Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 9170 of 2019
(@ Special Leave Petition (C) No. 22596 of 2019)
M/s Embassy Property Developments Pvt. Ltd. ...Appellant(s)
Versus
State of Karnataka & Ors. ...Respondent(s)
WITH
Civil Appeal No. 9171 of 2019
(@ Special Leave Petition (C) No. 22684 of 2019)
and
Civil Appeal No. 9172 of 2019
(@ Special Leave Petition (C) No. 22724 of 2019)
J U D G M E N T
V. Ramasubramanian, J.
Leave Granted.
1.
2. Two seminal questions of importance namely:
Signature Not Verified
i) Whether the High Court ought to interfere, under
Digitally signed by R
NATARAJAN
Date: 2019.12.03
17:00:14 IST
Reason:
Article 226/227 of the Constitution, with an Order
1
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
ii) 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.
Brief background facts
3. There are three appeals on hand, one filed by the
Resolution Applicant, the second filed by the Corporate Debtor
through the Resolution Professional and the third filed by the
Committee of Creditors, all of which challenge an Interim
Order passed by the Division Bench of High Court of
Karnataka in a writ petition, staying the operation of a
direction contained in the order of the NCLT, on a
Miscellaneous Application filed by the Resolution Professional.
2
The background facts leading to the filing of the above
4.
appeals, in brief, are as follows:
i) A company by name M/s. Udhyaman Investments Pvt.
Ltd. which is the twelfth Respondent in the first of these three
appeals, claiming to be a Financial Creditor, moved an
application before the NCLT Chennai, under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to
as the IBC, 2016 ), against M/s. Tiffins Barytes Asbestos &
Paints Ltd., the Corporate Debtor (which is the fourth
Respondent in the first of these three appeals and which is
also the appellant in the next appeal).
ii) By an Order dated 12.03.2018, NCLT Chennai admitted
the application, ordered the commencement of the Corporate
Insolvency Resolution Process and appointed an Interim
Resolution Professional. Consequently, a Moratorium was also
declared in terms of Section 14 of the IBC, 2016.
iii) At that time, the Corporate Debtor held a mining lease
granted by the Government of Karnataka, which was to expire
by 25.05.2018. Though a notice for premature termination of
the lease had already been issued on 09.08.2017, on the
allegation of violation of statutory rules and the terms and
conditions of the lease deed, no order of termination had been
passed till the date of initiation of the Corporate Insolvency
Resolution Process (hereinafter referred to as CIRP).
3
iv) Therefore, the Interim Resolution Professional appointed
by NCLT addressed a letter dated 14.03.2018 to the Chairman
of the Monitoring Committee as well as the Director of Mines &
Geology informing them of the commencement of CIRP. He
also wrote a letter dated 21.04.2018 to the Director of Mines &
Geology, seeking the benefit of deemed extension of the lease
beyond 25.05.2018 upto 31.3.2020 in terms of Section 8A (6)
of the Mines & Minerals (Development and Regulation) Act,
1957 (hereinafter referred to as MMDR Act, 1957).
v) Finding that there was no response, the Interim
Resolution Professional filed a writ petition in WP No. 23075 of
2018 on the file of the High Court of Karnataka, 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.
vi) During the pendency of the writ petition, the Government
of Karnataka passed an Order dated 26.09.2018, rejecting the
proposal for deemed extension, on the ground that the
Corporate Debtor had contravened not only the terms and
conditions of the Lease Deed but also the provisions of Rule 37
of the Mineral Concession Rules, 1960 and Rule 24 of the
Minerals (Other than Atomic and Hydro Carbons Energy
Minerals) Rules, 2016.
4
vii) In view of the Order of rejection passed by the
Government of Karnataka, the Corporate Debtor, represented
by the Interim Resolution Professional, withdrew the Writ
Petition No.23075 of 2018, on 28.09.2018, with liberty to file a
fresh writ petition.
viii) However, instead of filing a fresh writ petition (in
accordance with the liberty sought), the Resolution
Professional moved a Miscellaneous Application No.632 of
2018, before 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.
ix) By an Order dated 11.12.2018, NCLT, Chennai allowed
the Miscellaneous Application setting aside the Order of the
Government of Karnataka on the ground that the same was in
violation of the moratorium declared on 12.03.2018 in terms
of Section 14(1) of IBC, 2016. Consequently the Tribunal
directed the Government of Karnataka to execute Supplement
Lease Deeds in favour of the Corporate Debtor for the period
upto 31.03.2020.
5
x) Aggrieved by the order of the NCLT, Chennai, the
Government of Karnataka moved a writ petition in WP
No.5002 of 2019, before the High Court of Karnataka. When
the writ petition came up for hearing, it was conceded by the
Resolution Professional before the High Court of Karnataka
that the order of the NCLT could be set aside and the matter
relegated to the Tribunal, for a decision on merits, after giving
an opportunity to the State to respond to the reliefs sought in
the Miscellaneous Application. It is relevant to note here that
the Order of the NCLT dated 11.12.2018, was passed exparte,
on the ground that the State did not choose to appear despite
service of notice.
xi) Therefore, by an Order dated 22.03.2019, the High Court
of Karnataka set aside the Order of the NCLT and remanded
the matter back to NCLT for a fresh consideration of the
Miscellaneous Application No.632 of 2018.
xii) Thereafter, the State of Karnataka filed a Statement of
Objections before the NCLT, primarily raising two objections,
one relating to the jurisdiction of the NCLT to adjudicate upon
disputes arising out of the grant of mining leases under the
MMDR Act, 1957, between the StateLessor and the Lessee
and another relating 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.
6
xiii) 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.
xiv) Challenging the Order of the NCLT, Chennai, the
Government of Karnataka moved a writ petition in WP
No.41029 of 2019 before the High Court of Karnataka. When
the writ petition came up for orders as to admission, the
Corporate Debtor represented by the Resolution Professional
appeared through counsel and took notice and sought time to
get instructions. Therefore, the High Court, by an Order dated
12.09.2019 adjourned the matter to 23.09.2019 and granted a
stay of operation of the direction contained in the impugned
Order of the Tribunal. Interim Stay was necessitated in view of
a Contempt Application moved by the Resolution Professional
before the NCLT against the Government of Karnataka for
their failure to execute Supplement Lease deeds.
xv) 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.
