83 investors demanded their money back. The tribunal told the builder to settle. The Supreme Court said — no.

A builder owed 83 investors ₹33 crore. The tribunal didn't decide if there was a default—it just told the builder to settle. The Supreme Court stepped in.

For months, the National Company Law Tribunal (NCLT — the special court that handles corporate insolvencies) did nothing but adjourn. Each time the investors came to court, the builder asked for more time to pay. The tribunal obliged. When it finally passed an order, the silence in the room was thick — no one had expected a dismissal. It didn't admit the insolvency petition or reject it. It simply told the builder to settle the remaining claims within three months. Only 13 of the 83 investors had actually settled. The rest were left waiting, their stack of unpaid agreements sitting on the table like a monument to promises broken.

The promise that broke

The story begins with a 100-acre residential project. A real estate company called Bharath Hi Tech Builders entered into agreements with investors to raise money. The investors lent money through syndicate loan agreements and plot purchase agreements. In return, they were promised returns of 20-25% per annum. Some expected their principal back with interest. Others expected plots of land.

The builder delivered neither. The money was gone. The plots never came. By the time the investors approached the NCLT, the total unpaid amount had crossed ₹33.84 crore.

Eighty-three investors filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the legal process that allows a creditor to start insolvency proceedings against a company that has defaulted on its debts). They asked the tribunal to declare the builder insolvent and begin the process of recovering what was owed.

The tribunal did not say yes. It did not say no. It kept adjourning the case, giving the builder time to settle with the investors privately. The smell of old paper and stale hope hung over each hearing. When it finally passed an order in February 2020, it directed the builder to settle the remaining claims within three months. It did not decide whether a default had actually occurred. It did not admit the petition. It did not reject it. It simply pushed the matter back to the negotiating table.

The trap of being 'helpful'

The investors appealed to the National Company Law Appellate Tribunal (NCLAT — the appellate court that hears appeals against NCLT orders). The NCLAT dismissed their appeal, saying it was not maintainable. The tribunal's approach seemed reasonable: encourage settlements, keep companies alive, protect jobs. But the investors had not come to court asking for a settlement. They had come asking for a legal determination of whether a default had occurred.

By February 2020, only 13 of the 83 petitioners had actually settled their claims. The remaining 70 investors were still owed money. The tribunal had effectively told them: wait three more months, and if the builder still doesn't pay, come back. But the law does not work that way.

The investors took the matter to the Supreme Court.

Two choices, not three

Section 7 of the Insolvency and Bankruptcy Code gives a financial creditor (any person to whom a financial debt is owed, including money lent for interest) the right to start insolvency proceedings against a corporate debtor (a company that has defaulted). The process is straightforward. The creditor files an application. The tribunal checks whether a default has occurred and whether the application is complete. Then it does one of two things.

Under Section 7(5)(a), if the tribunal is satisfied that a default has occurred and the application is complete, it must admit the application. This starts the formal insolvency process, which includes a moratorium (a temporary freeze on all legal actions against the company) and the appointment of a resolution professional to manage the company's affairs.

Under Section 7(5)(b), if the tribunal is not satisfied that a default has occurred, or if the application is incomplete, it must reject the application.

There is no third option. The tribunal cannot say: "Go settle this among yourselves and come back." It cannot say: "I will give the builder three months to pay you, and if he doesn't, we will talk again." The law gives the tribunal exactly two choices: admit or reject.

What the Supreme Court said

The Supreme Court bench — Justice Dr Dhananjaya Y Chandrachud and Justice A S Bopanna — heard the appeal in December 2021. The judgment was clear and sharp. One single sentence in the ruling changed everything: "The Adjudicating Authority has only two options under Section 7(5) — to admit the application or to reject it." The weight of those words settled over the courtroom like a gavel striking finality.

The court held that the NCLT and NCLAT are creatures of statute. Their jurisdiction is not general or equitable. It is statutorily conferred, structured, and circumscribed. They cannot act as courts of equity — courts that decide cases based on fairness rather than strict legal rules. They cannot direct settlements. They cannot dispose of a petition by telling the builder to pay within three months without first deciding whether a default has occurred.

The court cited its own precedent in Innoventive Industries Ltd. v. ICICI Bank, where it had held that the adjudicating authority under the IBC must act within the framework of the statute. It cannot add options that the law does not provide.

