NCLAT Upholds Adherence to Supreme Court’s Status Quo Order, Denies Demarcation of Shared Assets Without Clarification

The NCLAT upheld adherence to the Supreme Court's status quo order and denied the demarcation of shared assets without prior clarification.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed two appeals on Monday. The Tribunal emphasized that a status quo order issued by the Supreme Court must be strictly followed, and any actions affecting the corporate debtor's assets, such as demarcation or valuation of shared property, necessitate prior clarification or modification of the status quo order from the Supreme Court.

The National Company Law Appellate Tribunal (NCLAT) dismissed two appeals filed against the order dated 19.04.2024 of the Adjudicating Authority (NCLT) in I.A. 5337 of 2023 and I.A. 5339 of 2023. The appellants, owners of a 5/6th share in the immovable property, sought directions to the Resolution Professional (RP) of the corporate debtor for demarcation and valuation of the corporate debtor’s 1/6th share in the property. They also requested permission to sell the 1/6th share following consultation with the Committee of Creditors. The Adjudicating Authority had rejected these applications, citing a status quo order issued by the Hon’ble Supreme Court in Civil Appeal Nos. 827-828 of 2021, which restrained all parties from altering the existing status.

The appellants contended that the Supreme Court’s status quo order pertained only to the Corporate Insolvency Resolution Process (CIRP) and did not preclude actions related to the 1/6th share of the corporate debtor in the property. However, the respondents, including the RP and the suspended directors of the corporate debtor, argued that the status quo applied comprehensively to all assets of the corporate debtor as well as the CIRP, and any demarcation or related actions required explicit clarification or modification of the Supreme Court’s order.

The NCLAT, after examining the submissions and records, held that the interim status quo order by the Supreme Court was binding and precluded any steps toward the demarcation or valuation of the corporate debtor’s share in the property. The Tribunal noted that the appropriate course of action for the appellants was to seek clarification or modification of the status quo order from the Supreme Court before pursuing further remedies. Consequently, the NCLAT upheld the Adjudicating Authority’s decision to reject the applications and granted the appellants liberty to file a fresh application before the Adjudicating Authority if the Supreme Court issued a clarificatory or modifying order. The appeals were dismissed with these observations.

Mr. Gaurav Mitra with Ms. Ramya Aggarwal and Ms. Lavanya Pathak, Advocates represented the Appellant.

Mr. Harsh Kesharia, Advocate represented the for RP.

Mr. Ravi Raghunath, and Mr. Aniruth Purusothaman, Advocates appeared for the Intervener.

---

Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.

Click on the Citation/Link to access these resources

REEDLAW 2024 NCLAT Del 11587