2019 (12) TMI 188 - SC - Insolvency and Bankruptcy

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? - HELD THAT - A lot of stress was made on the effect of Section 14 of IBC, 2016 on the deemed extension of lease. But we do not think that the moratorium provided for in Section 14 could have any impact upon the right of the Government to refuse the extension of lease. The purpose of moratorium is only to preserve the status quo and not to create a new right. Therefore nothing turns on Section 14 of IBC, 2016. Even Section 14 (1) (d), of IBC, 2016, which prohibits, during the 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 Government to work on other minerals (other than iron ore and red oxide) on the same land, even during the subsistence of the lease. Therefore, what was granted to the Corporate Debtor was not an exclusive possession of the area in question, so as to enable the Resolution Professional to invoke Section 14 (1) (d). Section 14 (1) (d) may have no application to situations of this nature. 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. Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016? - HELD THAT - The Government of Karnataka thought fit to invoke the jurisdiction of the High Court under Article 226 without taking recourse to the statutory alternative remedy of appeal before the NCLAT. But the contention of the appellants herein is that allegations of fraud and collusion can also be inquired into by NCLT and NCLAT and that therefore the Government could not have bypassed the statutory remedy. 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 quasijudicial 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 - Appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of the High Court under Article 226/227 of the Constitution to interfere with an order passed by the NCLT under the Insolvency and Bankruptcy Code (IBC), 2016, despite the availability of a statutory remedy of appeal to the NCLAT.
2. Competence of the NCLT/NCLAT to inquire into allegations of fraud in proceedings initiated under the IBC, 2016.

Detailed Analysis:

Issue 1: Jurisdiction of the High Court under Article 226/227

Background: The appeals arose from an interim order by the Karnataka High Court staying an NCLT order related to the Corporate Insolvency Resolution Process (CIRP) of a corporate debtor. The core issue was whether the High Court should interfere with the NCLT's order under Article 226/227 of the Constitution, bypassing the statutory remedy of appeal to the NCLAT.

Legal Principles: The IBC, 2016 is a complete code, creating a three-tier mechanism for insolvency resolution: NCLT, NCLAT, and the Supreme Court. The High Court's jurisdiction under Article 226 is generally limited to public law remedies and exceptional cases where statutory remedies are inadequate.

Arguments: The appellants argued that the High Court should not have entertained the writ petition due to the availability of an efficacious alternative remedy under Section 61 of the IBC. They contended that NCLT had the jurisdiction to deal with all issues arising out of insolvency proceedings, including the preservation of the corporate debtor's properties.

Court's Analysis: The Supreme Court emphasized that the NCLT's jurisdiction under Section 60(5) of the IBC does not extend to decisions in the realm of public law, such as those under the MMDR Act, 1957. The NCLT cannot be elevated to the status of a superior court with judicial review powers over administrative actions. The court noted that the NCLT's jurisdiction is confined to insolvency matters and does not cover public law disputes arising from statutory decisions by authorities like the Government of Karnataka.

Conclusion: The Supreme Court held that the 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. The High Court was justified in entertaining the writ petition as the NCLT was coram non judice (without jurisdiction).

Issue 2: Competence of NCLT/NCLAT to Inquire into Allegations of Fraud

Background: The Government of Karnataka argued that the CIRP was initiated fraudulently and collusively by related parties of the corporate debtor. This raised the question of whether the NCLT/NCLAT could inquire into such allegations of fraud.

Legal Provisions: Section 65 of the IBC deals with the fraudulent or malicious initiation of proceedings, allowing the NCLT to impose penalties for such actions. Section 66 addresses fraudulent trading during insolvency resolution, and Section 69 imposes penalties for transactions carried out to defraud creditors.

Arguments: The appellants contended that the NCLT/NCLAT had the jurisdiction to inquire into allegations of fraud under Sections 65 and 66 of the IBC. Therefore, the Government of Karnataka should have pursued the statutory remedy of appeal to the NCLAT instead of filing a writ petition.

Court's Analysis: The Supreme Court agreed with the appellants, stating that the NCLT has jurisdiction to inquire into fraudulent initiation of CIRP and fraudulent transactions. The court noted that Section 65(1) specifically addresses the initiation of CIRP for purposes other than genuine insolvency resolution, falling within the NCLT's jurisdiction.

Conclusion: The Supreme Court held that allegations of fraud in the initiation of CIRP fall within the jurisdiction of the NCLT/NCLAT. Therefore, the Government of Karnataka should have pursued the statutory remedy of appeal to the NCLAT rather than bypassing it by filing a writ petition.

Final Judgment:

The Supreme Court concluded that while the NCLT/NCLAT have jurisdiction to inquire into allegations of fraud, they do not have jurisdiction to adjudicate disputes arising under the MMDR Act, 1957, involving public law decisions by statutory or quasi-judicial authorities. Consequently, the High Court was justified in entertaining the writ petition, and the appeals were dismissed with no order as to costs.