The Hon’ble National Company Law Appellate Tribunal (‘NCLAT’), vide its order dated 22nd May, 2020 set aside the directions issued by the Hon’ble Principal Bench for impleadment of Ministry of Corporate Affairs (‘MCA’) as a respondent-party to all applications filed under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016.
This comes in light of the order dated 22nd November, 2019 of the Hon’ble National Company Law Tribunal, Principal Bench of New Delhi (‘NCLT’/ ‘Principal Bench’), in the matter of Oriental Bank of Commerce v. Sikka Papers Ltd. & Ors, wherein the Hon’ble NCLT directed that “…In all cases of Insolvency and Bankruptcy Code, and Company Petition, the Union of India, Ministry of Corporate Affairs through the Secretary be impleaded as a party respondent so that authentic record is made available by the officers of the Ministry of Corporate Affairs for proper appreciation of the matters..”(‘Impugned Directions’). The said requirement was directed to be made applicable in all benches of NCLT, pan-India.
Although the Direction was never put to effect due to the stay imposed by Hon’ble NCLAT in December, 2019 itself, the Principal Bench’s order raised many questions as to the powers of the Principal Bench, tenability of the Impugned Directions and the loopholes therein. In our article titled Mandatory impleadment of MCA as a Respondent- Principal Bench issues direction to all NCLTs the author has critically examined the Impugned Directions, and humbly submitted why the same might not be fruitful in the long-run. The author observed that such a practice may lead to certain practical difficulties, e.g. duplicity of records, lengthening of delays, etc.
Soon after the Impugned Direction, the appeal was preferred by MCA contending numerous infirmities in the NCLT’s order, primarily pertaining to the powers of the Principal Bench to pass an order which was in the nature of a ‘new rule’ in guise of an ‘order’, thereby prejudicing the interests of MCA.
Based on the submissions made by the parties, the Appellant Tribunal set-aside the Impugned Directions, on the following grounds-
Who may be impleaded as a party
‘Audi-Alteram Partem’ or ‘the right to be heard’ is an indispensable and cardinal feature of the legal framework, and as such it is important that where the rights of any person are affected or potentially affected, no order be passed without giving such party a chance to be heard. However, having said so, it must be noted that principles of natural justice are not the edicts of a statute- they are not to be imprisoned in a straight-jacket cast-iron formula in such a manner that it becomes burdensome for the parties as well as the adjudicator.
Further, the question of right to be heard comes into picture when a right is prejudiced or an obligation imposed; hence, where the party is made subject to neither, it may not be impleaded in the matter. For instance, in an application under section 7, 9 or 10 of the Code, no prayers are made w.r.t MCA- its role is limited to take on record the commencement of corporate insolvency resolution process. Hence, it would not be prudent to implead MCA in an application as such. Insofar as availability of information is concerned, the same has to be submitted to MCA by the resolution professional, with or without the impugned directions. Having said so, it must be noted that in public interest/ criminal offences being taken up before the special Court under Section 435 of the Companies Act in a Company Petition/ Appeal before the Tribunal, MCA through any authorized officer/ person may be added as a party; and in other cases also, it is for the Applicant/ Appellant or for the Tribunal to take an ultimate decision for showing a person as a necessary or proper party.
Impleadment- :A case-to-case decision
The question of impleadment is to a great deal subject to the potential impact on the rights of the party. Clearly, such potential impact cannot be the same for one and all, and will vary on a case to case basis. As such impleadment shall be sought only when the need of a given case arises for rumination of issues, which comes up before the respective Tribunals.
Having said so, where it is infact necessary to implead a party, application in this regard may be filed by the petitioner/ respondent, or by a person who is not a party to any pending proceedings. Impleadment may also effected based on a suo-moto action by the Tribunal. However, such discretion shall be strictly seen in light of the facts of the matter, and as also observed by the Appellate Tribunal, “cannot be exercised in a cavalier and whimsical fashion”
In this pre-text, the author concurs with the order of the Hon’ble NCLAT which provides that an outright mandate to implead MCA as a party-respondent in all company petitions and applications for initiation of corporate insolvency under the Code, would be in violation to the tenets of law, as the question of impleadment can only be determined on a case to case basis.
Power of the Principle Bench to issue the Directions
The powers of the Adjudicating Authority are derived from the National Company Tribunal Rules, 2016 (‘NCLT Rules’). Rule 16 of Part II of the NCLT Rules explicitly lays down the functions of the President of the Principal Bench, which includes giving directions to the Registry for performance of its functions. Further, Rule 19 of the NCLT Rules also bestow upon the President the power to assign to the Registrars of NCLT as it may deem necessary, for execution of any function as required by the President.
While prima-facie it may be deduced that the Principal Bench has the power to issue the Impugned Directions, the Appellant Tribunal held that the same was beyond the power of the Principal Bench, and amounted to “imposition of a new rule in a compelling fashion.” It must be noted that the power to issue a new rule is the exclusive right of the Central Government, and as such any order which, on effect, may camouflage as a new rule shall not be tenable.
Hence, stating that “if a certain thing is to be performed in a particular manner, then the same is to be done in that way. In fact, a procedural wrangle cannot be allowed to be shaked or shackled with”, the Appellate Tribunal set-aside the Impugned Directions observing the same to be untenable, and suffering from irregularity and patent illegality in the eye of law.
 https://ibbi.gov.in//uploads/order/b26b2a7f6c4ea04a9752d6eee4d7e1a5.pdf- In the matter of Union of India v. Oriental Bank of Commerce (Company Appeal (AT) (Insolvency) No. 1417 of 2019)
 http://images.assettype.com/barandbench/import/2019/12/UOI-vs-OBC-stay-order.pdf – Vide order dated 10th December, 2019