Home » Between The Lines » Calcutta High Court: If a challenge is regarding lack of jurisdiction of NCLT under the IBC, writ jurisdiction of High Court can be invoked despite availability of alternative remedy under the IBC

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In the case of Kolkata Municipal Corporation and Another v. Union of India and Others (W.P No. 977 of 2020), Calcutta High Court (“CHC”) by its judgement dated January 29, 2021, held that if a challenge is made regarding lack of jurisdiction of National Company Law Tribunal (“NCLT”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”), writ jurisdiction of the High Court could be invoked despite availability of alternative statutory remedy.

Facts

Kolkata Municipal Corporation (“KMC”) is a statutory body under the Kolkata Municipal Corporation Act, 1980 (“1980 Act”). Pursuant to exercise of its statutory powers under the 1980 Act, KMC seized certain office premises of the assessee-corporate debtor (“Assessee”) for non-payment of tax dues. When the debt of the Assessee came within the purview of corporate insolvency resolution process (“CIRP”), the resolution professional in question approached the NCLT for handover of the Assessee’s premises. The NCLT passed an order on January 17, 2019 lifting the attachment on the premises and directed KMC to hand over the premises to liquidation by an order dated January 31, 2020. KMC then had filed the writ petition with the CHC challenging handover of physical possession of the office premises.

Issues

  1. Whether writ jurisdiction of the High Court under Article 226 (power of high courts to issue certain writs) of the Constitution of India, 1949 (“Article 226”) could be invoked despite availability of alternative remedy under the
  2. Whether the property having been seized by KMC for non-payment of statutory dues by the Assessee could be subject matter of

Contentions of KMC

KMC being a statutory body, had taken possession of the Assessee’s premises in exercise of its statutory powers. This was an independent statutory exercise and could not be interdicted by the NCLT as per the IBC. As per Embassy Property Developments Private Limited v. State of Karnataka and Others [2019 SCC OnLine SC 1542] (“Embassy”), the powers of NCLT under Section 60 (adjudicating authority for corporate persons) of the IBC were circumscribed by the authority of the interim resolution professional, as provided under Section 18 (duties of interim resolution professional) of the IBC. As per Section 18(1)(f)(vi) of the IBC, control and custody of any asset to be taken by an interim resolution professional has to be subject to the determination of ownership by a court or authority. Since KMC is a statutory body, determination of ownership by taking possession and subsequent attachment and sale falls within its domain. Exercise of power, therefore, by the interim resolution professional, would be subject to KMC’s authority. Further, as per Embassy, writ jurisdiction of CHC could be invoked despite

availability of an alternative remedy. This is because the challenge herein pertains to the nature of jurisdiction of the NCLT, and not wrongful exercise of available jurisdiction.

Contentions of respondent no. 3

As such, all issues pertaining to properties of a corporate debtor and rights or obligations could be decided by the NCLT. Reference was made to the definition of “property” under Section 3(27) of the IBC, and it was contended that Section 18(1)(f) of the IBC provided that an interim resolution professional could take control and custody of assets subject to determination of ownership by a court or authority. Basis Embassy, if NCLT had been conferred the jurisdiction to decide all types of claims with the property of a corporate debtor, Section 18(1)(f)(vi) of the IBC would not make the task of the interim resolution professional, in taking control and custody of an asset on which the corporate debtor has ownership right, subject tothe determination of ownership of a court or other authority. The right of the interim resolution professional to take control and custody, as such, is not completely subject to determination of ownership by courts or authorities. Moreover, it could not be said that the NCLT must yield to the determination by courts or other authorities in all cases, in so far as the right to determination of ownership of properties of a corporate debtor was concerned. As per Embassy, a decision taken by a statutory/government body in relation to a matter within the realm of public law, could not be brought within the fold of expression “arising out of or in relation to the insolvency resolution” as provided in Section 60(5) of the IBC. The legal position with respect to the aforesaid is clear as the Supreme Court (“SC”) had created a distinction between proceedings which had attained finality, fastening liability upon the corporate debtor, and all other matters. Therefore, a distinction must be drawn in respect of matters which are relevant for CIRP on the issue of debt or property of the company; and other matters. All such other issues would be beyond NCLT’s jurisdiction. Even if a matter is within the jurisdiction of the NCLT, a distinction must be drawn between matters which have a direct bearing on CIRP, that is, directly pertaining to a debt or property of the corporate debtor and other matters. The jurisdiction of other courts or other tribunals could not be transgressed upon. In the present case, the question involved directly related to the property of the corporate debtor and, therefore, was within the purview of the NCLT. KMC herein, was also merely an operational creditor and it did not matter under the IBC if a creditor was a statutory creditor or not. KMC had also submitted itself to the jurisdiction of the NCLT by lodging its claim. It could not contend now that its attachment for recovery of claim was outside the NCLT’s jurisdiction. Moreover, there was a remedy of appeal available under Section 61 (Appeals and Appellate Authority) of the IBC and, therefore, the writ petition should not be entertained. It had been previously held by the SC in Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and others [(1998) 8 SCC 1] (“Whirlpool Corporation”) that where there was an appellate remedy, the court does not entertain writ petitions unless the order was either passed without jurisdiction or in violation of natural justice. In Commissioner of Income Tax and others v. Chhabil Dass Agarwal [(2014) 1 SCC 603] (“Chhabil Dass”), the SC held that interference is not warranted under Article 226 unless extraordinary circumstances were made out. The SC had previously followed the principal of entertaining writ petitions only under strict exceptions.

