TMI Blog2019 (12) TMI 188X X X X Extracts X X X X X X X X Extracts X X X X ..... escue 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 Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestions of importance namely: i) 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; 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. 4. The background facts leading to the filing of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Rival Contentions 5. Sh. K. V. Viswanathan, learned Senior Counsel appearing 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 petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Others (1953) 2 WLR 995 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 State of Uttar Pradesh vs. Mohammad Nooh. (1958) SCR 595. Question No. 1 10. In the backdrop of the facts narrated and in the light of the rival contentions extracted above, the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial 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 quasijudicial 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 available in private law. As observed by this Court in Nilabati Behera @ Babita Behera vs. State of Orissa, (1993) 2 SCC 746 public law proceedings serve a different purpose than private law p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was born with Re Racal. This could be seen from the after effects of Anisminic.( 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 nonjurisdictional 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Andhra Pradesh Another, (1991) 4 SCC 93 and (5) Shiv Kumar Chadha vs. Municipal Corporation of Delhi Others, (1993) 3 SCC 161 20. But in M.L. Sethi vs. R.P. Kapur, (1972) 2 SCC 427 K. K. Mathew, J., made certain interesting observations about Anisminic. The learned Judge observed that the effect of the dicta in Anisminic is to reduce the difference between jurisdictional error and error of law within jurisdiction almost to a vanishing 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. 21. Again in Hari Prasad Mulshanker Trivedi vs. V.B Raju, (1974) 3 SCC 415 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 Anisminic, the distinction had not been wiped out completely. 22. But it is relevant to note that Official Trustee/Anisminic and what followed both, were mostly in the context of the power of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 337 and (2) Cicily Kallarackal vs. Vehicle Factory (2012) 8 SCC 524 in 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 a wrong question or applying a wrong test or granting a wrong relief. 26. The MMDR Act, 1957 is a Parliamentary enactment traceable to E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 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 debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 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 jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y stretch of imagination, be brought within the fold of the phrase arising out of or in relation to the insolvency resolution appearing in Clause (c) of Subsection (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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual 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 authority. In fact an asset owned by a third party, but which 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal 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. 49. The objection of the appellants in this regard is well 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
