NCLAT overturns fine on suspended directors for non-cooperation with liquidator, rules NCLT exceeded jurisdiction under IBC Sections 70 and 236

NCLAT held that the Adjudicating Authority exceeded its jurisdiction by imposing a fine on suspended directors for allegedly not cooperating with the Liquidator during CIRP proceedings. The tribunal ruled that such fines constitute penalties under Sections 70 and 236 of IBC, which fall outside the NCLT's jurisdiction. The NCLAT set aside the impugned order and remanded the matter to NCLT New Delhi for fresh consideration in accordance with law, emphasizing that the lower tribunal erred by overlooking established legal precedents.

---

---

Issues Involved:
1. Imposition of fine u/s 70 of the Insolvency & Bankruptcy Code, 2016.
2. Jurisdiction of the Adjudicating Authority to impose fines.
3. Distinction between costs and fines.

Summary:

1. Imposition of Fine u/s 70 of the Insolvency & Bankruptcy Code, 2016:
The Appellants, suspended Directors of M/s Gupta Marriage Halls Pvt. Ltd., challenged the Impugned Order dated 02.03.2022 by the National Company Law Tribunal (NCLT), New Delhi Bench, which imposed a fine of Rs. 5 lacs on each of the Appellants for non-cooperation during the Corporate Insolvency Resolution Process (CIRP). The Appellants argued that the imposition of a fine falls under the category of punishment, which can only be imposed by a Special Court as per Section 236 of the Code.

2. Jurisdiction of the Adjudicating Authority to Impose Fines:
The Appellants contended that the NCLT does not have the jurisdiction to impose fines, as this power is vested exclusively with Special Courts under Chapter XXVIII of the Companies Act, 2013. They cited precedents, including the cases of Lagadapati Ramesh v. Mrs. Ramanathan Bhuvaneshwari and Union of India v. Maharashtra Development Corporation, where it was held that only Special Courts could impose fines after a trial.

3. Distinction Between Costs and Fines:
The Respondent argued that the Adjudicating Authority imposed costs, not fines, under Rule 149 of the National Company Law Tribunal Rules, 2016. However, the Appellants refuted this by pointing out that the Impugned Order explicitly used the term "fine" and not "costs." The Appellate Tribunal agreed with the Appellants, stating that fines are a form of penalty and must be dealt with under Sections 70 and 236 of the Code, which is beyond the jurisdiction of the Adjudicating Authority.

Conclusion:
The Appellate Tribunal concluded that the NCLT erred in imposing the fine, as it lacked the jurisdiction to do so. The Impugned Order was set aside, and the case was remanded back to the NCLT, New Delhi Bench for reconsideration in accordance with the law. The parties were directed to appear before the NCLT on 8th November, 2023. No costs were imposed, and any interlocutory applications were closed.

---