Background Facts

M/s Udhyaman Investments Pvt. Ltd., claiming to be a financial creditor, moved an application before the NCLT, Chennai under Section 7 of the IBC, 2016 against M/s Tiffins Barytes Asbestos & Paints Ltd., the corporate debtor. By an order dated 12-3-2018, the NCLT admitted the application, ordered commencement of the Corporate Insolvency Resolution Process ("CIRP") and appointed an Interim Resolution Professional. A moratorium was declared under Section 14 of the IBC, 2016.

The corporate debtor held a mining lease granted by the Government of Karnataka, which was to expire by 25-5-2018. The Interim Resolution Professional sought deemed extension of the lease under Section 8-A(6) of the Mines and Minerals (Development and Regulation) Act, 1957 ("the MMDR Act, 1957"). The Government of Karnataka, by an order dated 26-9-2018, rejected the proposal for deemed extension. Instead of filing a fresh writ petition as permitted, the resolution professional moved Miscellaneous Application No. 632 of 2018 before the NCLT, Chennai, praying for setting aside the order of the Government of Karnataka and seeking a direction to execute supplemental lease deeds up to 31-3-2020.

The NCLT, overruling the objections of the State, allowed the miscellaneous application by order dated 3-5-2019. Challenging this order, the Government of Karnataka moved a writ petition before the High Court of Karnataka. The High Court granted an interim stay. The resolution applicant, the resolution professional and the Committee of Creditors challenged this interim order before the Supreme Court.

Issue for Considerations

Two issues arose: (i) whether the High Court ought to interfere under Articles 226/227 of the Constitution with an order passed by NCLT, ignoring the availability of a statutory remedy of appeal to the NCLAT; and (ii) whether NCLT is competent to enquire into allegations of fraud, especially in the matter of the very initiation of CIRP.

Held

On the first issue, the Supreme Court held that the decision of the Government of Karnataka to 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 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. Section 60(5)(c), though very broad in its sweep, cannot bring within its fold a decision taken by the Government or a statutory authority in relation to a matter which is in the realm of public law. Wherever the corporate debtor has to exercise a right falling outside the purview of the IBC, 2016, especially in the realm of public law, they cannot, through the resolution professional, take a bypass and go before NCLT for the enforcement of such a right. Since the 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. It was further held that a tribunal which is the creature of a statute cannot be clothed with a jurisdiction by any concession made by a party.

On the second issue, the Court held that NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions under Sections 65 and 66 of the IBC, 2016. However, fraudulent initiation of CIRP cannot be a ground to bypass the alternative remedy of appeal provided in Section 61.

The appeals were dismissed with no order as to costs.