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The Supreme Court has held that the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) do not have the jurisdiction to adjudicate upon disputes which revolve around decisions of statutory or quasi-judicial authorities as the same can be corrected only by way of judicial review of administrative action.
Therefore, in cases where the Tribunal chooses to exercise a jurisdiction which is not vested in it in law, such as when it undertakes judicial review of administrative action, the High Court can entertain writ petition against an order passed by the Tribunal on the basis that NCLT was coram non judice.
The Supreme Court has also held that NCLT, NCLAT, however, have the jurisdiction to inquire into questions of fraud.
The Judgment was delivered by a three-Judge Bench of Justices Rohinton Nariman, Aniruddha Bose and V Ramasubramanian.
M/s. Udhyaman Investments Pvt Ltd had moved an application before the NCLT Chennai under Section 7 of the Insolvency and Bankruptcy Code, 2016 against M/s. Tiffins Barytes Asbestos & Paints Ltd., the Corporate Debtor.
In March 2018, the application was admitted by NCLT and an Interim Resolution Professional was appointed. Consequently, a moratorium was also declared in terms of Section 14 of the IBC, 2016. At that time, the Corporate Debtor held a mining lease granted by the Karnataka Government, which was to expire by May 25, 2018.
Although a notice for premature termination of the lease had already been issued on allegation of violation of statutory rules and the terms and conditions of the lease deed, no order of termination had been passed till the date of initiation of the Corporate Insolvency Resolution Process (CIRP).
After his appointment, the Interim Resolution Professional wrote to the Director of Mines & Geology informing them of the commencement of CIRP and also sought deemed extension of the lease beyond May 25, 2018 and up to March 31, 2020 in terms of Section 8A (6) of the Mines & Minerals (Development and Regulation) Act, 1957 ( MMDR Act).
Finding that there was no response, the Interim Resolution Professional filed a writ petition before the Karnataka High Court, seeking a declaration that the mining lease should be deemed to be valid up to March 31, 2020.
During the pendency of the writ petition, the Karnataka Government rejected the proposal for a deemed extension on the ground that the Corporate Debtor had contravened not only the terms and conditions of the Lease Deed but also the provisions of Rule 37 of the Mineral Concession Rules, 1960 and Rule 24 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Rules, 2016.
In view of the rejection, the writ petition was withdrawn and the Resolution Professional moved NCLT, Chennai praying for setting aside the order of the Karnataka Government. The Resolution Professional also sought a declaration that the lease should be deemed to be valid up to March 31, 2020.
The NCLT allowed the plea ex parte and set aside the Karnataka Government order on the ground that it was in violation of the moratorium in terms of Section 14(1) of IBC, 2016. Consequently, NCLT directed the Karnataka Government to execute Supplement Lease Deeds in favour of the Corporate Debtor for the period up to March 31, 2020.
Aggrieved by the order of the NCLT, Chennai, the Karnataka Government moved a writ petition before the Karnataka High Court. In March 2019, the Karnataka High Court set aside the NCLT Order and remanded the matter back to NCLT for fresh consideration.
Ultimately, NCLT once again set aside the order of rejection and directed the Karnataka Government to execute Supplemental Lease Deeds.
Karnataka Government again moved the High Court under its writ jurisdiction and challenged the NCLT order. The High Court stayed the operation of the direction contained in the NCLT Order.
The Resolution Applicant, the Resolution Professional and the Committee of Creditors preferred the present appeal before the Supreme Court.
Counsel for the Resolution Applicant argued that when an efficacious alternative remedy was available under Section 61 IBC, the High Court ought not to have entertained a writ petition. It was added that the Interim Resolution Professional had a right to move the NCLT for appropriate reliefs for the preservation of the properties of the Corporate Debtor and therefore, the only recourse was under IBC.
Counsel for the Resolution Professional contended that the whole object of IBC would get defeated if the orders of NCLT were declared amenable to review by the High Court under Article 226/227.
The counsel for the Committee of Creditors submitted that what was sought by the Resolution Professional was a mere recognition of the statutory right of deemed extension of lease conferred by MMDR Act. Therefore, NCLT had not exercised a jurisdiction which was not vested in it in law, so as to enable the High Court to invoke the jurisdiction under Article 226, it was pleaded.
The Union of India, through the Attorney General, further added that if a case fell under the category of inherent lack of jurisdiction on the part of a Tribunal, the exercise of jurisdiction by the Tribunal would certainly be amenable to the jurisdiction of the High Court under Article 226.
Whether the High Court ought to interfere, under Article 226/227 of the Constitution, with an Order passed by the National Company Law Tribunal in a proceeding under the Insolvency and Bankruptcy Code, 2016, ignoring the availability of a statutory remedy of appeal to the National Company Law Appellate Tribunal and if so, under what circumstances.
After discussing a catena of English Judgments and Indian Judgments on the issue, the Court concluded that to decide if a statutory alternative remedy should be allowed to be bypassed or not under writ jurisdiction, it was to be seen whether the error committed by an administrative authority or tribunal or a court of law went to jurisdiction or whether the error was committed within its jurisdiction.
The distinction between the lack of jurisdiction and the wrongful exercise of the available jurisdiction should certainly be taken into account by High Courts when Article 226 is sought to be invoked by passing a statutory alternative remedy provided by a special statute, it said.
With respect to the present case, the Court observed that the decision of the Karnataka Government to refuse the benefit of deemed extension of lease was in the public law domain and hence the correctness of the decision could be called into question only in a superior court which was vested with the power of judicial review over administrative action.
NCLT, being a creature of a special statute to discharge certain specific functions, could not be elevated to the status of a superior court having the power of judicial review over administrative action, the Court said.
After detailing the power and jurisdiction of NCLT, the Court noted that although Section 60(5)(c) IBC was very broad as it spoke of “any question of law or fact arising out of or in relation to insolvency resolution”, a decision taken by the government in relation to a matter which was in the realm of public law could not, by any stretch of the imagination, be brought within its purview.
Further stressing on the fact that the duties of a resolution professional had to be distinguished from the jurisdiction and powers of NCLT, the Court said that a Resolution Professional could not shortcircuit rights of the corporate debtor in judicial, quasi-judicial proceedings and bring a claim before NCLT taking advantage of Section 60(5).
“..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.”
Therefore, the Court concluded that in cases where NCLT exercised a jurisdiction which not vested in it in law, its orders would be amenable to the jurisdiction of the High Court under Article 226/227 on the basis that NCLT was coram non judice.
The Court also clarified that Section 14 IBC would not go to the rescue of a corporate debtor as what has been prohibited is only the right not to be dispossessed, but not the right to have a renewal of the lease of any property.
Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016.
After pursuing the scheme of the IBC in terms of Sections 65, 66 and 69, the Court stated that fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution could be inquired into by the Adjudicating Authority i.e. NCLT.
The Court thus concluded,
“..it is clear that 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.”
In view of the above, the Court held that the High Court was justified in entertaining the writ petition and there was no reason to interfere with its decision.
The appeals were accordingly dismissed.
The Resolution Applicant was represented by Senior Advocates K V Viswanathan, Mukul Rohatgi.
The Resolution Professional was represented by Senior Advocate Kapil Sibal.
CoC was represented by Senior Advocates Arvind P Datar and E Om Prakash.
Read the Judgement: