NCLT can rule only on insolvency of corporate debtors, says Supreme Court

The Supreme Court on Monday held that the NCLT has jurisdiction to adjudicate disputes, which arises solely or relates to the insolvency of a corporate debtor.

The top court, however, cautioned the National Company Law Tribunal (NCLT) and its appellate tribunal (NCLAT) to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and forum, when the dispute is not related to the insolvency of the Corporate Debtor.

A bench of Justices DY Chandrachud and M R Shah said, Therefore, considering the text of Section 60(5)(c) (of IBC) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtor.

The top court verdict came on an appeal filed by Gujarat Urja Vikas Nigam Ltd against a NCLAT order by which it had upheld the decision of NCLT staying the termination of Power Purchase Agreement (PPA) entered with a firm Astonfield Solar (Gujarat) Private Limited, which later went into insolvency.

Dismissing the appeal, the top court said that the institutional framework under the Insolvency and Bankruptcy Code (IBC) contemplated the establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora.

In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different fora. These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvency proceedings would diminish the value of the debtors assets and hamper the prospects of a successful reorganization or liquidation, it said.

It said that for the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner.

In its 138-page verdict, Justice Chandrachud, writing the judgement on behalf of the bench, said that in the present case, the PPA was terminated solely on the ground of insolvency and in the absence of the insolvency of the corporate debtor, there would be no ground to terminate the PPA.

The termination is not on a ground independent of the insolvency and the present dispute solely arises out of and relates to the insolvency of the corporate debtor, it noted.

Therefore, we hold that the RP (resolution professional) can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process. However, for adjudication of disputes that arise dehors the insolvency of the corporate debtor, the RP must approach the relevant competent authority, the bench said.

The bench said that section 238 of the IBC stipulates that the code would override other laws, including an instrument having effect by virtue of any such law and the NCLT in its decision dated August 29, 2019 had given detailed findings on the issue.

Section 238 is prefaced by a non-obstante clause. NCLTs jurisdiction could be invoked in the present case because the termination of the PPA was sought solely on the ground that the Corporate Debtor had become subject to an insolvency resolution process under the IBC, it said.

The bench, however, said that a fine line has to be drawn between ensuring that a residuary jurisdiction is not rendered otiose due to an excessively restrictive interpretation, as well as, guarding against usurpation of power by a court or a tribunal not vested in it.

The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC, it said.

The top court said that although various provisions of the IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a going concern, there must be a specific textual hook for the NCLT to exercise its jurisdiction.

The NCLT cannot derive its powers from the spirit or object' of the IBC. Section 60(5)(c) of the IBC vests the NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process, the top court said, adding that the NCLT's residuary jurisdiction, though wide, is nonetheless defined by the text of the IBC.

It said, specifically, the NCLT cannot do what the IBC consciously did not provide it the power to do.