2025 (5) TMI 776 - HC - Companies Law

Technology Development Board wins appeal as civil courts lack jurisdiction under Section 63 IBC for NCLT matters

Bombay HC dismissed a commercial appeal where appellant sought damages against Technology Development Board for breach of contract and negligence. The ... Seeking damages and compensation - gross breach of contract and trust, culpable negligence, and malicious and tortious action at the hands of the Technology Development Board - jurisdiction of civil court to entertain suits or proceedings challenging orders passed by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly when Section 63 of the IBC bars such jurisdiction - HELD THAT:- The learned Single Judge refused to entertain the Appellant and rejected the interim applications seeking ad-interim relief in the wake of Section 63 of the IBC, which prevented in a suit or proceedings being entertained, in respect of any matter on which the National Company Law Tribunal or National Company Law Appellate Tribunal had jurisdiction. As a result, since the challenge was raised to the order passed by the National Company Law Tribunal in proceedings under IBC in a Company Petition, the request for grant of interim relief or maintaining the status quo was rejected on the ground that Court lacked jurisdiction to entertain the request. Since the position of law under the IBC clearly prevents the institution of a suit but definitely remedies are available to the appellant and this includes the remedy to be availed in terms of the order of the Apex Court, when it set aside the order dated 19.03.2024 passed by the Division Bench, seeking review of the order passed on 11.01.2024, in any case, it is not a case of no remedy, the Appellant shall act in accordance with law. As far as the present commercial appeal is concerned, the challenge is raised to the Order passed by the Single Judge on 19.11.2024 in the Commercial Suit and hence it is not required to decide the issue raised as regards the applicability of Circular issued by RBI dated 15.09.2024 to the MSME and in turn to the appellant. As in the suit filed before the learned Single Judge has adopted a view in the wake of Section 63 of the IBC, the suit may not be entertained against the order passed by the Company Law Tribunal and therefore, ad-interim relief was refused. Conclusion - The statutory remedy is available to the Appellant to approach NCLT under Section 21, and the Civil Court lacks jurisdiction to entertain any suit or proceedings in respect of any matter on which the NCLT or NCLAT has jurisdiction. There are no reason to interfere in the impugned order which has refused ad-interim relief in favour of the Appellant. As a result, the Commercial Appeal is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:Whether the Civil Court has jurisdiction to entertain suits or proceedings challenging orders passed by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly when Section 63 of the IBC bars such jurisdiction.The applicability and enforceability of the MSME Notification dated 29.05.2015, which mandates banks to identify incipient stress in MSME accounts, constitute a Committee, and follow a revival and rehabilitation framework before initiating recovery proceedings.Whether the classification of the appellant's loan account as Non-Performing Asset (NPA) by ICICI Bank was lawful, especially in light of the COVID-19 moratorium and the MSME Notification.The legality and propriety of the recovery actions taken by ICICI Bank under the SARFAESI Act, 2002, including symbolic possession and initiation of proceedings under Sections 13(2) and 13(4) of the Act.The correctness of the NCLT's order admitting the Company Petition filed by the Technology Development Board (TDB) under Section 7 of the IBC against the appellant-corporate debtor.The availability and scope of remedies for the appellant, an MSME promoter, in the face of overlapping legislations (IBC, SARFAESI Act, MSME Act) and alleged breaches by financial institutions.The propriety of the appellant's plea for recusal of NCLT members and the Court's stance on such applications.2. ISSUE-WISE DETAILED ANALYSISJurisdiction of Civil Courts versus NCLT under IBC (Section 63 of IBC)The legal framework under Section 63 of the IBC explicitly bars Civil Courts from entertaining any suit or proceeding in respect of any matter on which the NCLT or National Company Law Appellate Tribunal (NCLAT) has jurisdiction under the Code. The Court emphasized that the proceedings initiated by TDB under Section 7 of the IBC fall squarely within the NCLT's jurisdiction. The Single Judge's order rejecting interim relief was based on this statutory bar, which the Court upheld.The appellant's contention that no forum is available to MSMEs to enforce their rights was considered but rejected. The Court reiterated that remedies exist within the IBC framework, including appeals to the NCLAT and review petitions, as evidenced by the appellant's multiple recourse to these forums. The Court declined to entertain the argument that the Civil Court should assume jurisdiction, holding that the legislative intent to exclude Civil Courts must be respected.The Court referred to precedents and statutory provisions to affirm that the IBC regime is a complete code for insolvency resolution and that the High Court or Civil Courts cannot interfere with or circumvent the process.Applicability and Enforcement of MSME Notification dated 29.05.2015The appellant argued that as an MSME, she was entitled to the protection of the Notification, which requires banks to identify stress in accounts, constitute a Committee, and explore revival options before classifying accounts as NPA or initiating recovery. The appellant contended that ICICI Bank failed to comply with these obligations, rendering the classification as NPA and subsequent SARFAESI proceedings illegal.The Court, however, noted that the NCLT had already addressed this issue in the Company Petition, holding that the MSME Notification and the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) do not override the provisions of the SARFAESI Act or the IBC. The Tribunal found the appellant's argument that the MSMED Act is a special law prevailing over SARFAESI and IBC to be 