2021 (4) TMI 1347 - HC - Insolvency and Bankruptcy

Maintainability of petition - availability of alternate remedy - Recovery of dues from the company - Mortgage of properties to the Bank as security for the advances to the Company - petitioners stood as guarantors - whether the NCLT can pass orders in respect of the properties of guarantors to a Corporate Debtor without initiating proceedings against the personal guarantors? - whether properties of guarantors to a Corporate Debtor can be transferred by NCLT to the Liquidation Estate of a Corporate Debtor without notice to and without hearing the guarantors? - whether when the petitioners as mortgagers have right to redemption under the Transfer of Property Act, 1882 whether such property can be included by the Tribunal in the Liquidation Estate of a Corporate Debtor making such properties answerable to other liabilities of the Corporate Debtor as well? HELD THAT - If an efficacious alternate statutory remedy is available to the petitioner to challenge the impugned order of the Tribunal, this Court shall not ordinarily entertain a writ petition. The fact that an appeal under Section 61 of the IBC is available to the petitioner, is not controverted by the petitioners. The issue of maintainability of writ petitions against orders of NCLT passed under IBC 2016, is no more res integra. In M/S EMBASSY PROPERTY DEVELOPMENTS PVT. LTD. VERSUS STATE OF KARNATAKA OTHERS 2019 (12) TMI 188 - SUPREME COURT the Hon ble Apex Court considered the distinction between lack of jurisdiction of a Tribunal and a wrongful exercise of available jurisdiction and held that when Article 226 is sought to be invoked bypassing a statutory alternative remedy, the High Court should certainly take into account the distinction between the lack of jurisdiction and wrongful exercise the available jurisdiction. The Bank has security interests in the properties involved, under two heads. The properties are held by the Corporate Debtor under a lease agreement, which agreement permits the Corporate Debtor to mortgage their leasehold rights. The Corporate Debtor had mortgaged their leasehold rights to the Bank for raising funds. Secondly, the petitioners have stood as sureties to the loan transaction of the Corporate Debtor and their title documents in respect of the properties are deposited with the Bank. In view of Section 34 of the IBC, all powers of the Board of Directors and Key Managerial Personnel of the Corporate Debtor including the power to deal with the leasehold rights held by the Corporate Debtor vests with the Liquidator. The petitioners would state that they are entitled to notice and to be heard before the Tribunal takes any decision to include their property in the Liquidation Estate and that the impugned order of the Tribunal is violative of the principles of natural justice. The learned Counsel for the respondents on the other hand would urge that IBC does not contemplate issuance of notice to the petitioners and since this Court and the Apex Court have held that the IBC is a self contained Code, no notice need be issued to the writ petitioners, in respect of M.A.No.76/KOB/2020 in which the impugned order is passed by the Tribunal. The impugned order is set aside to the extent it allows the Liquidator to add the mortgaged land of the petitioners into the Liquidation Estate - application allowed.

Summary

Issues Involved:
1. Maintainability of writ petitions in view of the availability of alternate remedy.
2. NCLT's jurisdiction to pass orders regarding guarantors' properties without initiating proceedings against personal guarantors.
3. Inclusion of guarantors' properties in the Liquidation Estate without notice and hearing.
4. Right of redemption under the Transfer of Property Act, 1882.

Detailed Analysis:

1. Maintainability of Writ Petitions:
The Court examined whether the writ petitions are maintainable given the availability of an alternate remedy under Section 61 of the Insolvency and Bankruptcy Code (IBC). The petitioners argued that the availability of an appellate remedy does not bar the filing of a writ petition, citing precedents like *Commissioner of Income Tax v. Chhabil Dass Agarwal* and *Sulochana Gupta v. RBG Enterprises Private Ltd.* The Court referred to *Embassy Property Developments Private Limited v. State of Karnataka* and *Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta* to distinguish between lack of jurisdiction and wrongful exercise of jurisdiction, concluding that the writ petitions are maintainable in exceptional cases where the Tribunal's order affects constitutional rights or violates principles of natural justice.

2. NCLT's Jurisdiction:
The Court analyzed whether the NCLT can pass orders affecting guarantors' properties without initiating proceedings against personal guarantors. The petitioners contended that Section 36(4)(c) of the IBC excludes personal assets of shareholders or partners from the Liquidation Estate. The Court noted that while the Liquidator can include leasehold rights in the Liquidation Estate, the ownership rights of the petitioners, who stood as guarantors, cannot be included without proper proceedings and hearing.

3. Inclusion of Guarantors' Properties:
The Court scrutinized the Tribunal's order directing the inclusion of mortgaged properties into the Liquidation Estate without hearing the petitioners. The petitioners argued that such inclusion without notice violates principles of natural justice. The Court emphasized that Rule 51 of the National Company Law Tribunal Rules, 2016, mandates adherence to principles of natural justice. The Court found the Tribunal's order lacked clarity on whether it included leasehold rights or ownership rights, affecting the petitioners' constitutional rights under Article 300A.

4. Right of Redemption:
The petitioners asserted their right of redemption under Section 60 of the Transfer of Property Act, 1882, arguing that their properties should not be included in the Liquidation Estate, making them answerable for other liabilities of the Corporate Debtor. The Court acknowledged this right and highlighted that the Tribunal must reconsider the matter, ensuring the petitioners are heard before any decision on including their properties in the Liquidation Estate.

Conclusion:
The Court set aside the impugned order of the NCLT to the extent it allowed the inclusion of the petitioners' mortgaged land in the Liquidation Estate. It directed the Tribunal to reconsider the issue afresh, ensuring the petitioners are given an opportunity to be heard. This judgment does not express any opinion on the merits of including the petitioners' properties in the Liquidation Estate.