7
Rival Contentions
. Sh. K. V. Viswanathan, learned Senior Counsel appearing
5
on behalf of the Resolution Applicant assailed the impugned
Order on the ground that when an efficacious alternative
remedy is available under Section 61 of IBC, 2016, the High
Court of Karnataka ought not to have entertained a writ
petition and that too against an Order passed by the Chennai
Bench of NCLT. He drew our attention to a series of
judgments, wherein it was held that when a statutory forum is
created for the redressal of grievances, a writ petition should
not be entertained. Since the essence of IBC, 2016 is the
revival of a Corporate Debtor and the resolution of its
problems to enable it to survive as a going concern, through
the maximization of the value of its assets, the learned Senior
Counsel contended that the Interim Resolution
Professional/Resolution Professional had a right to move the
NCLT for appropriate reliefs for the preservation of the
properties of the Corporate Debtor and therefore the only way
the steps taken by the Resolution Professional could be set at
8
naught, is to take recourse to the provisions of the IBC alone.
Relying upon the observations made by this Court in a couple
of decisions that IBC, 2016 is a unified umbrella of code, the
learned Senior Counsel contended that the remedies provided
thereunder are all pervasive and exclusive.
6. Sh. Mukul Rohatgi, learned Senior Counsel appearing for
the Resolution Applicant supplemented the aforesaid
arguments and contended that though he would not go to the
extent of saying that the jurisdiction of the High Court stood
completely ousted, the High Court was obliged to switch over
to the hands off mode, in matters of this nature. The learned
Senior Counsel also contended that the NCLT has already
approved the Resolution Plan, by an order dated 12.06.2019
and that therefore the High Court cannot do anything that will
tinker with or destroy the very Resolution Plan approved by
the NCLT.
7. Sh. Kapil Sibal, the learned Senior Counsel appearing for
the Resolution Professional contended that the whole object of
IBC, 2016 will get defeated, if the Orders of NCLT are declared
9
amenable to review by the High Court under Article 226/227.
He also contended that the provisions of IBC, 2016 are given
overriding effect under Section 238, over all other statutes. It
is his further contention that after taking a stand in their first
writ petition in WP No.5002 of 2019 that the dispute relating
to the refusal to grant deemed extension of the mining lease
falls squarely within the jurisdiction of the Mining Tribunal
and after raising a plea that the rejection of the benefit of
deemed extension, ought to have been challenged by way of a
revision before the Central Government under Section 30 of
the MMDR Act, 1957 the State of Karnataka agreed to go back
to the NCLT for raising all contentions. Therefore, according to
the learned counsel, it was not open to the Government to
question the jurisdiction of the NCLT in the next round of
litigation. Since the expression “Property” as defined in
Section 3 (27) of IBC, 2016 includes every description of
interest including present or future or vested or contingent
interest arising out of or incidental to property, and also since
the right to deemed extension of lease would come within the
10
purview of the expression “Property”, it was contended by the
learned Senior Counsel that the Resolution Professional has a
duty to preserve the property. The only ground on which the
Government of Karnataka opposed the Miscellaneous
Application of the Resolution Professional, according to the
learned Senior Counsel, was fraud and collusion on the part of
the Corporate Debtor and the creditor who initiated the CIRP.
Therefore, it is contended by him that in view of the sweep of
the jurisdiction conferred upon NCLT under Section 60 (5) (c)
of the IBC, 2016, the Tribunal was entitled to investigate even
into allegations of fraud. Once it is conceded that NCLT will
have jurisdiction even to enquire into allegations of fraud, then
the question of invoking the jurisdiction of the High Court
under Article 226 as against an order passed by NCLT,
according to the learned counsel, does not arise. Any
recognition by this court, of the jurisdiction of the High Court
under Article 226 to interfere with the Orders of the NCLT
under IBC, 2016, according to the learned Senior Counsel,
would completely derail the resolution process which is bound
11
to happen within a time frame. Therefore, he appealed that the
Order of the High Court should be set aside on the ground of
lack of jurisdiction.
8. Sh. Arvind P. Datar and Sh. E. Om Prakash, learned
Senior Counsel appearing for the Committee of Creditors
submitted that IBC, 2016 being a complete code in itself does
not provide any room for challenging the Orders of NCLT,
otherwise than in a manner prescribed by the code itself. What
was sought by the Resolution Professional, according to the
learned Senior Counsel, was a mere recognition of the
statutory right of deemed extension of lease conferred by
Section 8A of the MMDR Act, 1957 and that therefore NCLT
cannot be taken to have exercised a jurisdiction not vested in
it in law, so as to enable the High Court to invoke the
jurisdiction under Article 226.
9. In response, Sh. K.K. Venugopal, learned Attorney
General submitted that if a case falls under the category of
inherent lack of jurisdiction on the part of a Tribunal, the
exercise of jurisdiction by the Tribunal would certainly be
12
amenable to the jurisdiction of the High Court under Article
226. Since the contours of jurisdiction of NCLT are defined in
Clauses (a), (b) and (c) of Subsection (5) of Section 60 and
also since the powers of the NCLT are defined in Subsection
(4) of Section 60, to be akin to those of the Debts Recovery
Tribunal under the Recovery of Debts Due to Banks and
Financial Institutions Act of 1993 (hereinafter referred to as
DRT Act, 1993 ), it was contended by the learned Attorney
General that the jurisdiction of the NCLT is confined only to
contractual matters interparties. An order passed by a
statutory/quasijudicial authority under certain special
enactments such as the MMDR Act, 1957 falls in the realm of
public law and hence it was contended by the learned Attorney
General that the NCLT would have no power of judicial review
of such orders. The learned Attorney General also drew our
th
attention to the minutes of the 10 meeting of the Committee
of Creditors held on 27.02.2019, in which a Company other
than the present Resolution Applicant was recorded to have
made a better offer. But the present Resolution Applicant was
13
able to have his plan approved, despite the offer being lesser,
only because they were willing to take the risk of the mining
lease not being renewed. Therefore, it was his contention that
a person who was willing to take a chance, cannot now take
shelter under the approval of the Resolution Plan. On the
contention that the Government of Karnataka had an
efficacious alternative remedy before the NCLAT, the learned
Attorney General submitted, on the basis of the decision in
Barnard and Others vs. National Dock Labour Board and
1
Others that when an inferior Tribunal passes an Order which
is a nullity, the superior Court need not drive the party to the
appellate forum stipulated by the Act. The learned Attorney
General also relied upon the decision of this Court in The
2
State of Uttar Pradesh vs. Mohammad Nooh.
