2021 (2) TMI 1376 - HC - Indian Laws

High Court sets aside DRAT order for lack of jurisdiction under Section 14 IBC prohibition

The HC set aside a DRAT order dated August 21, 2019, finding it lacked jurisdiction. The petitioner, acting as a shareholder of the corporate debtor, ... Challenge to transaction by way of proceedings under Section 17 of SARFAESI Act, 2002 - bank seeking to auction the property in favour of the respondent auction purchaser - HELD THAT:- Indeed, what the writ petitioner suggests in the present case is that the DRAT order impugned herein dated August 21, 2019 is wholly without jurisdiction and non-est as it is contrary to law. Though the bank seeks to indicate the description of the writ petitioner in the cause-title, the writ petitioner relies on the body of the petition to show that he has also instituted the writ petition in his capacity as a shareholder of the corporate debtor and as such shareholder of the company, he is entitled to bring it to the notice of a constitutional Court that a quasi-judicial tribunal had committed a grievous error in transgressing its authority and passing an order in breach of the statutory command as contained in Section 14 of the Code of 2016. Thus, the initial ground urged by the bank is negatived. The bank seeks to assert that the proceedings before the DRAT could not be seen to be a suit or continuation of any suit and even goes to the extent of suggesting that a writ petition under Article 226 of the Constitution may not lie against an order passed by a DRAT, though a petition under Article 227 of the Constitution may be brought. It is too late in the day to suggest that a writ petition against a quasi-judicial authority will not lie under Article 226 of the Constitution and the grievance has to be carried only by way of a petition under Article 227 of the Constitution. The embargo under Section 14 of the Code of 2016 was expressly brought to the notice of the DRAT, but it appears to have bludgeoned its way through nonetheless. In so doing, the DRAT acted completely without jurisdiction as there can be no greater bar than a statutory prohibition to check any adjudicating authority in carrying on its adjudicatory or quasi-judicial functioning. For whatever it is worth, notwithstanding the practical effect of this order being close to nothing, once it is brought to the notice of a constitutional Court that a quasi-judicial authority had acted in error or excess of jurisdiction and in derogation of a statutory mandate, the constitutional authority has per force to correct the mistake. As a consequence, the order of the DRAT passed on August 21, 2019 and challenged in the present writ petition is set aside and the matter restored to the board of the relevant DRAT at the stage immediately prior to the date when the order was passed. As far as the merits of the DRAT decision is concerned, the same is not required to be gone into, particularly in this jurisdiction and once it is noticed that the order itself was without jurisdiction. It is hoped that the matter receives the DRAT's attention at the earliest so as not to prejudice the bank and the auction purchaser who has put in a sum in excess of Rs. 5 crore and has waited so long to enjoy the fruits of its substantial investment - Petition allowed. Issues:1. Challenge to the bank's appeal before the Debt Recovery Appellate Tribunal (DRAT) falling under the moratorium of the Insolvency and Bankruptcy Code, 2016.2. Maintainability of the writ petition by a shareholder against the DRAT order.3. Jurisdiction of a constitutional court to entertain a writ petition against a quasi-judicial body.4. The impact of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 on proceedings before the DRAT.5. Validity of the DRAT's order and the role of the Resolution Professional (RP) as the liquidator of the company in liquidation.Analysis:1. The petitioner, a shareholder and director in a company, challenged the bank's auction of a property secured against credit facilities under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002. The Debt Recovery Tribunal annulled the transaction, leading to an appeal by the bank before the DRAT during the pendency of insolvency proceedings initiated by an operational creditor under the Insolvency and Bankruptcy Code, 2016. The issue raised was whether the bank's appeal before the DRAT was affected by the moratorium under the Code.2. The court addressed the maintainability of the writ petition by the shareholder against the DRAT order, emphasizing that a shareholder could challenge an order affecting the company's interests. Despite the bank's argument citing a Supreme Court judgment, the court held that a shareholder's right to seek redressal for perceived wrongs against the company remained intact, especially when a statutory authority was involved.3. The judgment clarified the jurisdiction of a constitutional court to entertain a writ petition against a quasi-judicial body like the DRAT under Article 226 of the Constitution. It emphasized that the nature of the grievance determined whether Article 226 or Article 227 should be invoked against such bodies, which were considered amenable to the writ jurisdiction.4. Regarding the impact of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 on DRAT proceedings, the court highlighted that the moratorium barred any recovery proceedings against the corporate debtor during insolvency. The DRAT's actions during the moratorium were deemed without jurisdiction, emphasizing the statutory prohibition against such activities.5. The judgment also discussed the validity of the DRAT's order and the role of the Resolution Professional (RP) as the liquidator of the company in liquidation. The court set aside the DRAT's order and directed the RP to represent the company in the proceedings. It noted that the RP's position and the exclusion of the secured asset from liquidation proceedings could impact the DRAT's decision going forward.In conclusion, the writ petition succeeded in challenging the DRAT's order, emphasizing the importance of upholding statutory mandates and correcting jurisdictional errors, while ensuring fair representation of the company's interests during insolvency proceedings.