The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) is fundamental to the goal of value maximization of assets under the IBC. It is for this reason that the Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India1 noted that to preserve economic value of the corporate debtor during the Corporate Insolvency Resolution Process (CIRP), there should ideally be a single forum to adjudicate upon the rights and obligations of both the corporate debtor and the creditors. Under the IBC regime this forum is the National Company Law Tribunal (NCLT) which has been given broad powers under Section 60(5) of the IBC to adjudicate upon matters "arising out of" or "in relation to" the insolvency resolution of the corporate debtor. Recently, the scope of this jurisdiction has been explained by the Supreme Court in Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors2.
AMBIGUITY ON THE EXTENT OF JURISDICTION
Before the enactment of the IBC, the insolvency resolution framework in India was fragmented. For this reason, the Supreme Court in M/S. Innoventive Industries Ltd v. ICICI Bank3 noted that one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. However, NCLTs have denied jurisdiction for adjudicating matters like contractual disputes. For instance, the NCLT in Encote Energy (India) Pvt. Ltd. v. V. Venkatachalam4 had denied jurisdiction to adjudicate matters which involved disputed facts and it further held that such disputes have to be decided by "a court of competent jurisdiction". On similar lines, the NCLT in Roma Enterprises v. Mr. Martin S.K. Golla, Resolution Professional5 and in Sri Krishna Constructions v. Vasudevan, R.P. of Tiffins Barytes Asbestos & Paints Ltd6 have also denied jurisdiction, with the NCLT in the latter case holding that the jurisdiction under Section 60(5) cannot be to settle disputes which are ongoing in other courts.
DISPUTES IN THE REALM OF PUBLIC LAW
Clarifying the law with respect to the jurisdiction of the NCLT under Section 60(5) of the IBC, the Supreme Court in M/s Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors.7 observed that the jurisdiction under Section 60(5) of the IBC is wide but does not include the jurisdiction to adjudicate questions in the realm of public law. Based on this reasoning, the court held that the NCLT would not have jurisdiction to examine the cancellation of a mining license under the Mines and Minerals (Development and Regulation) Act, 1957. In arriving at this reasoning, the court also indicated that questions of public law would also include questions such as the determination of the tax liability by the Income Tax Appellate Tribunal.
While previous decisions such as Embassy Property had decided the question of jurisdiction by making a distinction between private law and public law, the Supreme Court in Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors. further developed the scope of this distinction.
DISPUTES ARISING OUT OF THE INSOLVENCY RESOLUTION PROCESS
In Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors., the court was tasked with deciding whether a contractual dispute regarding the termination of a Power Purchase Agreement (PPA) by the Gujarat Electricity Regulatory Commission could be decided by the NCLT. The Power Purchase Agreement read with Section 86(1)(f ) of the Electricity Act, provided for the Gujarat Electricity Regulatory Commission to adjudicate "disputes between the licensees, and generating companies and to refer any dispute for arbitration". Based on this provision and the Embassy Property case, the appellant contended that the NCLT did not have jurisdiction since the dispute involved questions of public law. However, the court rejected this argument by drawing a distinction between exercise of contractual rights by a statutory authority and the exercise of public power, and holding that exercise of contractual rights by a statutory authority would not fall in the realm of public law.
Even where a question falls squarely within private law, there may be instances where the NCLT may not have jurisdiction. This is because the NCLT only has jurisdiction on disputes "arising out of" or "in relation to" the insolvency resolution of the corporate debtor under Section 60(5) of the IBC. In Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors., the court held that since the termination of the Power Purchase Agreement had been initiated on the grounds of the insolvency of the corporate debtor, a contractual dispute arising out of such a termination would be covered by Section 60(5) of the IBC and thus would be within the jurisdiction of the NCLT.
To support its reasoning, the court further relied on Section 60(5)(c) of the IBC which provides for the residuary jurisdiction of the NCLT. The court explained that the provision of residuary jurisdiction would be rendered otiose if the jurisdiction of the NCLT was only confined to actions which are barred by the moratorium under Section 14 of the IBC. In this regard, the court held that "A fine line has to be drawn between ensuring that a residuary jurisdiction is not rendered otiose due to an excessively restrictive interpretation, as well as, guarding against usurpation of power, by a court or a tribunal, not vested in it".
CONCLUSION
In view of the above discussion, it seems that the Supreme Court has delineated the scope of the ratio laid down in Embassy Property as well as it has reaffirmed that the NCLT would have jurisdiction in contractual disputes provided that such disputes are in relation to the insolvency resolution process of the corporate debtor. However, the contractual disputes which constitute a dispute "arising out of" or "in relation to" the insolvency resolution of the corporate debtor may need further clarification by courts.
Footnotes
1. ( 2019 ) 4 SCC 17
2. MANU/SC/0157/2021
3. ( 2018 ) 1 SCC 407
4. Company Appeal (AT) (Insolvency) No. 1226 of 2019
5. Company Appeal (AT) (Ins.) No. 232 of 2018
6. Company Appeal (AT) (INS) No.619 of 2019
7. MANU/SC/1661/2019
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