Question No. 1
10. In the backdrop of the facts narrated and in the light of
the rival contentions extracted above, the first question that
arises for consideration is as to whether the High Court ought
1 (1953) 2 WLR 995
2 (1958) SCR 595
14
to interfere, under Article 226/227 of the Constitution, with
an order passed by NCLT in a proceeding under the IBC, 2016,
despite the availability of a statutory alternative remedy of
appeal to NCLAT.
11. It is beyond any pale of doubt that IBC, 2016 is a
complete Code in itself. As observed by this Court in
M/s
3
Innoventive Industries Limited vs. ICICI Bank, it is an
exhaustive code on the subject matter of insolvency in relation
to corporate entities and others. It is also true that IBC, 2016
is a single Unified Umbrella Code, covering the entire gamut of
the law relating to insolvency resolution of corporate persons
and others in a time bound manner. The code provides a
threetier mechanism namely (i) the NCLT, which is the
Adjudicating Authority (ii) the NCLAT which is the appellate
authority and (iii) this court as the final authority, for dealing
with all issues that may arise in relation to the reorganisation
and insolvency resolution of corporate persons. In so far as
insolvency resolution of corporate debtors and personal
3 AIR 2017 SC 4084
15
guarantors are concerned, any order passed by the NCLT is
appealable to NCLAT under Section 61 of the IBC, 2016 and
the orders of the NCLAT are amenable to the appellate
jurisdiction of this court under Section 62. It is in this context
that the action of the State of Karnataka in bypassing the
remedy of appeal to NCLAT and the act of the High Court in
entertaining the writ petition against the order of the NCLT are
being questioned.
12. For finding an answer to the question on hand, the scope
of the jurisdiction and the nature of the powers exercised by –
(i) the High Court under Article 226 of the Constitution and (ii)
the NCLT and NCLAT under the provisions of IBC, 2016 are to
be seen.
Jurisdiction and the powers of the High Court under
Article 226
What is recognized by Article 226 (1) is the power of every
13.
High Court to issue (i) directions, (ii) orders or (iii) writs. They
can be issued to (i) any person or (ii) authority including the
Government. They may be issued (i) for the enforcement of any
16
of the rights conferred by Part III and (ii) for any other
purpose. But the exercise of the power recognized by Clause
(1) of Article 226, is restricted by the territorial jurisdiction of
the High Court, determined either by its geographical location
or by the place where the cause of action, in whole or in part,
arose. While the nature of the power exercised by the High
Court is delineated in Clause (1) of Article 226, the jurisdiction
of the High Court for the exercise of such power, is spelt out in
both Clauses (1) and (2) of Article 226.
14. Traditionally, the jurisdiction under Article 226 was
considered as limited to ensuring that the judicial or quasi
judicial tribunals or administrative bodies do not exercise their
powers in excess of their statutory limits. But in view of the
use of the expression “any person” in Article 226 (1), courts
recognized that the jurisdiction of the High Court extended
even over private individuals, provided the nature of the duties
performed by such private individuals, are public in nature.
Therefore, the remedies provided under Article 226 are public
law remedies, which stand in contrast to the remedies
17
available in private law. As observed by this Court in
Nilabati
4
Behera @ Babita Behera vs. State of Orissa, public law
proceedings serve a different purpose than private law
proceedings.
15. One of the well recognized exceptions to the selfimposed
restraint of the High Courts, in cases where a statutory
alternative remedy of appeal is available, is the lack of
jurisdiction on the part of the statutory/quasijudicial
authority, against whose order a judicial review is sought.
Traditionally, English courts maintained a distinction between
cases where a statutory/quasijudicial authority exercised a
jurisdiction not vested in it in law and cases where there was a
wrongful exercise of the available jurisdiction. An “error of
jurisdiction” was always distinguished from “in excess of
jurisdiction”, until the advent of the decision rendered by the
House of Lords, by a majority of 3:2 in Anisminic Ltd. vs.
5
Foreign Compensation Commission . After acknowledging
that a confusion had been created by the observations made in
4 (1993) 2 SCC 746
5 (1969) 2 WLR 163
18
6
to
Reg. vs. Governor of Brixton Prison, Ex parte Armah
the effect that if a Tribunal has jurisdiction to go right, it
has jurisdiction to go wrong , it was held in Anisminic that
the real question was not whether an authority made a wrong
decision but whether they enquired into and decided a matter
which they had no right to consider.
16. Anisminic , hailed as a breakthrough and a legal
7
landmark (see In ) abolished
Re Racal Communications Ltd
the old distinction between errors of law that went to
jurisdiction and errors of law that did not. Anisminic was
8
hailed in to have liberated English
O’Reilly vs. Mackman
public law from the fetters that the courts had theretofore
imposed upon themselves so far as determinations of inferior
courts and statutory tribunals were concerned, by drawing
esoteric distinctions between errors of law committed by such
tribunals that went to their jurisdiction, and errors of law
committed by them within their jurisdiction.
6 (1968) AC 192
7 (1981) AC 374
8 (1983) 2 AC 237
19
But made a distinction between courts of
17. In Re Racal
law on the one hand and administrative tribunal/
administrative authority on the other and held that in so far
as (inferior) courts of law are concerned, the subtle distinction
between errors of law that went to jurisdiction and errors of
law that did not, would still survive, if the decisions of such
courts are declared by the Statute to be final and conclusive.
Thus one distinction was gone with Anisminic , but another
was born with Re Racal . This could be seen from the after
9
effects of .
Anisminic
18. Interestingly just four days before the House of Lords
delivered the judgment in (on 17.12.1968), an
Anisminic
identical view was taken by a three member bench of this
court (delivered on 13.12.1968) in Official Trustee, West
9 Anisminic had its own quota of problems. Prof. Wade, as pointed out in R. v. Lord President
of the Privy Council Ex p. Page, [1993] A.C. 682, seems to have opined that the true effect of
Anisminic was still in doubt. People like Sir John Laws, quoted by Prof. Paul Craig, and which
was extracted in the decision in Regina (Privacy International) v. Investigatory Powers Tribunal,
[2019] UKSC 22, seems to have opined that once the distinction between jurisdictional and non-
jurisdictional errors was discarded, there was no longer any need for the ultra vires principle
and that ultra vires is, in truth, a fig-leaf which has enabled the courts to intervene in decisions
without an assertion of judicial power which too nakedly confronts the established authority of
the Executive or other public bodies. According to Sir John Laws, Anisminic has produced the
historical irony that with all its emphasis on nullity, it nevertheless erected the legal milestone
which pointed towards a public law jurisprudence in which the concept of voidness and the
ultra vires doctrine have become redundant. In Regina (Privacy International) the U.K Supreme
court also 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 simply, lawful, whether
or not jurisdictionally lawful.”
