Supreme Court

Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka and Ors.

MANU/SC/1661/2019

03.12.2019

Insolvency

High Court can intervene if NCLT passes order in matter relating to Public Law

Two seminal questions of importance raised in present matter is whether the High Court ought to interfere, under Article 226/227 of the Constitution of India, 1950 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; and whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016 (IBC).

There are three appeals, one filed by the Resolution Applicant, the second filed by the Corporate Debtor through the Resolution Professional and the third filed by the Committee of Creditors, all of which challenge an Interim Order passed by the Division Bench of High Court of Karnataka in a writ petition, staying the operation of a direction contained in the order of the NCLT, on a Miscellaneous Application filed by the Resolution Professional. Learned Senior Counsel appearing on behalf of the Resolution Applicant assailed the impugned Order on the ground that, when an efficacious alternative remedy is available under Section 61 of IBC, 2016, the High Court of Karnataka ought not to have entertained a writ petition and that too against an Order passed by the Chennai Bench of NCLT.

The decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence, the correctness of the said decision can be called into question only in a superior Court which is vested with the power of judicial review over administrative action. 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.

The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure, 1908 (CPC) 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.

From a combined reading of Sub-section (4) and Sub-section (2) of Section 60 with Section 179 of IBC, it is clear that none of them hold the key to the question as to whether NCLT would have jurisdiction over a decision taken by the government under the provisions of Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act, 1957) and the Rules issued there-under. The only provision which can probably throw light on this question would be Sub-section (5) of Section 60 of IBC, as it speaks about the jurisdiction of the NCLT. Clause (c) of Sub-section (5) of Section 60 of IBC 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 resolution" appearing in Clause (c) of Sub-section (5) of IBC.

Wherever the corporate debtor has to exercise rights in judicial, quasi-judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5).

Therefore, 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.

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 the 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.

Though NCLT and NCLAT would have jurisdiction to enquire into questions of fraud, they would not have jurisdiction to adjudicate upon disputes such as those arising under MMDR Act, 1957 and the Rules issued thereunder, especially 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. Hence, the High Court was justified in entertaining the writ petition and there is no reason to interfere with the decision of the High Court. Appeals dismissed.

Tags : NCLT Jurisdiction Public law

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