December 05, 2019

NCLT and NCLAT would not have jurisdiction to adjudicate upon disputes which can be corrected only by way of judicial review of administrative action: SC

[ by Kavita Krishnan ]


A Supreme Court Bench of Justices Rohinton Fali Nariman, Aniruddha Bose and V. Ramasubramanian ruled that that though the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) would have jurisdiction to enquire into questions of fraud, they would not have jurisdiction to adjudicate upon disputes that revolve around decisions of statutory or quasi-judicial authorities, which can be corrected only by way of judicial review of administrative action.

In this case, two seminal questions of importance were posed before the Supreme Court:

(a) Whether the High Court ought to interfere, under Article 226/227 of the Constitution, with an Order passed by the NCLT in a proceeding under the Insolvency and Bankruptcy Code, 2016 (IBC), ignoring the availability of a statutory remedy of appeal to the NCLAT and if so, under what circumstances;

(b) Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings that are initiated under the IBC at the initiation of Corporate Insolvency Resolution Process (CIRP).

The Supreme Court ruled that NCLT and NCLAT are constituted under Sections 408 and 410 of the Companies Act, 2013 and not under the IBC. The Court relying on the provisions of the IBC ruled that section 60(5) of the IBC speaks about the jurisdiction of the NCLT. Section 60 (5)(c) of the IBC is very broad in its nature, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase “arising out of or in relation to the insolvency resolution” appearing in section 60 (5)(c).

The Apex Court held that the jurisdiction of the NCLT delineated in Section 60(5) of the IBC cannot be stretched so far as to bring absurd results. Further, if NCLT has been conferred with jurisdiction to decide all types of claims to property, of the corporate debtor, Section 18(f)(vi) of the IBC would not have made the task of the interim resolution professional in taking control and custody of an asset over which the corporate debtor has ownership rights, subject to the determination of ownership by a court or other authority.

The Court also made note of an important aspect that under Section 25(2)(b) of IBC, the resolution professional is obliged to represent and act on behalf of the corporate debtor with third parties and exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial and arbitration proceedings. Thus, wherever the corporate debtor has to exercise rights in judicial or quasi-judicial proceedings, the resolution professional cannot short circuit the same and bring a claim before NCLT taking advantage of Section 60(5) of the IBC.

The Supreme Court ruled that “in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right.”

The Court further held that in any case a tribunal which is the creature of a statute cannot be clothed with a jurisdiction, by any concession made by a party.

The Supreme Court thus responded to the first question stating that the NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of mining lease. Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of Karnataka was justified in entertaining the writ petition, on the basis that NCLT was coram non judice.

The second question before the Court was in view of the stand taken by the Government of Karnataka before the High Court that they chose to challenge the order of the NCLT before the High Court, instead of before NCLAT, due to the fraudulent and collusive manner in which the CIRP was initiated by one of the related parties of the Corporate Debtor themselves.

The Court ruled that NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. It is significant to note that Section 65(1) deals with a situation where CIRP is initiated fraudulently “for any purpose other than for the resolution of insolvency or liquidation”. According to the Court, NCLT has jurisdiction to enquire into allegations of fraud. As a corollary, NCLAT will also have jurisdiction. Hence, fraudulent initiation of CIRP cannot be a ground to bypass the alternative remedy of appeal provided in Section 61 of IBC.

Hence, Supreme Court held that the High Court was justified in entertaining the writ petition and therefore refused to interfere with the decision of the High Court.

View Full Judgement

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