20
Bengal & Others vs. Sachindra Nath Chatterjee &
10
Another , approving the view taken by the Full bench of the
Calcutta High Court in
Hirday Nath Roy vs. Ramachandra
11
. It was held therein that “
Barna Sarma before a court can
be held to have jurisdiction to decide a particular matter
it must not only have jurisdiction to try the suit brought,
but must also have the authority to pass the orders
This court also pointed out that it is not
sought for.”
sufficient that it has some jurisdiction in relation to the
subject matter of the suit, but its jurisdiction must include (1)
the power to hear and decide the questions at issue and (2) the
power to grant the relief asked for. This decision in
Official
Trustee was followed in a recent decision in Indian Farmers
12
quite
Fertiliser Cooperative Ltd. vs. Bhadra Products ,
independent of Anisminic and its followers.
19. Though the decision in Official Trustee preceded
and can proudly be claimed as the Indian
Anisminic
10 (1969) 3 SCR 92
11 ILR LXVIII Calcutta 138
12 (2018) 2 SCC 534
21
precursor to an English legal landmark, several subsequent
decisions of this court considered Anisminic alone to have
provided the breakthrough. In Mafatlal Industries & Others
13
, Paripoornan, J. provided the list of
vs. Union of India
Indian cases which cited Anisminic with approval. They are:
(1) Union of India vs. Tarachand Gupta & Bros., (1971) 1 SCC
486
(2) A. R. Antulay vs. R. S. Nayak & Another, (1988) 2 SCC 602
(3) R. B. Shreeram Durga Prasad & Fatehchand Nursing
Das vs. Settlement Commission (IT & WT) & Another,
(1989) 1 SCC 628
(4) Associated Engineering Co. vs. Govt. of Andhra
Pradesh & Another, (1991) 4 SCC 93 and
(5) Shiv Kumar Chadha vs. Municipal Corporation of
Delhi & Others, (1993) 3 SCC 161
14
But in , K. K. Mathew, J.,
20. M.L. Sethi vs. R.P. Kapur
made certain interesting observations about Anisminic . The
learned Judge observed that the effect of the dicta in
is to reduce the difference between jurisdictional
Anisminic
error and error of law within jurisdiction almost to a vanishing
13 (1997) 5 SCC 536
14 (1972) 2 SCC 427
22
point and that it came perilously close to saying that there is
jurisdiction if the decision is right in law, but none if it is
wrong. Anisminic , according to him virtually left a court or
tribunal with no margin of legal error.
Again in
21. Hari Prasad Mulshanker Trivedi vs. V.B
15
Raju , K. K. Mathew, J., speaking for the Constitution Bench,
pointed out that though the dividing line between lack of
jurisdiction or power and the erroneous exercise of it has
become thin with , the distinction had not been
Anisminic
wiped out completely.
22. But it is relevant to note that Official
and what followed both, were mostly in
Trustee/Anisminic
the context of the power of the superior court to interfere with
the decisions of subordinate courts/tribunals or
administrative authorities. Most of these decisions were not in
the context of the exercise of jurisdiction despite the
availability of alternative remedy. That there exists such a
distinction between (i) cases where the jurisdiction of a
15 (1974) 3 SCC 415
23
superior court is questioned on the basis of ouster clauses and
(ii) cases where the exercise of jurisdiction by a superior court
is questioned on the ground of availability of alternative
remedy, was recognized even in Anisminic , when Lord Reid
referred to the decision in
Smith vs. East Elloe Rural
16
District Council as posing some difficulty . As a result, the
Court of Appeal held in
R vs. Secretary of State for the
17
Environment, Ex p. Ostler that the availability of a
statutory right to challenge within a specified time limit,
among other points, provided a sufficient basis for
distinguishing . This was taken note of by the UK
Anisminic
Supreme Court in Regina (Privacy International) . Therefore
the question whether the error committed by an administrative
authority/tribunal or a court of law went to jurisdiction or
whether it was within jurisdiction may still be relevant to test
whether a statutory alternative remedy should be allowed to
be bypassed or not.
16 (1956) AC 736
17 (1977) QB 122
24
In several cases, both in England and India, the ancient
23.
rule stated by Willes, J., in Wolverhampton New
18
to the effect that where a
Waterworks Co. vs. Hawkesford
liability not existing at Common Law is created by a statute,
which also gives a special and particular remedy for enforcing
it, the remedy provided by the statute must be followed, has
been quoted with approval. For instance,
Union Bank of
19
India vs. Satyawati Tandon held that the availability of a
remedy of appeal under the DRT Act, 1993 and SARFAESI Act,
2002 should deter the High Courts from exercising the
jurisdiction under Article 226. Similarly, the availability of
remedy of appeal under Section 173 of the Motor Vehicles Act,
1988 as against an award of the Accidents Claims Tribunal
20
was held in Sadhana Lodh vs. National Insurance Co . as
sufficient for the High Court to refuse to exercise its
supervisory jurisdiction. The same principle was applied in (1)
Nivedita Sharma vs. Cellular Operators Association of
18 [1859] 6 CB (NS) 336
19 (2010) 8 SCC 110
20 (2003) 3 SCC 524
25
21 22
and (2) in
India Cicily Kallarackal vs. Vehicle Factory
relation to the awards passed by the special fora constituted
under the Consumer Protection Act, 1986.
24. Therefore in so far as the question of exercise of the
power conferred by Article 226, despite the availability of a
statutory alternative remedy, is concerned, Anisminic cannot
be relied upon. The distinction between the lack of jurisdiction
and the wrongful exercise of the available jurisdiction, should
certainly be taken into account by High Courts, when Article
226 is sought to be invoked bypassing a statutory alternative
remedy provided by a special statute.
25. On the basis of this principle, let us now see whether the
case of the State of Karnataka fell under the category of (1)
lack of jurisdiction on the part of the NCLT to issue a direction
in relation to a matter covered by MMDR Act, 1957 and the
Statutory Rules issued thereunder or (2) mere wrongful
exercise of a recognised jurisdiction, say for instance, asking
21 (2011) 14 SCC 337
22 (2012) 8 SCC 524
26
a wrong question or applying a wrong test or granting a
wrong relief .
