This article is written by Kavitha Ramesh Kumar, Certificate Course in National Company Law Tribunal (NCLT) Litigation from LawSikho.com.
Table of Contents
Introduction
The extent of powers of the National Company Law Tribunal (NCLT) and that of the Appellate Tribunal (NCLAT) has been a matter of debate ever since they were constituted. The NCLT/ NCLAT as quasi-judicial bodies were set up specifically to deal with matters under the Companies Act, 2013 (“the Act”) and the Insolvency and Bankruptcy Code, 2016 (“the Code”). The NCLAT has also replaced the Competition Appellate Tribunal as the Appellate Authority under the Competition Act, 2002.
This Article attempts to analyze the power of High Courts to grant a stay or injunction on the proceedings of the National Company Law Tribunal.
Numerous cases pertaining to the realm of the NCLT/ NCLAT have come under the scrutiny of High Courts and the Supreme Court. A few important and popular cases in this regard have been analyzed here to understand the implications of the judicial review provisions and the power of High Courts under Articles 226 and 227 of the Constitution of India. Of these, two landmark judgements have been that of Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., Civil Appeal No. 9170 of 2019 [03rd December, 2019] and Shashi Prakash Khemka v. NEPC Micon, 2019 SCC OnLine SC 223. The former deals with insolvency related matters and the latter on aspects of the Companies Act.
Provisions under the Companies Act, 2013
Before proceeding to analyze the decision of the Supreme Court in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., and Shashi Prakash Khemka v. NEPC Micon it is pertinent to understand the constitution of NCLT and its powers under the Companies Act, 2013 and Insolvency and Bankruptcy Code, 2016.
The provisions relating to the NCLT under Companies Act, 2013 were notified vide gazette notification dated 12th September, 2013. The Ministry of Corporate Affairs (MCA) vide various gazette notifications dated 01st June, 2016:
- transferred the cases pending before Board of Company Law Administration (“CLB”) to the NCLT;
- constituted NCLT benches; and
- constituted the National Company Law Appellate Tribunal.
The powers and procedure to be followed by the NCLT and NCLAT are clearly laid out in Section 424 and section 430 of the Act. NCLT is not bound by the procedure as laid down under the Code of Civil Procedure (CPC) but shall be guided by principles of natural justice while hearing and disposing of cases. However, it shall have the same powers as a civil court under the CPC while trying a suit.
The NCLT can take the assistance of local courts for the execution of its orders. An NCLT order can be executed just like a decree. The order can be sent for execution to the local court within whose jurisdiction the registered office of the company is situated or in case of any other person (other than a company), where the person concerned voluntarily resides or carries on business or personally works for gain.
The proceedings before the NCLT or NCLAT shall be deemed to be judicial proceedings under Section 193, 228 and 196 of the Indian Penal Code (IPC). Further, the Tribunal shall be deemed to be a civil court for the purpose of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (CrPC).
Section 430 of the Act gives uninterrupted powers to the NCLT, as civil courts shall not have jurisdiction over such matters which fall within the powers of the NCLT.
Section 434 of the Act and the Companies (Transfer of Pending Proceedings) Rules, 2016 also clearly specify the manner for transfer of pending proceedings before the CLB and other forums. For cases other than winding-up, where order for admission has not been reserved by the High Court, the cases must be transferred to the NCLT. Winding-up cases which have not been transferred to the NCLT and cases other than winding-up where order for admission is reserved by the High Court, such cases shall continue as per the Companies Act, 1956 (“the 1965 Act”) and the Companies (Court) Rules, 1959 (“Court Rules”).
Further, voluntary winding-up cases for which notice of resolution by advertisement has been given but the company has not been dissolved before 01st April, 2017, the same shall continue as per the 1956 Act and Court Rules.
Shashi Prakash Khemka v. NEPC Micon & Ors
The powers of NCLT as regards matters under the Companies Act, 2013 have been affirmed by the Supreme Court in Shashi Prakash Khemka v. NEPC Micon, 2019 SCC OnLine SC 223.
The Hon’ble Court while dealing with the issue of rectification of register of share transfers referred to section 430 of the Companies Act, 2013 and held that “in matters in respect of which power has been conferred on the NCLT, the jurisdiction of the civil court is completely barred.”