'completely misplaced.'Further, the Court observed that the appellant's challenge to the Notification and related recovery proceedings had been considered and rejected by the Supreme Court, which refused to interfere with the dismissal of writ petitions. The Court underscored that the statutory framework under the IBC and SARFAESI Act governs the recovery process and that the MSME Notification does not create a separate judicial forum or override these laws.Legality of ICICI Bank's Actions under SARFAESI ActThe appellant alleged that ICICI Bank charged exorbitant interest rates, improperly classified the loan account as NPA with retrospective effect, and took symbolic possession of company properties without following the MSME Notification's revival mechanism. The appellant also claimed harassment and malafide conduct by the Bank.The Court did not find merit in these allegations. It noted that the Banking Ombudsman had directed reversal of excess interest, but the classification of the account as NPA and initiation of SARFAESI proceedings were within the Bank's rights under the law. The Court emphasized that the SARFAESI Act provides a statutory mechanism for secured creditors to enforce security interests and that the Bank's actions were not shown to be illegal or mala fide.The Court rejected the appellant's argument that the Bank's conduct was vengeful or malicious, stating that such allegations were unsubstantiated and amounted to bald statements without cogent evidence.Admission of Company Petition by NCLT under Section 7 of IBCThe NCLT admitted the Company Petition filed by TDB on the ground that the appellant was in default of the loan agreement. The Tribunal found no dispute regarding the loan agreement or the fact of default. The appellant's plea that the financial creditor failed to disburse the entire loan amount within a reasonable time was rejected.The Tribunal also dismissed the appellant's plea for recusal of the Bench, holding that recusal applications based on frivolous or baseless allegations are impermissible and amount to forum shopping or bench hunting. The Court endorsed this view, citing NCLAT's ruling that recusal is a matter for the judge to decide and cannot be forced by litigants.The Tribunal further held that the MSME Notification did not prevent the classification of the loan account as NPA or the initiation of insolvency proceedings, reaffirming the primacy of the IBC and SARFAESI Act in such matters.Availability of Remedies and Principle of 'Ubi jus, ibi remedium'The appellant's counsel invoked the fundamental principle that for every wrong there must be a remedy, questioning the availability of effective redressal mechanisms for MSMEs facing alleged breaches by financial institutions.The Court acknowledged this principle but clarified that the remedy lies within the legislative framework. The IBC provides a comprehensive insolvency resolution mechanism, and the appellant has access to statutory remedies including appeals and review petitions. The Court pointed to the appellant's multiple approaches to the NCLT, NCLAT, High Courts, and the Supreme Court as evidence of available remedies.The Court declined to create or recognize an alternative forum outside the statutory scheme, emphasizing the duty to implement legislation as enacted by Parliament.Challenge to the Single Judge's Order and Interim ReliefsThe appellant sought interim reliefs including stay of the NCLT order admitting the Company Petition and directions for disbursement of remaining loan tranches. The Single Judge rejected these applications, relying on Section 63 of the IBC to hold that the Civil Court lacked jurisdiction to entertain such challenges.The Court upheld this decision, noting that the appellant's challenge to the NCLT order must be pursued through the prescribed statutory channels. The Court declined to interfere with the refusal of interim relief, emphasizing the statutory bar on Civil Court jurisdiction and the need to avoid parallel proceedings.Allegations of Mala Fides against NCLT MembersThe appellant made allegations of mala fides against members of the NCLT. The Court refused to entertain these allegations, finding them unsubstantiated and unsupported by any cogent evidence. The Court noted that such allegations, if accepted without proof, would undermine judicial integrity and are impermissible.3. SIGNIFICANT HOLDINGS'If the IBC 2016 bar the jurisdiction of the Civil suit, in that case we are not in the position to pronounce upon the same and as far as the proceedings before National Company Law Tribunal are concerned, they are instituted by the corporate creditors against the corporate debtor and necessarily follow the process of law.''No person can maintain application for recusal of the Member. Recusal is not to be forced by any litigant to choose a Bench. It is for the judge to decide to recuse. The picture emerging from the conspectus of the detailed facts summarized hereinabove amounts to choosing Bench of one's liking. If allowed to happen, this would open the flood gates of forum shopping.''The argument that MSMED Act, 2006 is special law which will prevail over SARFAESI Act and IBC was a completely misplaced argument.''The statutory remedy is available to the Appellant to approach NCLT under Section 21, and the Civil Court lacks jurisdiction to entertain any suit or proceedings in respect of any matter on which the NCLT or NCLAT has jurisdiction.'Core principles established include:The exclusivity of the IBC framework for insolvency and bankruptcy matters, barring parallel Civil Court proceedings.The non-override of SARFAESI Act and IBC by the MSME Notification or MSMED Act in matters of loan classification and recovery.The procedural safeguards against forum shopping and bench hunting in recusal applications.The availability of statutory remedies within the insolvency resolution process to address grievances of MSMEs and corporate debtors.Final determinations on each issue affirm the dismissal of the appellant's interim relief applications, uphold the NCLT's admission of the Company Petition, and reject challenges to the jurisdictional and procedural framework established under the IBC and related statutes. The Commercial Appeal was accordingly dismissed.