Supreme Court :ES Krishnamurthy v. M/S Bharath Hi Tech Builders Pvt Ltd.,
the legal issue before the apex court was whether the NCLT can, without applying its mind to the merits of the petition under Section 7, simply dismiss the petition on the basis that the corporate debtor has initiated the process of settlement with the financial creditors.
The Court found that the NCLT and NCLAT had abdicated their jurisdiction to decide a petition under Section 7 by directing the respondent to settle the remaining claims within three months, noting that such a course of action is not contemplated under the IBC except either admit or reject an application respectively contemplating occurrence of debt and default.
The Bench stated that while settlements can be encouraged by the NCLT and NCLAT to achieve the objectives of the IBC, however, "they cannot direct them by acting as courts of equity."