The NCLAT, New Delhi also adopted the above decision in MAIF Investment India PTE Limited v. Ind-Bharath Power Infra Limited & Ors, Company Appeal (AT) No.334 of 2018. The NCLAT further quoted one of its own judgements in Smiti Golyan & Ors. Vs. Nulon India Limited & Ors, MANU/NL/0118/2019 as follows:
“It is apparent that now even otherwise, exclusive jurisdiction with regard to Section 59 is of the NCLT. NCLT would now clearly have jurisdiction to deal with rectification and all questions including incidental and peripheral questions raised with regard to rectification for the purpose of deciding legality of the rectification. What could earlier be looked into to see if prima facie made out can now be considered if proved to justify rectification even if it was to be said to be a complicated question.”
It can be understood from the above decisions that the powers conferred on the NCLT under the Companies Act, 2013 or under any other prevailing law, shall be exercised by the NCLT only and no civil court shall have jurisdiction to grant an injunction in respect of any action taken or to be taken by the NCLT under such powers specifically conferred.
Position under the Insolvency and Bankruptcy Code, 2016
Although section 430 of the Act is quite clear on detailing and defining the powers of NCLT, it is necessary to understand, in the light of certain decisions of the Supreme Court and the High Court, on what really constitute the powers of the NCLT under the Insolvency and Bankruptcy Code, 2016.
NCLT is designated as the Adjudicating Authority for insolvency resolution and liquidation of corporate persons under Part II of the Code. The NCLT is also the Adjudicating Authority of a corporate guarantor or personal guarantor of the corporate debtor. Any insolvency or liquidation or bankruptcy proceeding pertaining to such guarantors before any other forum shall be transferred to the Tribunal. All applications for insolvency resolution or liquidation or bankruptcy of such guarantors shall be filed before the Tribunal.
Section 60(5) of the Code, which is a non-obstante provision, details the jurisdiction of the NCLT as having power to entertain or dispose of:
- any application or proceeding by or against the corporate debtor or corporate person;
- any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
- any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the Code. (Emphasis added)
Section 63 of the Code provides that no civil court or authority shall have jurisdiction to entertain any suit or proceeding in respect of matters over which the NCLT or NCLAT have jurisdiction under the Code.
Now, let us examine a few cases relating to the jurisdiction of the NCLT/ NCLAT where the question of granting an injunction under Article 226 and 227 of the Constitution have been addressed.
In Ramky Infrastructure Ltd v Todi Minerals Pvt Ltd, the High Court of Telangana & Andhra Pradesh set aside the order of the NCLT, Hyderabad Bench admitting an application under section 9 of the Code against Ramky Infrastructure Limited (“the Corporate Debtor”). The Court held that the NCLT had admitted the application ignoring two important questions. One, the MoU executed between the Financial Creditor and the Operational Creditor was not stamped as required under the Indian Stamp Act, 1963 and hence inadmissible. Two, the application was beyond the period of limitation under the Limitation Act, 1963.
In the meanwhile, the Corporate Debtor had paid the amount due to the Operational Creditor and the issue was settled. The Court therefore set aside the order of the NCLT.
However, the problem with the above decision of the High Court of Telangana and Andhra Pradesh was whether it was interfering in a domain which was explicitly of the NCLT under the Code. According to the Code, NCLT was the Adjudicating Authority and its powers were clear as regards the admission or rejection of an application under sections 7, 9 and 10 of the Code.
Another recent decision which raised similar doubts was that of Flipkart, wherein the Karnataka High Court granted an interim injunction on the order of NCLT, Bengaluru Bench admitting an application under section 9 of the Code against Flipkart.
Embassy Property Developments Pvt Ltd v. State of Karnataka & Ors
The Supreme Court finally settled the questions on the extent of powers of the NCLT and the intervention of High Courts under judicial review provisions, in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka & Ors., Civil Appeal No. 9170 of 2019 [decided on 03rd December, 2019].
The above questions had come before the Hon’ble Court on a Special Leave Petition relating to the insolvency resolution of Tiffins Barytes Asbestos & Paints Ltd (“Corporate Debtor”).
