Karnataka HC Declines To Entertain Sugar Company's Challenge To IREDA's Revived IBC Case, Citing NCLAT Appeal Route

IREDA filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) against Shree Basaveshwar Sugars Limited.

While the parties were negotiating an OTS, the NCLT admitted separate CIRP proceedings initiated by Canara Bank. IREDA’s petition was disposed of with liberty to lodge its claim in the Canara Bank CIRP; that CIRP was later withdrawn following a settlement between Canara Bank and the company.

IREDA then applied under Section 60(5) of the IBC and Rule 11 of the NCLT Rules, 2016, to recall the disposal order and restore its petition. The NCLT allowed the application, and the company challenged that order under Articles 226 and 227 of the Constitution, notwithstanding the appeal remedy under Section 61 of the IBC.

Section 61 of the IBC provides an appeal to the NCLAT against an order of the NCLT.

The availability of an alternative remedy ordinarily restrains the High Court from exercising writ jurisdiction, subject to recognised exceptions: enforcement of fundamental rights, breach of natural justice, proceedings or an order wholly without jurisdiction, or a challenge to the vires of legislation (Whirlpool Corporation v. Registrar of Trade Marks and M/s Godrej Sara Lee Ltd. v. Excise and Taxation Officer-Cum-Assessing Authority).

Embassy Property Developments Pvt. Ltd. v. State of Karnataka permits writ intervention where the NCLT has exercised jurisdiction not vested in it.

Budhia Swain v. Gopinath Deb recognises limited grounds for recalling an order, including inherent lack of jurisdiction, fraud, or a prejudicial mistake of the court. Article 226 jurisdiction remains discretionary, and matters concerning the NCLT’s jurisdiction or limitation may be examined in a statutory appeal where that remedy is available.

The Court held that Embassy Property was distinguishable: there, the NCLT had granted relief that could only have been sought against the State before the High Court, whereas the present dispute concerned restoration of an insolvency petition previously disposed of in the context of another CIRP.

The Court also found no basis to conclude that the NCLT lacked inherent jurisdiction to entertain IREDA’s restoration application; the company’s jurisdictional and limitation objections could be raised before the NCLAT.

None of the recognised exceptions to the alternative-remedy rule was established, and the Court declined to determine the merits of the restoration order or the parties’ OTS dispute.

The company was left at liberty to appeal to the NCLAT and to seek exclusion of the time spent prosecuting the writ petition under Section 14 of the Limitation Act.

The interim protection was continued for three weeks to permit the company to approach the NCLAT, and all contentions were left open.