2022 (6) TMI 1336 - HC - Insolvency and Bankruptcy

Court dismisses appeal, extends interim order for two weeks. No jurisdictional error found. Merits left for appellate authority.

The appeal was dismissed as the court found no jurisdictional error or legal infirmity in the learned single Judge's judgment. The court extended the ... Availability of an efficacious alternative remedy - appellate remedy under Section 61 of the Insolvency and Bankruptcy Code, 2016 - inclusion of assets in the Liquidation Estate - jurisdictional error versus error on merits - principles of natural justice and notice before inclusion in Liquidation Estate - relinquishment of secured creditor's security to the liquidation estate and distribution under Section 53 - scope of judicial review under Article 226 in insolvency mattersAvailability of an efficacious alternative remedy - appellate remedy under Section 61 of the Insolvency and Bankruptcy Code, 2016 - scope of judicial review under Article 226 in insolvency matters - Whether the writ petition seeking to challenge the NCLT order was maintainable in view of the appellants' alternative remedy before the appellate forum under the IBC, and whether interference under Article 226 was warranted. - HELD THAT: - The Court held that the Tribunal had interpreted the Code and passed the impugned order after hearing the appellants and other interested persons. Where the adjudicating authority has exercised its power and the grievance is of illegality or error in law or on facts, the appropriate remedy is to seek redressal under the statutory appeal mechanism. The appellate forum under Section 61 is equipped to examine legality and material irregularity; therefore the availability of that efficacious alternative remedy militates against exercise of writ jurisdiction in the facts of this case. The single Judge's conclusion that an appeal under Section 61 was available was correct, and no jurisdictional infirmity was established that would permit interference under Article 226. [Paras 14, 16, 18, 19]Writ petition dismissed on the ground that an efficacious alternative remedy by way of appeal under Section 61 of the IBC is available and no jurisdictional error justifying Article 226 interference was made out.Inclusion of assets in the Liquidation Estate - principles of natural justice and notice before inclusion in Liquidation Estate - jurisdictional error versus error on merits - Whether the NCLT's order permitting the liquidator to take possession and include the mortgaged leasehold land in the liquidation estate suffered from illegality or want of jurisdiction warranting interference. - HELD THAT: - The Court examined the earlier order of this Court which had set aside the Tribunal's order for lack of clarity and for want of an opportunity to affected third parties. The Tribunal thereafter reconsidered the matter and passed a clarified order. The High Court found that the Tribunal had interpreted the relevant provisions and had provided opportunity of hearing to the appellants; consequently the appellants could at best challenge the legality of that order before the appellate forum. The Court emphasised the distinction between a jurisdictional error (which would attract writ jurisdiction) and an error on merits or correctness (which is for the appellate forum), and concluded that no jurisdictional defect was shown. [Paras 12, 13, 14, 18]No interference: the Tribunal's reconsidered order is not shown to be vitiated by jurisdictional error; issues as to correctness of inclusion of the properties are left to be considered on appeal.Relinquishment of secured creditor's security to the liquidation estate and distribution under Section 53 - appellate remedy under Section 61 of the Insolvency and Bankruptcy Code, 2016 - Whether the consequence of the secured creditor having relinquished security to the liquidation estate and the distribution mechanism affects the appellants' remedy or the jurisdiction to entertain the writ. - HELD THAT: - The Court noted that the secured creditor had relinquished its security interest to the liquidation estate and had received proceeds as contemplated by the distribution regime under the Code. Given that the appellants had provided guarantees and the Tribunal's factual and legal conclusions flowed from those circumstances, the proper course for challenging the legal consequences or distribution is by way of the appellate remedy; this does not render the writ maintainable absent a shown jurisdictional breach. [Paras 17, 18]Matters relating to relinquishment of security and distribution under the Code do not make the writ the appropriate remedy; appellants may seek redress on appeal.Appellate remedy under Section 61 of the Insolvency and Bankruptcy Code, 2016 - Whether the period during which the matter was pending before the High Court would be excluded for the purpose of the time-limit for filing an appeal under Section 61(2) and related limitation condonation considerations. - HELD THAT: - The Court observed that the proviso to Section 61(2) provides a limited window for filing appeals, and recognised that time spent litigating in this Court may impact that period. The Court directed that the Appellate Tribunal should take note of the period during which the writ petition and appeal were pending before this Court when adjudicating any delay-condonation petition filed in support of an appeal. [Paras 22, 23]Tribunal to take into account the period during which the matter was pending before the High Court when considering any application for