Facts of the case
The Corporate Debtor was admitted to Corporate Insolvency Resolution Process (CIRP) by the NCLT, Chennai Bench on 12th March, 2018 under section 7 of the Code. The Corporate Debtor had a mining lease with the Government of Karnataka (“Karnataka Govt” or “Govt”) which was to expire on 25th May, 2018. The Interim Resolution Professional (IRP) wrote letters to the Karnataka Govt seeking deemed extension of the lease upto 31st March, 2020 under the Mines & Minerals (Development and Regulation) Act, 1957 (“MMDR Act”). As there was no response from the Govt, the IRP filed a writ petition (WP No. 23075 of 2018, Karnataka HC) before the Karnataka High Court seeking direction to the Govt to issue a deemed extension of the lease. In the meanwhile, the Govt of Karnataka rejected the request for deemed extension on the ground that the Corporate Debtor had not only contravened the provisions of the lease deed but also the provisions of Mineral Concession Rules, 1960 and Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Rules, 2016. Aggrieved by the said order of the Govt, the IRP withdrew the writ petition before the High Court and filed a Miscellaneous Application before the NCLT, Chennai Bench. The NCLT set aside the order of the Govt on the ground that the same was in violation of Section 14(1) of the Code and directed the Govt to execute supplemental lease deeds with the Corporate Debtor. This order was passed ex-parte by the NCLT.
The Govt of Karnataka, aggrieved by the NCLT order, filed a writ petition before the Karnataka High Court. The Court allowed the writ petition and set aside the NCLT order. It also directed the NCLT to reconsider the Miscellaneous Application (originally filed by the IRP) on merits. The Govt of Karnataka then filed two objections with the NCLT relating to the Miscellaneous Application:
- It challenged the jurisdiction of NCLT to adjudicate matters arising out of the MMDR Act; and
- It alleged fraud and collusion in initiation of the CIRP by the related parties of the Corporate Debtor.
However, the NCLT set aside the above objections and directed the Karnataka Govt to execute Supplemental Lease Deeds with the Corporate Debtor. Aggrieved by the said Order, the Karnataka Govt filed another writ petition before the Karnataka High Court and the High Court granted an interim stay in view of the Contempt Application initiated by the Resolution Professional before the NCLT.
An appeal was filed before the Supreme Court against the above interim stay by the IRP, the Resolution Applicant and the Committee of Creditors (CoC) of the Corporate Debtor.
Issue
The two main questions before the Supreme Court were:
- Whether the High Court can interfere with an order passed by the National Company Law Tribunal (NCLT), under Articles 226/227 of the Constitution, ignoring the availability of an alternative remedy of statutory appeal available before the NCLAT and if so under what circumstances?
- Whether NCLT/ NCLAT has the power to inquire into questions of fraud under the Insolvency and Bankruptcy Code, 2016?
Decision
The Supreme Court while dismissing the appeal held that the NCLT shall not have jurisdiction over matters of public law. It stated that IBC was a private law remedy and section 60(5)(c) of the Code cannot be taken to mean that the NCLT will have jurisdiction over a decision taken by a government or statutory authority which falls within the realm of public law. The NCLT was only a creature of statute and will be coram non judice. It shall not have authority to decide on matters of judicial review of administrative or statutory action which shall be the jurisdiction of superior courts.
As regards the second question on whether the NCLT shall have jurisdiction to decide on fraudulent applications under the Code, the Court answered in the affirmative. It elaborated the powers vested in NCLT under section 65 and section 66 of the Code and held that NCLT has powers to inquire into fraudulent initiation of insolvency proceedings as well as fraudulent transactions.
Conclusion
The jurisdiction of NCLT and the intervention of High Courts under Articles 226 and 227 of the Constitution had been the subject of debate for a long time. In Satish Praksh Khemka v NEPC Micon, the Supreme Court reaffirmed the powers and jurisdiction of NCLT over matters falling under the Companies Act, 2013.
The grey areas in the Insolvency and Bankruptcy Code, 2016 have now been addressed with the decision of the Supreme Court in Embassy Property Development Pvt Ltd v. Govt of Karnataka & Ors.
It is now amply clear that any matter which is explicitly vested with the NCLT under the Companies Act, 2013 shall remain under the jurisdiction of the NCLT and no civil court shall entertain any suit or injunction over the same. In matters of insolvency also, NCLT shall have power over matters which directly arise out of and are relevant to the insolvency proceedings. However, issues extraneous to the insolvency proceeding and areas of public law, requiring the wisdom and intervention of superior courts shall not be the domain of the NCLT. The power of judicial review, directions and/or writs under the provisions of the Constitution of India in such matters, shall remain with the High Court and Supreme Court.
The flip side to this decision is whether the limitation of powers of the NCLT would lead to protracted delays in the insolvency resolution process and dilute the efficacy of the Code. It may also give rise to the judicial review and writ mechanism of the High Courts being misused by the Corporate Debtor to stall or impede the insolvency proceedings. How the High Courts and Supreme Court will respond to such situations will have to be seen.
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