Writ Jurisdiction of High Court over matters decided by NCLT under IBC
Rapaka Sravya
Student of the Post Graduate Insolvency Program (PGIP) at IICA
Any party who feels his rights were subjected to prejudice by the NCLT’s decision under Part II of the IBC (insolvency resolution and liquidation for corporate persons), he may file an appeal with the National Company Law Appellate Tribunal (“NCLAT”) under Section 61 of the IBC’s legal framework. Similarly, if any person feels his rights are compromised by the decision of the Adjudicating Authority, or DRT, under Part III of the IBC (which governs bankruptcy and insolvency for individuals and partnership firms), he may file an appeal with the Debt Recovery Appellate Tribunal (“DRAT”) in accordance with Section 181. As a result, under Part II and Part III of the IBC, respectively, the statutory forums NCLAT and DRAT have been designated as the appellate body for redress of grievances arising out of an order of the Adjudicating body. Additionally, an appeal from NCLAT or DRAT decisions be made to the Supreme Court on a legal issue that was raised by the decision. In order to handle any issues that may arise regarding insolvency resolution and liquidation for corporate persons as well as insolvency resolution and bankruptcy for individuals and partnership firms, the IBC establishes a three-tier adjudicatory mechanism, consisting of (a) the NCLT/DRT; (b) the NCLAT/DRAT; and (c) the Supreme Court.
Now, can the High Court intervene in matters pertaining to the Insolvency and Bankruptcy despite of the specified forums under IBC is the question. The constitutional validity of IBC has been questioned before High courts under Article 226 when the code came into effect. However, such questions have been put to stop by the Supreme Court in the case of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors. (2019) ibclaw.in 03 SC.
While deciding whether the High Court have Jurisdiction over the matters related to IBC during moratorium when writ jurisdiction has been invoked, NCLAT in the case of Canara Bank v Deccan Chronicle Holdings Limited [2017] ibclaw.in 25 NCLAT held that High Court has the power to entertain such petitions as it is a part of basic structure of IBC. The NCLAT stated that “The Hon’ble Supreme Court has power under Article 32 of the Constitution of India and Hon’ble High Court under Article 226 of Constitution of India which power cannot be curtailed by any provision of an Act or a Court. In view of the aforesaid provision of law, we make it clear that ‘moratorium’ will not affect any suit or case pending before the Hon’ble Supreme Court under Article 32 of the Constitution of India or where an order is passed under Article 136 of Constitution of India. ‘Moratorium’ will also not affect the power of the High Court under Article 226 of Constitution of India. However, so far as suit, if filed before any High Court under original jurisdiction which is a money suit or suit for recovery, against the ‘corporate debtor’ such suit cannot proceed after declaration of ‘moratorium, under Section 14 of the I&B Code.”
The Bombay High Court’s Division Bench noted in Anthony Raphael Kallarakkal vs. National Company Law Tribunal, Mumbai (2018) ibclaw.in 96 HC that failing to exercise jurisdiction under Article 226 due to the existence of an effective alternative remedy—an appeal before the NCLAT under Section 61 of the IBC—is a self-imposed restraint and that the High Court may instead do so in cases where exceptional facts and circumstances have been established. However, in Anthony Raphael Kallarakkal, the Bombay High Court dismissed the writ petition on the grounds that there were further, equally effective remedies available under Section 61 to prefer an appeal before the NCLAT and Section 62 to propose an appeal before the Supreme Court.
In Embassy Property Developments Pvt Ltd v State of Karnanata [2020] ibclaw.in 12 SC, the entire Supreme Court was asked to weigh in on a number of issues, including whether High Courts could exercise their writ jurisdiction under Articles 226 and 227 of the Constitution and intervene with the NCLT’s order in IBC proceedings when a statutory remedy of an appeal to the NCLAT was available as well as the justifications for doing so. The Supreme Court ruled that “NCLT, being the creation of a special statute to discharge specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action”. The Court observed that “a decision taken by the government or statutory or quasi-judicial authorities in relation to a matter which is in the realm of public law cannot be treated as one “arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor” under Section 60(5) of IBC and the same can be corrected only by way of judicial review of administrative action”. It was held that the NCLT Chennai exercised a power which was not vested on it by the law, the Karnataka High Court was held to be justified in entertaining the writ petition.
An interesting question arose before the Bombay High Court in the case of Kamal K Singh v UOI [2019] ibclaw.in 10 HC aka Rolta India Case. A writ petition filed challenging the admission order passed by NCLT Mumbai u/s 7. It was averred that the order is bad in law since the order was not pronounced as was required under Rule 150 and 152(2) of NCLT Rules, 2016. The Bombay High Court issued writ of Certiorari for quashing and setting aside the impugned NCLT order as it was not pronounced as was required under the NCLT Rules, 2016. Since the defect was not curable in nature and vitiated the entire proceedings, the NCLT was directed to hear the application filed u/s 7 of IBC afresh on merits and in accordance with the law. The Bombay High Court reaffirmed that when exceptional facts and circumstances have been established, the High Court can exercise jurisdiction under Article 226 despite the existence of an alternative remedy, citing its earlier decision in Anthony Raphael Kallarakkal (Supra). It was observed that “if the orders of a court or tribunal subordinate to the High Court had resulted in a failure of justice, then writ of certiorari can be issued irrespective of the availability of alternate and equally efficacious remedies to the petitioner.”
The High Courts have interfered by using their authority to conduct judicial reviews of administrative actions, particularly when they involve public law. They have also done so in cases involving unusual facts and circumstances, such as when NCLT’s procedural flaws resulted in the denial of justice. The latter appears to have the potential to unleash a wave of litigation before High Courts across the nation, making the legal remedy of an appeal before the NCLAT/DRAT unnecessary and ultimately having an influence on the IBC’s time-bound insolvency resolution. The author suggests that since the objective of IBC was to bring all litigation under the shelter of one forum i.e. NCLT, any questions of law or interpretation relating to only private law shall be lied down before NCLAT / DRAT/SC and not before High Court. If such writ jurisdiction is encouraged, the High Court will be flooded with such petitions and the objective of the code might be frustrated.
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