26. The MMDR Act, 1957 is a Parliamentary enactment
traceable to Entry 54 of the Union List in Seventh Schedule of
the Constitution. The object of the Act as it stood originally,
was the regulation of mines and development of minerals.
After the Amendment Act 38 of 1999, the object of the Act is to
provide for the development and regulation of mines and
minerals. Section 2 of the Act declares that it is expedient in
public interest that the Union should take under its control,
the regulation of mines and the development of minerals.
Section 4 (1) of the Act prohibits the undertaking of mining
operations (and reconnaissance and prospecting operations),
in any area, except under and in accordance with the terms
and conditions of a mining lease granted under the Act and
the Rules made thereunder. After the insertion of Subsection
(1A) in Section 4, by the Amendment Act 38 of 1999, even
transportation or storage of any mineral otherwise than in
accordance with the provisions of the Act and the Rules made
27
thereunder is prohibited. The Act also imposes restrictions on
the grant of mining leases. Section 8A of the Act, inserted by
the Amendment Act 10 of 2015 provides for deemed grant and
deemed extension of different kinds. Primarily Section 8A
applies only to minerals other than those specified in Parts A
and B of the First Schedule. In so far as minor minerals are
concerned, the State government is empowered to make rules
for regulating the grant of mining leases. It is important to
note that Section 19 of the Act declares any mining lease
granted, renewed or acquired in contravention of the
provisions of the Act or any rule or order made thereunder to
be void and of no effect. The Act confers powers of search,
entry and inspection upon officers authorised by the Central
or State governments. Section 30 of the Act empowers the
Central government, either of its own motion or on an
application made by the aggrieved party, to revise any order
made by a State government in exercise of the powers
conferred under the Act with respect to any mineral other than
a minor mineral. The procedure for filing a revision is
28
prescribed in Rule 54 and the method of disposal of such
revisions is prescribed in Rule 55 of the Mineral Concession
Rules, 1960.
27. Though in Thressiamma Jacob vs. Deptt. of Mining &
23
, this court held that the mineral wealth in the sub
Geology
soil would go along with the ownership of the land, the
question of entitlement of the government to charge royalty
was left open, as it was pending reference to the constitution
bench. But in the case on hand, the land which formed the
subject matter of mining lease, belongs to the State of
Karnataka. The liberties and privileges granted to the
Corporate Debtor by the Government of Karnataka under the
mining lease, are delineated in Part IV of the mining lease. The
mining lease was issued in accordance with the statutory rules
namely Mineral Concession Rules, 1960. Therefore the
relationship between the Corporate Debtor and the
Government of Karnataka under the mining lease is not just
contractual but also statutorily governed. As we have indicated
elsewhere, the MMDR Act, 1957 is a Parliamentary enactment
23 (2013) 9 SCC 725
29
traceable to Entry 54 in List I of the Seventh Schedule. This
Entry 54 speaks about regulation of mines and development of
minerals to the extent to which such regulation and
development under the control of the Union, is declared by
Parliament by law to be expedient in public interest. In fact
the expression “public interest” is used only in 3 out of
97 Entries in List I, one of which is Entry 54, the other
two being Entries 52 and 56 . Interestingly, Entry 23 in List
II does not use the expression “public interest”, though it also
deals with regulation of mines and mineral development,
subject to the provisions of List I. It is this element of “public
interest” that finds a place in Section 2 of the MMDR Act,
1957, in the form of a declaration. Section 2 of MMDR Act,
1957 reads as follows:
“It is hereby declared that it is expedient in the public
interest that Union should take under its control the
regulation of mines and the development of minerals to
the extent hereinafter provided.”
28. Therefore as rightly contended by the learned Attorney
General, the decision of the Government of Karnataka to
30
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. Judicial review, as observed by this
court in SubCommittee on Judicial Accountability vs.
24
Union of India , flows from the concept of a higher law,
namely the Constitution. Paragraph 61 of the said decision
captures this position as follows:
“ But where, as in this country and unlike in England,
there is a written Constitution which constitutes the
fundamental and in that sense a “ higher law” and acts
as a limitation upon the legislature and other organs of
the State as grantees under the Constitution, the usual
incidents of parliamentary sovereignty do not obtain
and the concept is one of ‘ limited government ’ . Judicial
review is, indeed, an incident of and flows from this
concept of the fundamental and the higher law being
the touchstone of the limits of the powers of the various
organs of the State which derive power and authority
under the Constitution and that the judicial wing is the
interpreter of the Constitution and, therefore, of the
limits of authority of the different organs of the State. It
24 (1991) 4 SCC 699
31
is to be noted that the British Parliament with the
Crown is supreme and its powers are unlimited and
courts have no power of judicial review of legislation.”
29. 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. Hence, let
us now see the jurisdiction and powers conferred upon NCLT.
Jurisdiction and powers of NCLT
30. NCLT and NCLAT are constituted, not under the IBC,
2016 but under Sections 408 and 410 of the Companies Act,
2013. Without specifically defining the powers and functions
of the NCLT, Section 408 of the Companies Act, 2013 simply
states that the Central Government shall constitute a National
Company Law Tribunal, to exercise and discharge such
powers and functions as are or may be, conferred on it by or
under the Companies Act or any other law for the time being
32
in force. Insofar as NCLAT is concerned, Section 410 of the
Companies Act merely states that the Central Government
shall constitute an Appellate Tribunal for hearing appeals
against the Orders of the Tribunal. The matters that fall within
the jurisdiction of the NCLT, under the Companies Act, 2013,
lie scattered all over the Companies Act. Therefore, Sections
420 and 424 of the Companies Act, 2013 indicate in broad
terms, merely the procedure to be followed by the NCLT and
NCLAT before passing orders. However, there are no separate
provisions in the Companies Act, exclusively dealing with the
jurisdiction and powers of NCLT.
31. In contrast, Subsections (4) and (5) of Section 60 of IBC,
2016 give an indication respectively about the powers and
jurisdiction of the NCLT. Section 60 in entirety reads as
follows:
“ Adjudicating Authority for corporate persons .(1)
The Adjudicating Authority, in relation to insolvency
resolution and liquidation for corporate persons
including corporate debtors and personal guarantors
thereof shall be the National Company Law Tribunal
having territorial jurisdiction over the place where the
registered office of the corporate person is located.