Contentions of the resolution professional (respondent no. 4)

There is no distinction between statutory and operational debts. As such, even statutory dues or crown debts are considered as operational debt as under Section 18(1)(f) of the IBC. The provisions of the IBC indicate that the interim resolution professional has to take control and custody of assets over which the corporate debtor has ownership rights, which may or may not be in possession of the corporate debtor, or any asset subject to determination of ownership by a court or authority. In the instant case, KMC has only attached the asset of the corporate debtor and is in possession of it. The asset has not been sold and, therefore, the ownership is still with the corporate debtor. As per Section 36(3)(a) and (b) (provisions relating to liquidation estate) of the IBC, it was argued that asset attached by KMC would become part of the liquidation estate. Herein, KMC had filed a claim during CIRP and it would have to await the outcome of the process and distribution of assets as per Section 53 (Distribution of assets) of the IBC in the liquidation proceeding. It was contended that as per Commissioner of Income Tax v. Monnet Ispat and Energy Limited [Special Leave to Appeal (C) No. (S) 6483 of 2018] even crown debts do not take precedence over secured creditors. Moreover, basis a reading of the provisions of the IBC, the NCLT had jurisdiction to pass such orders. As per Section 238 (Provisions of this code to override other laws) of the IBC, the IBC also has an overriding effect over other laws. It was contended that as per Sulochna Gupta and Another v. RBG Enterprises Private Limited [2020 SCC OnLine Ker 4153], a writ petition is not maintainable against an NCLT order.

Observations of the Calcutta High Court

With regard to exercise of power conferred upon High Courts under Article 226, the CHC referred to the judgement in Embassy. The CHC noted SC’s view that despite availability of a statutory remedy under a special statute, distinction between lack of jurisdiction and wrongful exercise of jurisdiction must be factored and taken into account if Article 226 is sought to be invoked. In this instance, KMC had invoked Sections 217 to 220 (Chapter XVI – payment and recovery of taxes) of the 1980 Act to attach the Assessee’s office premises, so that it could be potentially sold. KMC had argued that exercise of such powers is beyond the IBC’s purview and could not fall within the ambit of powers conferred upon either the resolution professional or the NCLT under the IBC. It was also noted by the CHC that the issue under consideration herein was regarding absence of jurisdiction, and not wrongful exercise of available jurisdiction. Therefore, this clearly fell within the contours of Article 226. As per Whirlpool Corporation, alternative remedy would not be a bar where order or proceedings are without jurisdiction. This in line with the judgement in Chhabil Dass, would allow court’s interference under Article 226. The powers of the High Court under Article 226 are wide and there is no such express limitation on the same. While the rules of self-imposed restraint could not be ignored, this was a rule of discretion and not of compulsion. A coherent reading of the decisions of the SC would make it clear that while a wrongful exercise of available jurisdiction would not be sufficient to invoke Article 226, absence of the same could allow such invocation. Therefore, in this instance the writ petition is maintainable. For addressing the second issue, the decision in Embassy was once again referred to. As per Embassy a decision taken by a government or statutory authority in relation to a matter which was in the realm of public law, could not, by any stretch of imagination, be brought

within the fold of the phrase “arising out of or in relation to the insolvency resolution”. It was noted in Embassy that if the NCLT had jurisdiction to decide all types of claims to the property of a corporate debtor, the provisions of the IBC would not have tasked the interim resolution professional to take control and custody of assets subject to the determination of ownership by a court or other authority. The next aspect to be considered was whether an asset for which control and custody is sought to be taken by the interim resolution professional, is sub-judice before a court or authority for the purpose of “determination of ownership”. In the instant case, KMC followed procedure as laid down under the 1980 Act and took possession of the office property upon non-payment of taxes. There was no scope for any further determination of ownership of the property. In the absence of any successful challenge, KMC’s claims also attained finality and fastened a liability on the corporate debtor. KMC’s claim would therefore become an operational debt under the IBC. The powers conferred upon the NCLT under Section 60 of the IBC are circumscribed by Section 18(f)(vi) of the IBC. Under Section 60(5) of the IBC, this exercise of power would fall within the ambit of “arising out of or in relation to the insolvency resolution”. Therefore, the finalized claim of KMC would become the subject matter of CIRP under the IBC. The concerned resolution professional had jurisdiction to take control and custody of the Asseessee’s property. It is also notable that even though KMC is a statutory body, per the provisions of the IBC, its claims could not gain precedence over other secured creditors.

Decision of CHC

KMC’s writ petition under Article 226 against the order passed by the NCLT was maintainable. However, its claims would still be the subject matter of CIRP.

Vaish Associates Advocates View:

KMC’s primary intention to prove that Assessee’s premises would fall outside the purview of the NCLT did not attain fruition, however, its petition was ruled to be maintainable by the court, whilst elaborating on the ambit of Article 226.

Powers of the court under Article 226 are expansive. Nevertheless, these powers must be exercised with caution and restraint. The factor of restraint becomes relevant when there is already an alternative statutory remedy available. In this case, the CHC extensively dwelt upon the ‘self-imposed restriction’ principle. It affirmed that availability of statutory remedy did not act as a bar towards invocation of Article 226. In essence, if the primary challenge rooted from either a lack of jurisdiction or violation of natural justice, court’s powers under Article 226 could be exercised. This strengthens the point that the principle of self-imposed restriction is not a fixed and definitive rule. Its application would ultimately depend upon the context, as evidenced by the facts of this case.

For more information please write to Mr. Bomi Daruwala at [email protected]

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