NCLT was justified in not following its own decision in Beacon Trusteeship as a binding precedent as it was per incuriam: NCLAT

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Section 238 of IBC; NCLT was justified in not following its own decision in Beacon Trusteeship as binding precedent as it was per incuriam

Case Details: Rajeev R. Jain v. AASAN Corporate Solutions (P) Ltd - [2022] 134 158 (NCL-AT)

Judiciary and Counsel Details

    • Ashok Bhushan, Chairperson
    • Jarat Kumar Jain, Judicial Member and Dr. Alok Srivastava, Technical Member
    • Arun Kathpalia, Sr. Adv. Ashok ParanjpeKunal VajaniShreyas Lele and Kunal Mimani, Advs. for the Appellant. Amit Sibal, Sr. Adv. Denzil ArambhanMs. Amisha PatelMs. Priyakshi BhatnagarKaustubh PrakashVinamra KaporihaPranaya GoyalAaman GandhiVardaan BajajMs. Nanki GrewalKaran Grover and IPS Oberoi, Advs. for the Respondent.

Facts of the Case

In the instant case, Corporate Debtor obtained two loans from the Financial Creditor through two deposits agreements. The first deposit was secured by the Deed of Mortgage. Similarly, the second agreement was also secured by the Deed of Mortgage and other security documents. As per the terms of the First Deposit Agreement, the first loan was repayable on the expiry of three months from the date of the first loan. The date for payment was extended till 31.03.2018. An application under Section 7 of the ‘I&B Code’ was filed by the Financial Creditor claiming default of debt.

Appellant contended that before the Adjudicating Authority a judgment of co-ordinate Bench dated 07.10.2021 – “Beacon Trusteeship Limited vs. Neptune Ventures and Developers Private Limited” was referred to where the Adjudicating Authority needed to consider similar terms of agreement and mortgage and has rejected Section 7 Application holding that remedy available to Applicant was to realize the amount from security. It was submitted that there being the judgment of the co-ordinate Bench rejecting similar Application, the Adjudicating Authority committed error in not following the co-ordinate Bench judgment and admitting the Application under Section 7.

The respondent rebutting the submission of the Appellant contended that the Application filed u/s 7 by the Financial Creditor was well within the jurisdiction and fully maintainable. It was submitted that the terms and conditions of the Loan Agreement, as well as the Mortgage Deed, did not put any embargo on the right of the Financial Creditor to take recourse of Section 7 of the ‘I&B Code’.

Further, the respondent submitted that the Adjudicating Authority had given reason for not following the “Beacon Trusteeship Limited vs. Neptune Ventures and Developers Private Limited” judgment and in any view of the matter, the said judgment was not in conformity with ‘I&B Code’ and ought not to have been followed.


NCLAT observed there is no dispute between the parties regarding debt or default committed by the Corporate Debtor. The Bench of NCLT was justified in not following the decision of its co-ordinate Bench as a binding precedent as the said decision was per incuriam for having been rendered without noticing the provisions of section 238 of IBC.

“Section 238 of IBC not only override inconsistent provisions in any other law but also inconsistent provisions in any other deed. Therefore, because of section 238, the provisions of the mortgage deed which allow the financial creditor to liquidate the security mortgaged by the defaulting company, cannot come in the way of filing a petition in NCLT u/s 7 of the Act.

The doctrine of Stare Decisis applies to NCLT and NCLAT and NCLT is bound to follow earlier decisions of jurisdictional co-ordinate Benches as binding precedents. However, per incuriam is an exception to stare Decisis. Where the earlier decision was rendered without noticing an express provision of law, it is a decision that is per incuriam and is not a binding precedent. “ observed NCLAT

NCLAT also referred to the judgment of the Hon’ble Supreme Court in “Gujarat Urja Vikas Nigam Limited vs. Amit Gupta and Others- (2021) 7 SCC 209” where the Hon’ble Supreme Court needed to consider Section 238 about a Power Purchase Agreement. SC had held that because of the non-obstante clause in Section 238 of the ‘I&B Code’, the conditions of the Power Purchase agreement shall be overridden.

As the result, it was held that the NCLT cannot be faulted for not following its own earlier decision in Beacon which was per incuriam for no to section 238 of IBC, and in allowing the petition filed by the financial creditor under section 7 of the Act when default had occurred even though the financial creditor could have acted under the mortgage deed without recourse to remedy under section 7 of IBC.

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