(2) Without prejudice to subsection (1) and
notwithstanding anything to the contrary contained in
33
this Code, where a corporate insolvency resolution
process or liquidation proceeding of a corporate debtor
is pending before the National Company Law Tribunal,
an application relating to the insolvency resolution or
[liquidation or bankruptcy of a corporate guarantor or
personal guarantor, as the case may be, of such
corporate debtor] shall be filed before such National
Company Law Tribunal.
(3) An insolvency resolution process or [liquidation or
bankruptcy of a corporate guarantor or personal
guarantor, as the case may be, of the corporate debtor]
pending in any court or tribunal shall stand transferred
to the Adjudicating Authority dealing with insolvency
resolution process or liquidation proceeding of such
corporate debtor.
(4) The National Company Law Tribunal shall be
vested with all the powers of the Debt Recovery
Tribunal as contemplated under Part III in of this Code
for the purpose of subsection (2).
(5) Notwithstanding anything to the contrary contained
in any other law for the time being in force, the National
Company Law Tribunal shall have jurisdiction to
entertain or dispose of –
(a) any application or proceeding by or against
the corporate debtor or corporate person;
(b) 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
(c) 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 this Code.
(6) Notwithstanding anything contained in the
Limitation Act, 1963 (36 of 1963) or in any other law for
the time being in force, in computing the period of
limitation specified for any suit or application by or
against a corporate debtor for which an order of
moratorium has been made under this Part, the period
during which such moratorium is in place shall be
excluded.”
34
32. Subsection (4) of Section 60 of IBC, 2016 states that the
NCLT will have all the powers of the DRT as contemplated
under Part III of the Code for the purposes of Subsection (2).
Subsection (2) deals with a situation where the insolvency
resolution or liquidation or bankruptcy of a corporate
guarantor or personal guarantor of a corporate debtor is taken
up, when CIRP or liquidation proceeding of such a corporate
debtor is already pending before NCLT. The object of Sub
section (2) is to group together (A) the CIRP or liquidation
proceeding of a corporate debtor and (B) the insolvency
resolution or liquidation or bankruptcy of a corporate
guarantor or personal guarantor of the very same corporate
debtor, so that a single Forum may deal with both. This is to
ensure that the CIRP of a corporate debtor and the insolvency
resolution of the individual guarantors of the very same
corporate debtor do not proceed on different tracks, before
different Fora, leading to conflict of interests, situations or
decisions.
35
If the object of Subsection (2) of Section 60 is to ensure
33.
that the insolvency resolutions of the corporate debtor and its
guarantors are dealt with together, then the question that
arises is as to why there should be a reference to the powers of
the DRT in Subsection (4). The answer to this question is to
be found in Section 179 of IBC, 2016. Under Section 179 (1), it
is the DRT which is the Adjudicating Authority in relation to
insolvency matters of individuals and firms. This is in contrast
to Section 60(1) which names the NCLT as the Adjudicating
Authority in relation to insolvency resolution and liquidation of
corporate persons including corporate debtors and personal
guarantors. The expression “personal guarantor” is defined in
Section 5(22) to mean an individual who is the surety in a
contract of guarantee to a corporate debtor. Therefore the
object of Subsection (2) of Section 60 is to avoid any
confusion that may arise on account of Section 179(1) and to
ensure that whenever a CIRP is initiated against a corporate
debtor, NCLT will be the Adjudicating Authority not only in
respect of such corporate debtor but also in respect of the
36
individual who stood as surety to such corporate debtor,
notwithstanding the naming of the DRT under Section 179(1)
as the Adjudicating Authority for the insolvency resolution of
individuals. This is also why Subsection (2) of Section 60 uses
the phrase “notwithstanding anything to the contrary
contained in this Code”.
Subsection (2) of Section 179 confers jurisdiction upon
34.
DRT to entertain and dispose of (i) any suit or proceeding by or
against the individual debtor (ii) any claim made by or against
the individual debtor and (iii) any question of priorities or any
other question whether of law or facts arising out of or in
relation to insolvency and bankruptcy of the individual debtor.
Clauses (a), (b) and (c) of Subsection (2) of Section 179 are
identical to Clauses (a), (b) and (c) of Subsection (5) of Section
60. Therefore the only reason why Subsection (4) is
incorporated in Section 60 is to ensure that NCLT will exercise
jurisdiction – (1) not only to entertain and dispose of matters
referred to in Clauses (a), (b) and (c) of Subsection (5) of
Section 60 in relation to the corporate debtor, (2) but also to
37
entertain and dispose of the matters specified in Clauses (a),
(b) and (c) of Subsection (2) of Section 179, whenever the
contingency stated in Section 60(2) arises.
35. Interestingly there are separate provisions both in Part II
and Part III of IBC, 2016 ousting the jurisdiction of civil
courts. While Section 63 contained in Part II bars the
jurisdiction of a civil court in respect of any matter on which
NCLT or NCLAT will have jurisdiction, Section 180 contained
in Part III bars the jurisdiction of civil courts in respect of any
matter on which DRT or DRAT has jurisdiction. But curiously
there is something more in Section 180 than what is found in
Section 63, which can be appreciated if both are presented in
a tabular column.
| Section 63 | Section 180 |
|---|---|
| No civil court or authority shall<br>have jurisdiction to entertain any<br>suit or proceedings in respect of<br>any matter on which National<br>Company Law Tribunal or the<br>National Company Law Appellate<br>Tribunal has jurisdiction under this<br>Code. Civil court not to have<br>jurisdiction. | (1) No civil court or authority<br>shall have jurisdiction to<br>entertain any suit or<br>proceedings in respect of any<br>matter on which the Debt<br>Recovery Tribunal or the Debt<br>Recovery Appellate Tribunal<br>has jurisdiction under this<br>Code.<br>(2) No injunction shall be<br>granted by any court, tribunal<br>or authority in respect of any |
38
| action taken, or to be taken, in<br>pursuance of any power<br>conferred on the Debt Recovery<br>Tribunal or the Debt Recovery<br>Appellate Tribunal by or under<br>this Code. |
|---|
Though what is found in Subsection (2) of Section 180 is not
found in the corresponding provision in Part II namely, Section
63, a similar provision is incorporated in an unrelated
provision namely Section 64, which primarily deals with
expeditious disposal of applications. Thus, there appears to
be some mixup. However, we are not concerned about the
same in this case and we have made a reference to the same
only because of Subsection (4) of Section 60, vesting upon the
NCLT, all the powers of the DRT.
