TaxTMI 
TaxTMI 
TaxTMI 
2019 (12) TMI 188
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....er what circumstances; and ii) Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016, arise for our consideration in these appeals. Brief background facts 3. There are three appeals on hand, one filed by the Resolution Applicant, the second filed by the Corporate Debtor through the Resolution Professional and the third filed by the Committee of Creditors, all of which challenge an Interim Order passed by the Division Bench of High Court of Karnataka in a writ petition, staying the operation of a direction contained in the order of the NCLT, on a Miscellaneous Application filed by the Resolution Professional. 4. The background facts leading to the filing of the above appeals, in brief, are as follows: i) A company by name M/s. Udhyaman Investments Pvt. Ltd. which is the twelfth Respondent in the first of these three appeals, claiming to be a Financial Creditor, moved an application before the NCLT Chennai, under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC, 2016), against M/s. Tiffins Barytes Asbestos & Paints Ltd., the Corporate Debtor (whi....
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....tition. viii) However, instead of filing a fresh writ petition (in accordance with the liberty sought), the Resolution Professional moved a Miscellaneous Application No.632 of 2018, before the NCLT, Chennai praying for setting aside the Order of the Government of Karnataka, and seeking a declaration that the lease should be deemed to be valid upto 31.03.2020 and also a consequential direction to the Government of Karnataka to execute Supplement Lease Deeds for the period upto 31.03.2020. ix) By an Order dated 11.12.2018, NCLT, Chennai allowed the Miscellaneous Application setting aside the Order of the Government of Karnataka on the ground that the same was in violation of the moratorium declared on 12.03.2018 in terms of Section 14(1) of IBC, 2016. Consequently the Tribunal directed the Government of Karnataka to execute Supplement Lease Deeds in favour of the Corporate Debtor for the period upto 31.03.2020. x) Aggrieved by the order of the NCLT, Chennai, the Government of Karnataka moved a writ petition in WP No.5002 of 2019, before the High Court of Karnataka. When the writ petition came up for hearing, it was conceded by the Resolution Professional before the High Court o....
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.... 5. Sh. K. V. Viswanathan, learned Senior Counsel appearing on behalf of the Resolution Applicant assailed the impugned Order on the ground that when an efficacious alternative remedy is available under Section 61 of IBC, 2016, the High Court of Karnataka ought not to have entertained a writ petition and that too against an Order passed by the Chennai Bench of NCLT. He drew our attention to a series of judgments, wherein it was held that when a statutory forum is created for the redressal of grievances, a writ petition should not be entertained. Since the essence of IBC, 2016 is the revival of a Corporate Debtor and the resolution of its problems to enable it to survive as a going concern, through the maximization of the value of its assets, the learned Senior Counsel contended that the Interim Resolution Professional/Resolution Professional had a right to move the NCLT for appropriate reliefs for the preservation of the properties of the Corporate Debtor and therefore the only way the steps taken by the Resolution Professional could be set at naught, is to take recourse to the provisions of the IBC alone. Relying upon the observations made by this Court in a couple of decisions th....
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.... to the learned Senior Counsel, was fraud and collusion on the part of the Corporate Debtor and the creditor who initiated the CIRP. Therefore, it is contended by him that in view of the sweep of the jurisdiction conferred upon NCLT under Section 60 (5) (c) of the IBC, 2016, the Tribunal was entitled to investigate even into allegations of fraud. Once it is conceded that NCLT will have jurisdiction even to enquire into allegations of fraud, then the question of invoking the jurisdiction of the High Court under Article 226 as against an order passed by NCLT, according to the learned counsel, does not arise. Any recognition by this court, of the jurisdiction of the High Court under Article 226 to interfere with the Orders of the NCLT under IBC, 2016, according to the learned Senior Counsel, would completely derail the resolution process which is bound to happen within a time frame. Therefore, he appealed that the Order of the High Court should be set aside on the ground of lack of jurisdiction. 8. Sh. Arvind P. Datar and Sh. E. Om Prakash, learned Senior Counsel appearing for the Committee of Creditors submitted that IBC, 2016 being a complete code in itself does not provide any ro....
