2019 (12) TMI 188 - Supreme Court

CIRP under IBC/Power of NCLT/NCLAT vis-a-vis writ jurisdiction of the High Court.

Whether high court can interfere with an order of NCLT under Article 226/227 of the Constitution of India if there is no statutory remedy ignoring availability of a statutory remedy of appeal to the National Company Law Appellate Tribunal (NCLAT);

If questions of fraud can be inquired into by NCLT/NCLAT in proceedings initiated under IBC, 2016; 

Facts: 

M/s. Tiffins Barytes Asbestos & Paints Ltd, being the Corporate Debtor, a mining lease as granted by the Government of Karnataka, which was to expire by 25.05.2018.

Though there was a notice for a premature termination of the lease on the ground of violation of terms and conditions of the lease deed but no order of termination was passed till the initiation of CIRP (Corporate Insolvency Resolution Process). 

An ad Interim Order passed by the High Court led to the Resolution Applicant, the Resolution Professional and the Committee of Creditors to come up with the present appeals. 

The jurisdiction of  NCLT to adjudicate upon disputes arising out of the grant of mining leases under the MMDR Mines & Mineral (Development & Regulation) Act, 1957, between the State-Lessor and the Lessee came into consideration/adjudication. 

The fraudulent and collusive manner related to the entire resolution process as initiated by the related parties of the Corporate Debtor themselves, with a view to corner/gain the benefits of mining lease. 

The Resolution Applicant, the Resolution Professional and the Committee of Creditors have come up with the present appeals before the hon'ble apex court. 

Contentions/Issues:

IBC, 2016 being a full fledged law and a Code in its ownself, whether a remedy by way of invoking the writ jurisdiction of the high court under Article 226 of the Constitution would be an apt exercise;

To find an answer to this question the hon'ble apex court decided to further consider the scope of the jurisdiction and the nature of the powers exercised by the High Court under Article 226 of the Constitution and jurisdiction and nature of powers of the NCLT and NCLAT under the provisions of IBC, 2016 are to be seen.

In this context an interesting observation made by the hon'ble apex court is with respect to In Regina (Privacy International). 

The U.K Supreme court 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 lawful, whether or not jurisdictionally correct.” )  

Thus the essence of any order being its legality should not be confused or diverted by raising plea of jurisdiction or any other error in law. 

Finally the issue was laid to rest with the observation, NCLT did not have jurisdiction to entertain an application against the Government of Karnataka for a direction to execute Supplemental Lease Deeds for the extension of the mining lease. NCLT choosing to exercise a jurisdiction not vested in it by law, the High Court of Karnataka was justified in entertaining a writ petition to that effect. 

As to a question whether NCLT is competent to inquire into allegations of fraud especially in the matter of initiation of Corporate Insolvency Resolution Process (CIRP) and as contended by one of the parties, Government of Karnataka,the entire CIRP had been initiated by one and the same person taking different avatars, not for the genuine purpose of resolution of insolvency or liquidation, but for the collateral purpose of cornering the mine and the mining lease/s. In these peculiar circumstances NCLT could inquire into allegations of fraud. 

Held that though NCLT and NCLAT would have jurisdiction to enquire into questions of fraud, they would not have jurisdiction to adjudicate upon disputes such as those arising under MMDR Act, 1957 and the rules issued there under, especially when the disputes revolve around decisions of statutory or quasi-judicial authorities, which can be corrected only by way of judicial review of administrative action.

Accordingly the hon'ble apex court refused to interfere with the decision of the High Court and the appeals stood dismissed.  

This case law may help readers get an insight into the writ jurisdiction of the hon'ble High Court and whether NCLT/NCLAT could enquire into allegations of fraud. 

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Full Text:

2019 (12) TMI 188 - Supreme Court

Writ jurisdiction protects review where specialised tribunals act beyond statutory powers; tribunals may only inquire into fraud. Writ jurisdiction remains available to correct a tribunal acting without statutory power; NCLT lacked jurisdiction to adjudicate MMDR Act lease disputes, so a writ challenging its order was justified. NCLT/NCLAT may inquire into allegations of fraud in CIRP, but they cannot adjudicate substantive statutory or quasi judicial disputes that require judicial review of administrative action.