condonation of delay in filing an appeal.Jurisdictional error versus error on merits - Whether the Court has decided the substantive merits of inclusion of the appellants' properties in the liquidation estate. - HELD THAT: - The Court expressly stated that it has not decided the merits of the questions raised and left all such issues open for the appellate authority to consider. The High Court's decision concerned only the availability of the alternative remedy and the absence of a jurisdictional defect warranting writ relief. [Paras 21]Substantive merits are not adjudicated by this Court and are left open for consideration by the appellate authority.Final Conclusion: The intra-court appeal is dismissed. The High Court held that the appellants have an efficacious alternative remedy by way of appeal under Section 61 of the IBC, found no jurisdictional error in the Tribunal's reconsidered order to warrant interference under Article 226, left the merits open for the appellate forum, and directed the appellate Tribunal to take into account the period the matter was pending before this Court for any delay-condonation. Issues Involved:1. Availability of an efficacious alternative remedy.2. Jurisdiction of the National Company Law Tribunal (NCLT).3. Inclusion of personal properties in the liquidation estate.4. Compliance with principles of natural justice.5. Applicability of Section 36 of the Insolvency and Bankruptcy Code, 2016.6. Validity of lease under Section 65A of the Transfer of Property Act.7. Judicial review under Article 226 of the Constitution of India.8. Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016.Issue-wise Detailed Analysis:1. Availability of an Efficacious Alternative Remedy:The learned single Judge dismissed the writ petition on the ground that the appellants had an efficacious alternative remedy to approach the National Company Law Tribunal (NCLT). The appellants challenged this decision, arguing that the finding was contrary to the judgment of the Apex Court in Embassy Property Developments Private Limited v. State of Karnataka and others [(2020) 13 SCC 308]. The court held that the appellants had an appellate remedy under Section 61 of the Insolvency and Bankruptcy Code, 2016.2. Jurisdiction of the National Company Law Tribunal (NCLT):The appellants questioned whether the NCLT had jurisdiction to include their personal properties in the liquidation estate. The Tribunal had previously ordered the inclusion of mortgaged leasehold land of the Corporate Debtor into the liquidation estate. The court found that the Tribunal's interpretation of the relevant provisions of the Insolvency and Bankruptcy Code, 2016, was within its jurisdiction.3. Inclusion of Personal Properties in the Liquidation Estate:The appellants contended that the NCLT's order to include their personal properties in the liquidation estate was against Section 36 of the Insolvency and Bankruptcy Code, 2016, which excludes personal properties from the liquidation estate. The court noted that the Tribunal had reconsidered the matter and clarified the inclusion of leasehold rights, not ownership rights, in the liquidation estate.4. Compliance with Principles of Natural Justice:The appellants argued that the NCLT's order was made without hearing them, violating the principles of natural justice. The court acknowledged that in the earlier round of litigation, the Tribunal's order was set aside due to lack of clarity and violation of natural justice. However, the Tribunal had since reconsidered the matter and provided an opportunity for the appellants to be heard.5. Applicability of Section 36 of the Insolvency and Bankruptcy Code, 2016:The appellants highlighted that Sections 36(4)(a)(iv) and (c) specifically exclude properties in possession of the Corporate Debtor under any contractual agreement and personal properties of Managing Directors or shareholders. The court found that the Tribunal had interpreted the provisions correctly and included only the leasehold rights in the liquidation estate.6. Validity of Lease under Section 65A of the Transfer of Property Act:The appellants questioned the validity of the lease itself under Section 65A of the Transfer of Property Act. The court did not find this argument sufficient to interfere with the Tribunal's order, as the Tribunal had provided a clear interpretation of the relevant provisions.7. Judicial Review under Article 226 of the Constitution of India:The appellants argued that the writ petition was maintainable under Article 226 of the Constitution of India, as the Tribunal's order was arbitrary and illegal. The court held that the learned single Judge was correct in dismissing the writ petition, as the appellants had an alternative remedy under the Insolvency and Bankruptcy Code, 2016.8. Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016:The court emphasized that the appellants could appeal the Tribunal's order under Section 61 of the Insolvency and Bankruptcy Code, 2016. The court also noted that the Tribunal should consider the period during which the matter was pending before the court when deciding on any delay condonation petition filed by the appellants.Conclusion:The appeal was dismissed, with the court finding no jurisdictional error or legal infirmity in the learned single Judge's judgment. The court extended the interim order for two weeks to allow the appellants to file an appeal before the appellate Tribunal. The court clarified that it had not decided the merits of the issues raised, leaving them open for consideration by the appellate authority.