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.... 2 WLR 995 that when an inferior Tribunal passes an Order which is a nullity, the superior Court need not drive the party to the appellate forum stipulated by the Act. The learned Attorney General also relied upon the decision of this Court in The State of Uttar Pradesh vs. Mohammad Nooh. (1958) SCR 595. Question No. 1 10. In the backdrop of the facts narrated and in the light of the rival contentions extracted above, the first question that arises for consideration is as to whether the High Court ought to interfere, under Article 226/227 of the Constitution, with an order passed by NCLT in a proceeding under the IBC, 2016, despite the availability of a statutory alternative remedy of appeal to NCLAT. 11. It is beyond any pale of doubt that IBC, 2016 is a complete Code in itself. As observed by this Court in M/s Innoventive Industries Limited vs. ICICI Bank, AIR 2017 SC 4084 it is an exhaustive code on the subject matter of insolvency in relation to corporate entities and others. It is also true that IBC, 2016 is a single Unified Umbrella Code, covering the entire gamut of the law relating to insolvency resolution of corporate persons and others in a time bound ma....
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.... performed by such private individuals, are public in nature. Therefore, the remedies provided under Article 226 are public law remedies, which stand in contrast to the remedies available in private law. As observed by this Court in Nilabati Behera @ Babita Behera vs. State of Orissa, (1993) 2 SCC 746 public law proceedings serve a different purpose than private law proceedings. 15. One of the well recognized exceptions to the selfimposed 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/quasijudicial authority, against whose order a judicial review is sought. Traditionally, English courts maintained a distinction between cases where a statutory/quasijudicial authority exercised a jurisdiction not vested in it in law and cases where there was a wrongful exercise of the available jurisdiction. An "error of jurisdiction" was always distinguished from "in excess of jurisdiction", until the advent of the decision rendered by the House of Lords, by a majority of 3:2 in Anisminic Ltd. vs. Foreign Compensation Commission. (1969) 2 WLR 163 After acknowledging that a confusion had be....
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....other public bodies. According to Sir John Laws, Anisminic has produced the historical irony that with all its emphasis on nullity, it nevertheless erected the legal milestone which pointed towards a public law jurisprudence in which the concept of voidness and the ultra vires doctrine have become redundant. In Regina (Privacy International) the U.K Supreme court also quoted the editors of De Smith's Judicial Review to the effect: "The distinction between jurisdictional and non-jurisdictional error is ultimately based upon foundations of sand. Much of the superstructure has already crumbled. What remains is likely quickly to fall away as the courts rightly insist that all administrative action should be simply, lawful, whether or not jurisdictionally lawful." ) 18. Interestingly just four days before the House of Lords delivered the judgment in Anisminic (on 17.12.1968), an identical view was taken by a three member bench of this court (delivered on 13.12.1968) in Official Trustee, West Bengal & Others vs. Sachindra Nath Chatterjee & Another, (1969) 3 SCR 92 approving the view taken by the Full bench of the Calcutta High Court in Hirday Nath Roy vs. Ramachandra Barna Sarma.....
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.... the distinction had not been wiped out completely. 22. But it is relevant to note that Official Trustee/Anisminic and what followed both, were mostly in the context of the power of the superior court to interfere with the decisions of subordinate courts/tribunals or administrative authorities. Most of these decisions were not in the context of the exercise of jurisdiction despite the availability of alternative remedy. That there exists such a distinction between (i) cases where the jurisdiction of a superior court is questioned on the basis of ouster clauses and (ii) cases where the exercise of jurisdiction by a superior court is questioned on the ground of availability of alternative remedy, was recognized even in Anisminic, when Lord Reid referred to the decision in Smith vs. East Elloe Rural District Council (1956) AC 736 as posing some difficulty. As a result, the Court of Appeal held in R vs. Secretary of State for the Environment, Ex p. Ostler (1977) QB 122 that the availability of a statutory right to challenge within a specified time limit, among other points, provided a sufficient basis for distinguishing Anisminic. This was taken note of by the UK Supreme Court in Reg....