The bench observed that while tribunals may encourage settlements — and the IBC does provide a mechanism for withdrawal of a petition under Section 12A if the parties reach a settlement — they cannot compel settlements or dispose of petitions on the basis that settlement is being explored. To do so is to abdicate statutory jurisdiction.

The NCLT had not decided whether a default had occurred. It had not checked whether the application was complete. It had simply assumed that settlement was the better path and pushed the parties toward it. That, the Supreme Court said, was a fundamental error.

The procedural journey: a timeline of abdication

The case travelled a long road before the Supreme Court finally stopped the detour. It began at the NCLT, Bengaluru Bench, which on 26 April 2019 disposed of the Section 7 petition without admitting or rejecting it — merely directing the builder to settle. The investors then appealed to the NCLAT, which on 30 July 2020 dismissed the appeal as not maintainable, upholding the tribunal's approach. Finally, on 14 December 2021, the Supreme Court allowed the appeal, setting aside both orders and restoring the petition to the NCLT for fresh adjudication.

The entire journey — from the first filing to the Supreme Court's intervention — took over two years. During that time, the investors received neither their money nor a legal determination of their rights. The tribunals had effectively stalled the process by trying to be helpful.

The ratio: why this matters for every insolvency case

The Supreme Court's reasoning in E S Krishnamurthy & Ors. v. M/s Bharath Hi Tech Builders Pvt. Ltd. rests on three key principles that will govern all future Section 7 petitions.

First, the tribunal's jurisdiction is binary. Under Section 7(5) of the IBC, the Adjudicating Authority has only two options: admit the application under clause (a) if satisfied that default has occurred and the application is complete, or reject under clause (b). There is no third option of disposing of the petition by directing settlement or any other course of action. The statute does not permit it, and the tribunal cannot create one.

Second, tribunals are not courts of equity. The Adjudicating Authority and Appellate Authority under the IBC are creatures of statute whose jurisdiction is statutorily conferred, structured and circumscribed. They cannot act as courts of equity by directing settlements. While they may encourage settlements, they cannot compel them or dispose of petitions on the basis that settlement is being explored. The IBC provides a specific mechanism for withdrawal under Section 12A if parties do reach a settlement after admission — but that is a separate process, not a substitute for adjudication.

Third, disposing of a petition without adjudicating default is an abdication of jurisdiction. When the NCLT directed the builder to settle remaining claims within three months without deciding whether a default had occurred, it effectively refused to perform its statutory duty. The investors had come to court seeking a legal determination. The tribunal gave them a negotiation deadline. That, the Supreme Court held, was a fundamental error that went to the root of the tribunal's authority.

The court also cited several other precedents to reinforce its position: Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Limited, Arun Kumar Jagatramka v. Jindal Steel & Power Ltd., Embassy Property Developments (P) Ltd. v. State of Karnataka, Swiss Ribbons Pvt Ltd v. Union of India, and Manish Kumar v. Union of India. Each of these cases had emphasised that the IBC is a complete code in itself, and tribunals must operate strictly within its framework.

What changes now

The judgment restored the Section 7 petition to the NCLT for fresh adjudication. The NCLT must now actually decide whether a default occurred and whether the application is complete. If it finds a default, it must admit the petition. If it does not, it must reject it. No more adjournments for settlement. No more three-month deadlines to pay.

For creditors, the message is clear: if you have filed a Section 7 petition, the tribunal cannot force you into a settlement. It must decide your case on its merits. If a default has occurred, the law entitles you to the admission of your petition and the start of the insolvency process.

For builders and corporate debtors, the message is equally clear: the tribunal cannot protect you from insolvency by giving you time to settle. If you have defaulted, the creditor has a statutory right to have the petition admitted. Settlement is a private arrangement between parties, not a judicial tool to avoid a legal determination.

THE PLAY: If you are a financial creditor who has filed a Section 7 petition, and the tribunal tries to dispose of it by directing the debtor to settle without adjudicating on default, appeal immediately — the tribunal has acted beyond its jurisdiction.

Back to where the law began

The Supreme Court set aside both the NCLT order and the NCLAT judgment. It restored the Section 7 petition to the NCLT for fresh disposal. All rights and contentions of the parties were left open. The investors would have their day in court — a real day, where the tribunal would actually decide whether a default had occurred, instead of asking them to wait and hope.

The builder owed 83 investors ₹33 crore. The tribunal had tried to be helpful. The Supreme Court reminded it that the law does not ask tribunals to be helpful. It asks them to decide.