NCLT Registrar Cannot Examine Merits of Section 95 Petitions During Filing Stage

The Karnataka HC allowed an appeal challenging a Single Judge's order regarding the maintainability of a petition under Section 95 of the Insolvency and Bankruptcy Code, 2016. The court held that the NCLT Registrar's function of receiving and registering applications under Section 95 is purely ministerial and administrative, not adjudicatory. The Registrar cannot examine the merits or maintainability of petitions at the filing stage, as this would constitute judicial function beyond their authority. The court distinguished between ministerial acts (receiving petitions) and adjudicatory functions (examining merits), citing Supreme Court precedents. The adjudicatory process only commences after the resolution professional submits a recommendatory report to the NCLT. The automatic interim moratorium resulting from filing does not constitute abuse of process, as litigants are entitled to employ all legal remedies available.

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Issues Involved:

1. Maintainability of a petition filed under Section 95 of the Insolvency and Bankruptcy Code, 2016.
2. Role of the Registrar, National Company Law Tribunal (NCLT), in adjudicating the maintainability of petitions.
3. Distinction between ministerial and adjudicatory functions of the Registrar.
4. Stage at which adjudicatory functions commence under the Insolvency and Bankruptcy Code, 2016.
5. Impact of interim moratorium under Section 96 of the Code.

Issue-wise Detailed Analysis:

1. Maintainability of a Petition under Section 95:

The core issue was whether the petition filed under Section 95 of the Insolvency and Bankruptcy Code, 2016, was maintainable. The learned Single Judge had declared the e-filing of the petition as void ab initio and illegal, setting aside all connected proceedings. The petition was filed by the appellant against a partnership firm, questioning whether the partners could be treated as personal corporate guarantors. The appellant contended that the partners were personal guarantors due to their involvement in a loan agreement and various joint development agreements. However, the respondents argued that the petition was misconceived as the partners could not be classified as personal corporate guarantors.

2. Role of the Registrar, NCLT:

The judgment explored whether the Registrar of NCLT could adjudicate the maintainability of a petition at the filing stage. It was concluded that the Registrar's role is purely administrative and ministerial, involving procedural compliance checks without delving into the merits of the petition. The Registrar is not empowered to adjudicate or decide on the maintainability of the petition.

3. Distinction between Ministerial and Adjudicatory Functions:

The judgment emphasized the distinction between ministerial and adjudicatory functions. Ministerial acts involve procedural tasks without discretion, such as receiving and registering petitions, while adjudicatory acts involve judicial discretion and decision-making. The Registrar's function at the filing stage is ministerial, focusing on procedural compliance without assessing the petition's merits.

4. Stage of Commencement of Adjudicatory Functions:

Adjudicatory functions under the Insolvency and Bankruptcy Code commence after the submission of a report by the resolution professional, as per Section 100 of the Code. The resolution professional's role is recommendatory, not adjudicatory, and the adjudicating authority (NCLT) begins its function upon receiving the report. The Supreme Court in Dilip B Jiwrajka clarified that adjudication starts after the resolution professional submits the report, not at the filing stage.

5. Impact of Interim Moratorium under Section 96:

The interim moratorium under Section 96 operates automatically upon filing a petition under Section 95, staying legal proceedings related to the debt. The judgment clarified that the statutory effect of the moratorium does not justify the Registrar's adjudication of the petition's maintainability. The moratorium is a statutory consequence and does not influence the Registrar's ministerial role.

Conclusion:

The judgment concluded that the Registrar, NCLT, performs a ministerial function when receiving and registering petitions under Sections 94 or 95 of the Code. The adjudicatory process begins only after the resolution professional submits a report, as outlined in Section 100. The judgment of the learned Single Judge was set aside, and the appellant's petition was restored for further proceedings in accordance with the law. The appeal was allowed, emphasizing the procedural nature of the Registrar's role and the statutory framework governing insolvency proceedings.

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