SC: HC can interfere if NCLT exercises jurisdiction not vested in it in law

The Hon’ble Supreme Court, on 3rd December 2019, in the matter of M/s Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. pronounced that if NCLT choses to exercise a jurisdiction not vested in it in law, the High Court can interfere under Article 226/227 of the Constitution regardless of the availability of a statutory alternative remedy of appeal to NCLAT.

Whether the High Court ought to interfere, under Article 226/227 of the Constitution, with an order passed by NCLT in a proceeding under the IBC, 2016, despite the availability of a statutory alternative remedy of appeal to NCLAT ?

What is recognized by Article 226 (1) is the power of every High Court to issue (i) directions, (ii) orders or (iii) writs. They can be issued to (i) any person or (ii) authority including the Government. They may be issued (i) for the enforcement of any of the rights conferred by Part III and (ii) for any other purpose. But the exercise of the power recognized by Clause (1) of Article 226, is restricted by the territorial jurisdiction of the High Court, determined either by its geographical location or by the place where the cause of action, in whole or in part, arose. While the nature of the power exercised by the High Court is delineated in Clause (1) of Article 226, the jurisdiction of the High Court for the exercise of such power, is spelt out in both Clauses (1) and (2) of Article 226.  (Para 13)

Traditionally, the jurisdiction under Article 226 was considered as limited to ensuring that the judicial or quasi­ judicial tribunals or administrative bodies do not exercise their powers in excess of their statutory limits. But in view of the use of the expression “any person” in Article 226 (1), courts recognized that the jurisdiction of the High Court extended even over private individuals, provided the nature of the duties performed by such private individuals, are public in nature. Therefore, the remedies provided under Article 226 are public law remedies, which stand in contrast to the remedies available in private law. (Para 14)

One of the well recognized exceptions to the self­imposed restraint of the High Courts, in cases where a statutory alternative remedy of appeal is available, is the lack of jurisdiction on the part of the statutory/quasi­judicial authority, against whose order a judicial review is sought. (Para 15)

The question whether the error committed by an administrative authority/tribunal or a court of law went to jurisdiction or whether it was within jurisdiction may still be relevant to test whether a statutory alternative remedy should be allowed to be bypassed or not. (Para 22)

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 bypassing a statutory alternative remedy provided by a special statute. (Para 24)

The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action. (Para 28)

The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. Hence, let us now see the jurisdiction and powers conferred upon NCLT. (Para 29)

Clause (c) of Sub­section (5) of Section 60 of the Insolvency and Bankruptcy Code, 2016, is very broad in its sweep, 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 resolutionappearing in Clause (c) of Sub­section (5). (Para 36)

Wherever the corporate debtor has to exercise rights in judicial, quasi­judicial proceedings, the resolution professional cannot short­circuit the same and bring a claim before NCLT taking advantage of Section 60(5). (Para 39)

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. (Para 40)

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. (Para 43)

The purpose of moratorium is only to preserve the status quo and not to create a new right. Therefore nothing turns on Section 14 of IBC, 2016. Even Section 14 (1) (d), of IBC, 2016, which prohibits, during the period of moratorium, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor, will not go to the rescue of the corporate debtor, since what is prohibited therein, is only the right not to be dispossessed, but not the right to have renewal of the lease of such property. (Para 44)

When the disputes revolve around decisions of statutory or quasi­ judicial authorities, which can be corrected only by way of judicial review of administrative action, NCLT and NCLAT would not have jurisdiction to adjudicate upon such disputes.  Hence, the High Court would justified in entertaining a writ petition against such order passed by NCLT despite the availability of a statutory alternative remedy of appeal to NCLAT. (This inference has been drawn on the basis of Para 52)

Whether question of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016 ?

Even fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority under Section 66 of IBC, 2016 . Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors. Therefore, NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. (Para 50)

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. (Para 51)

Copy of judgement: Judgement_03-Dec-2019

-Adv. Tushar Kaushik

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