In the present case of M/s Embassy Property Developments Pvt. Ltd. V. State of Karnataka & Ors. the Hon’ble Supreme Court passed the following order
There were 2 issues involved
- Whether the HC can entertain writ petition against order passed by NCLT ?
- Whether questions of fraud can be inquired into by the NCLT/NCLAT in the proceedings initiated under the Insolvency and Bankruptcy Code, 2016 ?
The Hon’ble Supreme Court on the above mentioned issues gave the following decision
Brief facts of the Case
M/s. Udhyaman Investments Pvt. Ltd. had moved an application before the NCLT Chennai under Section 7 of the Insolvency and Bankruptcy Code, 2016 against M/s. Tiffins Barytes Asbestos & Paints Ltd., the Corporate Debtor. The application was admitted by NCLT and an Interim Resolution Professional was appointed. At that time, the Corporate Debtor held a mining lease granted by the Karnataka Government, which was to expire by May 25, 2018. The IRP wrote to the Director of Mines & Geology informing them of the commencement of CIRP and also sought deemed extension of the lease beyond May 25, 2018 and up to March 31, 2020 but there was no response from the Government. So, IRP filed a writ petition before the Karnataka High Court, seeking a declaration that the mining lease should be deemed to be valid up to March 31, 2020 upon which the court decide the application ex-parte in favour of IRP which provides for deemed extention of the the lease period. Being aggrieved by the decision of the NCLT Chennai, the Karnataka Government approach the HC. The Karnataka High Court set aside the NCLT Order and remanded the matter back to NCLT for fresh consideration. NCLT once again set aside the order of rejection and directed the Karnataka Government to execute Lease Deeds. Karnataka Government again moved the High Court under its writ jurisdiction and challenged the NCLT order. The High Court stayed the operation of the direction contained in the NCLT Order. The Resolution Applicant, the RP and the CoC preferred the present appeal before the Supreme Court.
The Court in Issue 1 held that the Karnataka Government to refuse the benefit of deemed extension of lease was in the public law domain and hence the correctness of the decision could be called into question only in a superior court which was vested with the power of judicial review over administrative action. NCLT, being a creature of a special statute to discharge certain specific functions, could not be elevated to the status of a superior court having the power of judicial review over administrative action. Therefore,
the Court concluded that in cases where NCLT exercised a jurisdiction which not vested in it in law, its orders would be amenable to the jurisdiction of the High Court under Article 226/227 on the basis that NCLT was coram non judice.
On Issue 2 the Court held that the fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution could be inquired into by the Adjudicating Authority i.e. NCLT.
Click here to read full judgement: Embassy Property Development Pvt. Ltd. Vs. State of Karnataka & Ors