the NCLT's order unless the NCLAT or NCLT provides specific directions to stay the execution of the order.

For example, if the NCLT orders liquidation and an appeal is filed, the liquidation process may continue unless specifically stayed by the NCLAT.

Resolution Plans may be affected if the appeal challenges the NCLT’s approval of such plans, potentially delaying the resolution process.

Example:

Consider a scenario where the NCLT rejects a Resolution Plan submitted by a bidder in a Corporate Insolvency Resolution Process (CIRP), and the resolution applicant feels that the rejection was unfair and not in accordance with the provisions of the IBC.

The resolution applicant files an appeal before the NCLAT, stating that the rejection was based on procedural errors or misinterpretation of the legal provisions under the IBC.

The NCLAT will examine the appeal and may:

• Uphold the NCLT's decision if the applicant’s arguments are not convincing.
• Modify or set aside the NCLT's decision if the NCLAT finds procedural irregularities or legal errors.

If the NCLAT decides in favor of the resolution applicant, the Resolution Plan may be reconsidered or approved, potentially altering the course of the CIRP.

Conclusion:

The process of challenging an NCLT order in insolvency cases involves filing an appeal to the National Company Law Appellate Tribunal (NCLAT) within 30 days of the order, with the possibility of extension. Grounds for appeal may include procedural errors, jurisdictional issues, or misinterpretation of the IBC. If dissatisfied with the NCLAT’s decision, parties can further challenge the order before the Supreme Court. The appeal process plays a crucial role in ensuring that the insolvency and bankruptcy framework under the IBC is implemented fairly and justly.