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High Court can intervene if NCLT passes order in matters relating to Public Law

In Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka and Ors., Civil Appeal No. 9170 of 2019, the two questions before the Supreme Court was :-

1) Whether the High Court ought to interfere, Under Article 226/227 of the Constitution, with an Order passed by the National Company Law Tribunal in a proceeding under the Insolvency and Bankruptcy Code, 2016, ignoring the availability of a statutory remedy of appeal to the National Company Law Appellate Tribunal and if so, under what circumstances; and

2) 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.

The background facts leading to the filing of the above appeals, in brief, are as follows:

i) M/s. Udhyaman Investments Pvt. Ltd. claiming to be a Financial Creditor applied under Section 7 of the IBC, 2016 against M/s. Tiffins Barytes Asbestos & Paints Ltd., the Corporate Debtor and the application got admitted and eventually moratorium was declared.

ii) During this time, the Corporate Debtor held a mining lease granted by the Government of Karnataka and the Govt. terminated the lease though a notice prematurely but no order of termination had been passed till the date of initiation of the CIRP.

iii) The IRP got getting any response from the Govt., filed a writ petition before the Karnataka High Court, seeking a declaration that the mining lease should be deemed to be valid upto 31.03.2020 in terms of Section 8A(6) of the MMDR Act, 1957.

iv) During the pendency of the writ petition, the Govt. passed an Order rejecting the proposal for deemed extension.

v) The Resolution Professional moved 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.

vi) NCLT, Chennai allowed the Miscellaneous Application setting aside the Order of the Government of Karnataka and directed to execute Supplement Lease Deeds on the ground that the same was in violation of the moratorium.

vii) Aggrieved by the order of the NCLT, Chennai, the Government of Karnataka moved a writ petition before the High Court of Karnataka which set aside the Order of the NCLT and remanded the matter back to NCLT for a fresh consideration of the Miscellaneous Application.

viii) Thereafter, the State of Karnataka filed a Statement of Objections before the NCLT, primarily objecting to the jurisdiction of the NCLT and to the fraudulent and collusive manner in which the entire resolution process was initiated by the related parties of the Corporate Debtor themselves, solely with a view to corner the benefits of the mining lease.

ix) Overruling the objections of the State, the NCLT Chennai passed an Order dated 03.05.2019 allowing the Miscellaneous Application, setting aside the order of rejection and directing the Government of Karnataka to execute Supplemental Lease Deeds.

x) Challenging the Order of the NCLT, Chennai, the Government of Karnataka moved a writ petition and the High Court granted a stay of operation of the direction contained in the impugned Order of the Tribunal.

xi) It is against the said ad Interim Order granted by the High Court that the Resolution Applicant, the Resolution Professional and the Committee of Creditors have come up with the present appeals.

In reply to the first question, the Supreme Court decided that 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 superior court having the power of judicial review over administrative action. The NCLT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred. Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer. Further on the issue of jurisdiction, the Supreme Court held that 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.

Therefore, the Supreme Court decided that the answer to the first question would be that 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. Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of Karnataka was justified in entertaining the writ petition, on the basis that NCLT was coram non judice.

On the second question, the Supreme Court observed that Section 65 of IBC, 2016 specifically deals with fraudulent or malicious initiation of proceedings and as per the said section fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority. 

Conclusion

The upshot of the above discussion is 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 thereunder, 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. Hence, the High Court was justified in entertaining the writ petition and we see no reason to interfere with the decision of the High Court. 

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