36. From a combined reading of Subsection (4) and Sub
section (2) of Section 60 with Section 179, it is clear that none
of them hold the key to the question as to whether NCLT
would have jurisdiction over a decision taken by the
39
government under the provisions of MMDR Act, 1957 and the
Rules issued thereunder. The only provision which can
probably throw light on this question would be Subsection (5)
of Section 60, as it speaks about the jurisdiction of the NCLT.
Clause (c) of Subsection (5) of Section 60 is very broad in its
sweep, in that it speaks about any question of law or fact,
arising out of or in relation to insolvency resolution. But a
decision taken by the government or a statutory authority in
relation to a matter which is in the realm of public law,
cannot, by any stretch of imagination, be brought within the
fold of the phrase “arising out of or in relation to the
” appearing in Clause (c) of Subsection
insolvency resolution
(5). Let us take for instance a case where a corporate debtor
had suffered an order at the hands of the Income Tax
Appellate Tribunal, at the time of initiation of CIRP. If Section
60(5)(c) of IBC is interpreted to include all questions of law or
facts under the sky, an Interim Resolution
Professional/Resolution Professional will then claim a right to
challenge the order of the Income Tax Appellate Tribunal
40
before the NCLT, instead of moving a statutory appeal under
Section 260A of the Income Tax Act, 1961. Therefore the
jurisdiction of the NCLT delineated in Section 60(5) cannot be
stretched so far as to bring absurd results. (It will be a
different matter, if proceedings under statutes like Income Tax
Act had attained finality, fastening a liability upon the
corporate debtor, since, in such cases, the dues payable to the
Government would come within the meaning of the expression
“operational debt” under Section 5(21), making the
Government an “operational creditor ” in terms of Section 5(20).
The moment the dues to the Government are crystalised and
what remains is only payment, the claim of the Government
will have to be adjudicated and paid only in a manner
prescribed in the resolution plan as approved by the
Adjudicating Authority, namely the NCLT. )
37. It was argued by all the learned Senior Counsel on the
side of the appellants that an Interim Resolution Professional
is duty bound under Section 20(1) to preserve the value of the
property of the Corporate Debtor and that the word
41
“property” is interpreted in Section 3(27) to include even
actionable claims as well as every description of interest,
present or future or vested or contingent interest arising
out of or incidental to property and that therefore the
Interim Resolution Professional is entitled to move the NCLT
for appropriate orders, on the basis that lease is a property
right and NCLT has jurisdiction under Section 60(5) to
entertain any claim by the Corporate Debtor.
38. But the said argument cannot be sustained for the
simple reason that the duties of a resolution professional are
entirely different from the jurisdiction and powers of NCLT. In
fact Section 20(1) cannot be read in isolation, but has to be
read in conjunction with Section 18(f)(vi) of the IBC, 2016
together with the Explanation thereunder. Section 18 (f) (vi)
reads as follows:
“18. Duties of interim resolution professional. The
interim resolution professional shall perform the
following duties, namely:
(a) …
(b)…
(c) …
(d)…
42
(e)…
(f) take control and custody of any asset over which the
corporate debtor has ownership rights as recorded in
the balance sheet of the corporate debtor, or with
information utility or the depository of securities or any
other registry that records the ownership of assets
including—
(i)…
(ii)…
(iii)…
(iv) …
(v)…
(vi) assets subject to the determination of ownership by
a court or authority;
(g) …
Explanation. For the purposes of this section, the term
‘assets’ shall not include the following namely:
(a) assets owned by a third party in possession of
the corporate debtor held under trust or under
contractual arrangements including bailment;
(b) assets of any Indian or foreign subsidiary of the
corporate debtor; and
(c) such other assets as may be notified by the Central
Government in consultation with any financial sector
regulator.”
39. If NCLT has been conferred with jurisdiction to decide all
types of claims to property, of the corporate debtor, Section
18(f)(vi) would not have made the task of the interim resolution
professional in taking control and custody of an asset over
which the corporate debtor has ownership rights,
subject to
the determination of ownership by a court or other
43
. In fact an asset owned by a third party, but which
authority
is in the possession of the corporate debtor under contractual
arrangements, is specifically kept out of the definition of the
term “assets” under the Explanation to Section 18. This
assumes significance in view of the language used in Sections
18 and 25 in contrast to the language employed in Section 20.
Section 18 speaks about the duties of the interim resolution
professional and Section 25 speaks about the duties of
resolution professional. These two provisions use the word
“assets”, while Section 20(1) uses the word “property” together
with the word “value”. Sections 18 and 25 do not use the
expression “property”. Another important aspect is that under
Section 25 (2) (b) of IBC, 2016, the resolution professional is
obliged to represent and act on behalf of the corporate debtor
with third parties and exercise rights for the benefit of the
corporate debtor in judicial, quasijudicial and arbitration
. Section 25(1) and 25(2)(b) reads as follows:
proceedings
“25. Duties of resolution professional –
(1) It shall be the duty of the resolution professional to
preserve and protect the assets of the corporate
44
debtor , including the continued business operations of
the corporate debtor.
(2) For the purposes of subsection (1), the resolution
professional shall undertake the following actions:
(a)………….
(b) represent and act on behalf of the corporate debtor
with third parties, exercise rights for the benefit of
the corporate debtor in judicial, quasi judicial
and arbitration proceedings.”
This shows that wherever the corporate debtor has to exercise
rights in judicial, quasijudicial proceedings, the resolution
professional cannot shortcircuit the same and bring a claim
before NCLT taking advantage of Section 60(5).
40. Therefore 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.
41. In fact the Resolution Professional in this case appears
to have understood this legal position correctly, in the initial
stages. This is why when the Government of Karnataka did not
45
grant the benefit of deemed extension, even after the expiry of
the lease on 25.05.2018, the Resolution Professional moved
the High Court by way of a writ petition in WP No. 23075 of
2018. The prayer made in WP No. 23075 of 2018 was for a
declaration that the mining lease should be deemed to be valid
upto 31.03.2020. If NCLT was omnipotent, the Resolution
Professional would have moved the NCLT itself for such a
declaration. But he did not, as he understood the legal
position correctly.