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.... question or applying a wrong test or granting a wrong relief. 26. The MMDR Act, 1957 is a Parliamentary enactment traceable to Entry 54 of the Union List in Seventh Schedule of the Constitution. The object of the Act as it stood originally, was the regulation of mines and development of minerals. After the Amendment Act 38 of 1999, the object of the Act is to provide for the development and regulation of mines and minerals. Section 2 of the Act declares that it is expedient in public interest that the Union should take under its control, the regulation of mines and the development of minerals. Section 4 (1) of the Act prohibits the undertaking of mining operations (and reconnaissance and prospecting operations), in any area, except under and in accordance with the terms and conditions of a mining lease granted under the Act and the Rules made thereunder. After the insertion of Subsection (1A) in Section 4, by the Amendment Act 38 of 1999, even transportation or storage of any mineral otherwise than in accordance with the provisions of the Act and the Rules made thereunder is prohibited. The Act also imposes restrictions on the grant of mining leases. Section 8A of the Act, inser....
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.... "public interest" is used only in 3 out of 97 Entries in List I, one of which is Entry 54, the other two being Entries 52 and 56. Interestingly, Entry 23 in List II does not use the expression "public interest", though it also deals with regulation of mines and mineral development, subject to the provisions of List I. It is this element of "public interest" that finds a place in Section 2 of the MMDR Act, 1957, in the form of a declaration. Section 2 of MMDR Act, 1957 reads as follows: "It is hereby declared that it is expedient in the public interest that Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided." 28. Therefore as rightly contended by the learned Attorney General, the decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence the correctness of the said decision can be called into question only in a superior court which is vested with the power of judicial review over administrative action. The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a super....
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....te Tribunal for hearing appeals against the Orders of the Tribunal. The matters that fall within the jurisdiction of the NCLT, under the Companies Act, 2013, lie scattered all over the Companies Act. Therefore, Sections 420 and 424 of the Companies Act, 2013 indicate in broad terms, merely the procedure to be followed by the NCLT and NCLAT before passing orders. However, there are no separate provisions in the Companies Act, exclusively dealing with the jurisdiction and powers of NCLT. 31. In contrast, Subsections (4) and (5) of Section 60 of IBC, 2016 give an indication respectively about the powers and jurisdiction of the NCLT. Section 60 in entirety reads as follows: " Adjudicating Authority for corporate persons.( 1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located. (2) Without prejudice to subsection (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolu....
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....(2) is to group together (A) the CIRP or liquidation proceeding of a corporate debtor and (B) the insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor of the very same corporate debtor, so that a single Forum may deal with both. This is to ensure that the CIRP of a corporate debtor and the insolvency resolution of the individual guarantors of the very same corporate debtor do not proceed on different tracks, before different Fora, leading to conflict of interests, situations or decisions. 33. If the object of Sub-section (2) of Section 60 is to ensure that the insolvency resolutions of the corporate debtor and its guarantors are dealt with together, then the question that arises is as to why there should be a reference to the powers of the DRT in Subsection (4). The answer to this question is to be found in Section 179 of IBC, 2016. Under Section 179 (1), it is the DRT which is the Adjudicating Authority in relation to insolvency matters of individuals and firms. This is in contrast to Section 60(1) which names the NCLT as the Adjudicating Authority in relation to insolvency resolution and liquidation of corporate persons including cor....
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....ion 180 No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code. Civil court not to have jurisdiction. (1) No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal has jurisdiction under this Code. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal by or under this Code. Though what is found in Subsection (2) of Section 180 is not found in the corresponding provision in Part II namely, Section 63, a similar provision is incorporated in an unrelated provision namely Section 64, which primarily deals with expeditious disposal of applications. Thus, there appears to be some mix-up. However, we are not concerned about the same in this case and we have made a reference to the same only because of Subsection....
