Stare decisis doctrine applies to NCLT, NCLAT, NCLAT Rules

Company law - Debtor company - Doctrine of stare decisis - NCLT - NCLAT - Taxscan

The National Company Law Appellate Tribunal (NCLAT), Delhi Bench has ruled that the doctrine of stare decisis applies to the NCLT, NCLAT.

The Debtor Company obtained two loans from the Financial Creditor by means of two deposit agreements. The first deposit was secured by a mortgage deed and other security documents. Similarly, the second agreement was also secured by a mortgage deed and other security documents. In accordance with the terms of the first deposit agreement, the first loan was repayable at the end of a period of three months from the date of the first loan. The payment date has been extended to 31.03.2018. The debtor company was required to repay the unpaid principal amount and interest. An application under Article 7 of the “I&B Code” has been filed by the financial creditor to claim a default in payment.

After the issuance of a notice by the contracting authority, the debtor company appeared and opposed the application. The debtor company opposed the petition on the grounds that (i) the financial creditor committed a breach of contract by not making full payment of the amount of the advance of the second deposit agreement (ii) the amounts under the first deposit are guaranteed and amounts under the second deposit are also secured. The contracting authority, by contested judgment, admitted the request.

Arun Kathpalia, lead counsel representing the appellant in support of the appeal, argues that the section 7 application should not have been filed by the financial creditor because, under the terms and terms of the mortgage agreement and deed, the full amount was secured and the mortgaged property was worth more than the amount owed. The appellant should have realized his amount from the guarantee according to the terms and conditions of the mortgage deed and the claim under section 7 was not admissible.

On the other hand, Amit Sibal, senior counsel appearing for the respondent, refuting the conclusions of the learned counsel for the appellant, argues that the motion filed under section 7 by the financial creditor was well within the limits of the competence and fully maintainable. Even under the terms and conditions of the mortgage deed, it was the mortgagee’s right to seek relief by realizing its security rights or to take any other remedy available at law.

The coram headed by Chairman, Justice Ashok Bhushan, Judicial Member, Justice Jarat Kumar Jain and Technical Member, Dr. Alok Srivastava felt that there is no doubt that the principle of stare decisis is fully applicable to judgments rendered by the NCLT. like this appellate court. NCLT and this Tribunal are bound by the doctrine of stare decisis.

At this point, the Court has clarified that what is binding as a precedent for the Company Law Court is the judgment of the Jurisdictional Court. Judgments rendered by NCLT in other jurisdictions are of persuasive value only. The present case is a case where the judgment of the Coordinated Chamber of the Jurisdictional Court was cited.

“We are therefore also of the view that no error was made by the contracting authority in admitting the claim under Article 7 lodged by the financial creditor. This appeal is unfounded. The appeal is dismissed,” the court ruled.

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