42. After the filing of the first writ petition (WP No. 23075 of
2018), the Government of Karnataka passed an order dated
26.09.2018 rejecting the claim. Therefore the Resolution
Professional, representing the Corporate Debtor filed a memo
before the High Court seeking withdrawal of the writ petition
“ with liberty to file a fresh writ petition”. However the
High Court, while dismissing the writ petition by order dated
28.09.2018 was little considerate and it disposed of the writ
petition as withdrawn with liberty to take recourse to
appropriate remedies in accordance with law. Perhaps taking
46
advantage of this liberty, the Resolution Applicant moved the
NCLT against the order of rejection passed by the Government
of Karnataka. If NCLT was not considered by the Resolution
Professional, in the first instance, to be empowered to issue a
declaration of deemed extension of lease, we fail to understand
how NCLT could be considered to have the power of judicial
review over the order of rejection.
43. The fact that the Government of Karnataka agreed in the
second writ petition WP No. 5002 of 2019 to go back to the
NCLT and contest the Miscellaneous Application filed by the
Resolution Professional, would not tantamount to conceding
the jurisdiction of NCLT. In any case a tribunal which is the
creature of a statute cannot be clothed with a jurisdiction, by
any concession made by a party.
A lot of stress was made on the effect of Section 14 of
44.
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
47
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. PartI of the Schedule describes the location
and area of the lease. PartII indicates the liberties and
privileges of the lessee. The restrictions and conditions subject
48
to which the grant can be enjoyed are found in PartIII of the
Schedule. The liberties, powers and privileges reserved to the
Government, despite the grant, are indicated in PartIV. This
PartIV 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.
45. Therefore, in fine, our 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 .
49
Question No. 2
46. The second question that arises for our consideration is
as to whether NCLT is competent to enquire into allegations of
fraud, especially in the matter of the very initiation of CIRP.
47. This question has arisen, in view of the stand taken by
the Government of Karnataka before the High Court that they
chose to challenge the order of the NCLT before the High
Court, instead of before NCLAT, due to the fraudulent and
collusive manner in which the CIRP was initiated by one of the
related parties of the Corporate Debtor themselves. In the writ
petition filed by the Government of Karnataka before the High
Court, it was specifically pleaded (i) that the Managing
Director of the Corporate Debtor entered into an agreement on
06.02.2011 with one M/s. D. P. Exports, for carrying out
mining operations on behalf of the Corporate Debtor and also
for managing its affairs and selling 100% of the extracted iron
ore; (ii) that the said M/s. D. P. Exports was a partnership
firm of which one Mr. M. Poobalan and his wife were partners;
(iii) that another agreement dated 11.12.2012 was entered into
50
between the Corporate Debtor and a proprietary concern by
name M/s. P. & D. Enterprises, of which the very same person
namely, Mr. M. Poobalan was the sole proprietor; (iv) that the
said agreement was for hiring of machinery and equipment; (v)
that a finance agreement was also entered into on 12.12.2012
between the Corporate Debtor and a company by name M/s.
Udhyaman Investments Pvt. Ltd., represented by its
authorized signatory Mr. M. Poobalan; (vi) that there were a
few communications sent by the said Mr. Poobalan to various
authorities, claiming himself to be the authorized signatory of
the Corporate Debtor; (vii) that an MOU was entered into on
16.04.2016 between the Corporate Debtor and M/s.
Udhyaman Investments Pvt. Ltd., represented by the said Mr.
Poobalan, whereby the Corporate Debtor agreed to pay Rs.
11.5 crores; (viii) that the said agreement was purportedly
executed at Florida, but witnessed at Chennai; (ix) that Mr.
Poobalan even communicated to the Director, Department of
Mines & Geology as well as the Monitoring Committee, taking
up the cause of the Corporate Debtor as its authorized
51
signatory; (x) that the CIRP was initiated by M/s. Udhyaman
Investments Pvt. Ltd. represented by its authorized signatory,
Mr. Poobalan; (xi) that the Resolution Applicant namely, M/s.
Embassy Property Development Pvt. Ltd. as well as the
Financial Creditor who initiated CIRP namely, M/s. Udhyaman
Investments Pvt. Ltd. are all related parties and (xii) that Mr.
Poobalan had not only acted on behalf of the Corporate Debtor
before the statutory authorities, but also happened to be the
authorized signatory of the Financial Creditor who initiated
the CIRP, eventually for the benefit of the Resolution Applicant
which is a related party of the Financial Creditor.
48. In the light of the above averments, 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.
52
The objection of the appellants in this regard is well
49.
founded. Section 65 specifically deals with fraudulent or
malicious initiation of proceedings. It reads as follows :
“65. Fraudulent or malicious initiation of
proceedings . – (1) If, any person initiates the insolvency
resolution process or liquidation proceedings fraudulently or
with malicious intent for any purpose other than for the
resolution of insolvency or liquidation, as the case may be,
the adjudicating authority may impose upon such person a
penalty which shall not be less than one lakh rupees, but
may extend to one crore rupees.
(2) If, any person initiates voluntary liquidation proceedings
with the intent to defraud any person the adjudicating
authority may impose upon such person a penalty which
shall not be less than one lakh rupees but may extend to one
crore rupees.”
50. Even fraudulent tradings carried on by the Corporate
Debtor during the insolvency resolution, can be inquired into
by the Adjudicating Authority under Section 66. Section 69
makes an officer of the corporate debtor and the corporate
debtor liable for punishment, for carrying on transactions with
a view to defraud creditors. Therefore, NCLT is vested with the
power to inquire into (i) fraudulent initiation of proceedings as
well as (ii) fraudulent transactions. It is significant to note
that Section 65(1) deals with a situation where CIRP is
53
initiated fraudulently
“ for any purpose other than for the
resolution of insolvency or liquidation”.
51. Therefore, if, as contended by the Government of
Karnataka, the 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, the same
would fall squarely within the mischief addressed by Section
65(1). Therefore, it is clear that NCLT has jurisdiction to
enquire into allegations of fraud. As a corollary, NCLAT will
also have jurisdiction. Hence, fraudulent initiation of CIRP
cannot be a ground to bypass the alternative remedy of appeal
provided in Section 61.
Conclusion
52. 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
54
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.
Therefore, the appeals are dismissed. There will be no order as
to costs.
…..…………....................J
(Rohinton Fali Nariman)
…..…………....................J
(Aniruddha Bose)
.…..………......................J
(V. Ramasubramanian)
New Delhi
December 03, 2019.
55