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....olution Professional is duty bound under Section 20(1) to preserve the value of the property of the Corporate Debtor and that the word "property" is interpreted in Section 3(27) to include even actionable claims as well as every description of interest, present or future or vested or contingent interest arising out of or incidental to property and that therefore the Interim Resolution Professional is entitled to move the NCLT for appropriate orders, on the basis that lease is a property right and NCLT has jurisdiction under Section 60(5) to entertain any claim by the Corporate Debtor. 38. But the said argument cannot be sustained for the simple reason that the duties of a resolution professional are entirely different from the jurisdiction and powers of NCLT. In fact Section 20(1) cannot be read in isolation, but has to be read in conjunction with Section 18(f)(vi) of the IBC, 2016 together with the Explanation thereunder. Section 18 (f) (vi) reads as follows: "18. Duties of interim resolution professional. The interim resolution professional shall perform the following duties, namely: (a) ... (b)... (c) ... (d)... (e)... (f) take control and cust....
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....ets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of subsection (1), the resolution professional shall undertake the following actions: (a)............. (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi judicial and arbitration proceedings." This shows that wherever the corporate debtor has to exercise rights in judicial, quasi judicial proceedings, the resolution professional cannot short-circuit the same and bring a claim before NCLT taking advantage of Section 60(5). 40. Therefore in the light of the statutory scheme as culled out from various provisions of the IBC, 2016 it is clear that wherever the corporate debtor has to exercise a right that falls outside the purview of the IBC, 2016 especially in the realm of the public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right. 41. In fact the Resolution Professional in this case appears to have understood this legal position correctly, in the initial stages. This is why when t....
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....he period of moratorium, the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor, will not go to the rescue of the corporate debtor, since what is prohibited therein, is only the right not to be dispossessed, but not the right to have renewal of the lease of such property. In fact the right not to be dispossessed, found in Section 14 (1) (d), will have nothing to do with the rights conferred by a mining lease especially on a government land. What is granted under the deed of mining lease in ML 2293 dated 04.01.2001, by the Government of Karnataka, to the Corporate Debtor, was the right to mine, excavate and recover iron ore and red oxide for a specified period of time. The Deed of Lease contains a Schedule divided into several parts. Part-I of the Schedule describes the location and area of the lease. Part-II indicates the liberties and privileges of the lessee. The restrictions and conditions subject to which the grant can be enjoyed are found in Part-III of the Schedule. The liberties, powers and privileges reserved to the Government, despite the grant, are indicated in Part-IV. This Part-IV entitles the G....
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....obalan; (vi) that there were a few communications sent by the said Mr. Poobalan to various authorities, claiming himself to be the authorized signatory of the Corporate Debtor; (vii) that an MOU was entered into on 16.04.2016 between the Corporate Debtor and M/s. Udhyaman Investments Pvt. Ltd., represented by the said Mr. Poobalan, whereby the Corporate Debtor agreed to pay Rs. 11.5 crores; (viii) that the said agreement was purportedly executed at Florida, but witnessed at Chennai; (ix) that Mr. Poobalan even communicated to the Director, Department of Mines & Geology as well as the Monitoring Committee, taking up the cause of the Corporate Debtor as its authorized signatory; (x) that the CIRP was initiated by M/s. Udhyaman Investments Pvt. Ltd. represented by its authorized signatory, Mr. Poobalan; (xi) that the Resolution Applicant namely, M/s. Embassy Property Development Pvt. Ltd. as well as the Financial Creditor who initiated CIRP namely, M/s. Udhyaman Investments Pvt. Ltd. are all related parties and (xii) that Mr. Poobalan had not only acted on behalf of the Corporate Debtor before the statutory authorities, but also happened to be the authorized signatory of the Financial....