The Supreme Court ("SC") on December 3, 2019, in an appeal filed in the case of Embassy Property Developments Pvt. Ltd ("Corporate Debtor"), held that though the National Company Law Tribunal ("NCLT") and the National Company Law Appellate Tribunal ("NCLAT") under the Insolvency and Bankruptcy Code, 2016 ("IBC"), would have jurisdiction to enquire into questions of fraud in relation to corporate insolvency resolution process ("CIRP") of a Corporate Debtor, they would not have jurisdiction to adjudicate upon disputes such as those arising under the Mines and Minerals (Development and Regulation Act) 1957, and rules made 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.
- At the time of admission of the CIRP, the Corporate Debtor held a mining lease granted by the Government of Karnataka. The Government of Karnataka however issued a notice for premature termination due to alleged violation of statutory rules and terms and conditions of the lease. The Interim Resolution Professional ("IRP") had sought the benefit of a deemed extension of the said lease in view of the ongoing CIRP.
- On receiving no response to this request, the IRP filed a writ petition before the High Court of Karnataka ("High Court"). Pending this writ petition, the Government of Karnataka passed an order rejecting the proposal for deemed extension. In view of this, the IRP withdrew the writ petition and subsequently filed a Miscellaneous Application ("MA") before NCLT Chennai to set aside the order of the Government of Karnataka. NCLT Chennai allowed this MA on the ground that the order of the Government of Karnataka was in violation of the moratorium declared under IBC.
- The Government of Karnataka then filed a writ petition in the High Court, which set aside the order of the NCLT Chennai and remanded the matter back to NCLT Chennai for fresh consideration. The NCLT Chennai however allowed the MA, setting aside the order of rejection and directing the Government of Karnataka to execute 'Supplemental Lease Deeds'.
- Challenging the order of the NCLT Chennai, Government of Karnataka filed a writ petition in the High Court, which granted a stay on the operation of the direction contained in the order of NCLT Chennai. Hence, the present matter before the Supreme Court came about for consideration.
Proceedings before the Supreme Court:
Issue 1: Scope of a high court to interfere in an IBC matter, under Article 226/227 of the Constitution.
Though the IBC is a complete code in itself, one of the exceptions to the self-imposed 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/quasi-judicial authority, against whose order a judicial review is sought.
The relationship between the Corporate Debtor and the Government of Karnataka in the present case, under the mining lease is not just contractual but also statutorily governed. The decision of the High Court to refuse the benefit of the deemed extension of lease, is in the public domain. Hence, the correctness of the said decision can be called into question only in a superior court having the power of judicial review.
The distinction between the lack of jurisdiction and the wrongful exercise of the available jurisdiction, should be taken in to account by High Courts, when Article 226 is ought to be invoked bypassing a statutory alternative remedy provided by a special statute.
The NCLT, being a creature of a special statute, cannot be elevated to the status of a superior court having the power of judicial review over administrative action. The NCLT and NCLAT are constituted not under the IBC but under the Companies Act, 2013. Though, Section 60 of the IBC generally speaks about the jurisdiction of the NCLT, the power under section 60 (5) is a very broad sweep. It says that any question of law or fact, arising out of or in relation to insolvency resolution will be within the jurisdiction of the NCLT. However, 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'.
It is therefore clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before the NCLT for the enforcement of such a right. A moratorium preserves the status quo and does not create a new right. Thus, NCLT was coram non judice.
Issue 2: Inquiry of fraud by NCLT/NCLAT
After considering the above, the SC held that since Section 65 and Section 69 of the IBC specifically provide for the NCLT's jurisdiction on deciding issues pertaining to fraudulent or malicious initiation of proceedings and fraudulent transactions under IBC, the NCLT is vested with the power to inquire into such proceedings. Therefore, the High Court will not have the power to decide the said issues in relation to a corporate debtor undergoing CIRP.
The judgment thus crystallises the extent of jurisdiction of the NCLT and NCLAT. The resolution professionals, resolution applicants as well as other concerned parties can now explore the possibility of approaching the high courts with regard to issues which relate to public law, albeit in relation to corporate debtors undergoing CIRP.
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