IBC-Writ Jurisdiction Can Be Invoked Despite Availability Of Alternative Remedy If Allegation Pertains To Lack Of Jurisdiction Of NCLT: Calcutta High Court
The Calcutta High Court has held that a writ petition Article 226 of the Constitution, challenging the jurisdiction of NCLT in a matter, is maintainable despite existence of an alternate remedy in form of appeal before NCLAT. "Although a wrongful exercise of available jurisdiction would not be sufficient to invoke the High Court's jurisdiction under Article 226 of the Constitution,...
The Calcutta High Court has held that a writ petition Article 226 of the Constitution, challenging the jurisdiction of NCLT in a matter, is maintainable despite existence of an alternate remedy in form of appeal before NCLAT.
"Although a wrongful exercise of available jurisdiction would not be sufficient to invoke the High Court's jurisdiction under Article 226 of the Constitution, the ground of absence of jurisdiction could trigger such invocation," a Single Bench of Justice Sabyasachi Bhattacharya held.
The Judge relied on the Supreme Court's findings in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., 2019 SCC OnLine SC 1542, as per which,
"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, the distinction between 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."
The Court was hearing a writ petition filed by the Kolkata Municipal Corporation, challenging the order of NCLT directing it to hand over the property of a private-Respondent, to the Liquidator.
Background
The Kolkata Municipal Corporation, in exercise of its authority under Sections 217-220 of the 1980 Act, had distrained a property in recovery of municipal tax dues from an assessee.
The said assessee came within the purview of a Corporate Insolvency Resolution Process (CIRP), thus prompting the concerned Resolution Professional to approach the NCLT for handing over of physical possession of the property-in-question from the KMC.
In the instant proceedings, KMC challenged the NCLT's order for handing over of property as sans jurisdiction.
The questions that arose for the Courts consideration were:
(i) Whether a writ petition under Article 226 of Constitution of India is maintainable against an Order passed by NCLT?
The Single Bench has answered this question in the affirmative. It has held that availability of an alternative remedy would not be a bar where the order or the proceedings are wholly without jurisdiction. It further said that absence of jurisdiction on the part of the authority concerned (in this case NCLT) constitutes an exceptional case warranting interference under Article 226 of the Constitution.
In the present case, the Bench noted, the petitioners urged that NCLT has no jurisdiction under IBC to take custody of any asset except as subject to the determination of ownership by a court or authority.
Thus, it was held that the nature of challenge thrown in the writ petition is on the ground of absence of jurisdiction, bringing it within the fold of Article 226 of the Constitution.
The Court said,
"although a wrongful exercise of available jurisdiction would not be sufficient to invoke the High Court's jurisdiction under Article 226 of the Constitution, the ground of absence of jurisdiction could trigger such invocation. Hence, in view of the nature of challenge involved in the present writ petition, the same is maintainable in law."
Reliance was placed on United Bank of India v. Satyawati Tondon & Ors., (2010) 8 SCC 110, to emphasize that powers conferred upon the High Court under Article 226 of the Constitution are very wide and there is no express limitation on exercise of the power. The rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion.
(ii) Whether a property attached by Municipal Corporation can be subject of Corporate Insolvency Resolution Process under IBC, 2016?
Coming to the merits of the case, the Bench proceeded to examine whether a property which has already been attached by the Municipal Corporation (a statutory creditor) in lieu of a debt, can subsequently be made subject to CIRP.
It has held that an asset attached by a statutory authority can form subject matter of corporate insolvency resolution process under IBC 2016, thereby giving powers to the NCLT to pass necessary directions.
Reliance was placed on Embassy Property (supra) where it was held that the expression "IRP will take control and custody of assets subject to the determination of ownership by a court of authority" used in Section 18(1)(f) of the Kolkata Municipal Corporation Act, 1980 indicates that— the power of the resolution professional to take control of any asset, itself, is subject to the determination of ownership by a court or authority.
In the instant case, the Bench noted, KMC proceeded with acquiring possession of the property-in-question and putting up the same for attachment under its powers as flowing from Sections 217-220 of the 1980 Act.
It further observed that such action by KMC follows from non-payment of tax by an assessee and the cause of action arises upon presentation of a bill under Section 216 of the 1980 Act.
"After non-payment on the bill, there is no further scope for determination of the ownership of the property by the writ petitioner under the 1980 Act. The procedure, as laid down in Sections 217- 220, automatically follow.
In the present case, the Corporation followed such procedure and took possession of the disputed property for non-payment of tax. Thus, there was no further scope for any "determination" of ownership of the property by the KMC. As such, there arose no question of the task of the interim resolution professional, in taking control and custody of the asset, being subject to the determination of ownership by any authority, as contemplated under Section 18(f)(vi) of the IBC. Rather, the claim of the KMC, in the absence of any successful challenge thereto, attained finality, fastening a liability upon the corporate debtor.
As per the interpretation in Embassy Property (supra), such a finalized claim would come within the purview of "operational debt" under Section 5(21) of the IBC. Hence, the Resolution Professional has jurisdiction to take custody and control of the same," the Court held.
Kolkata Municipal Corporation was represented by Senior Advocate Mr Ashok Kumar Banerjee and Mr Rajdip Roy upon been briefed by Mr Anindya Sundar Chatterjee.
Respondent No 3 Axis Bank, the Secured Creditor in whose favour the property was secured was represented by Mr Jishnu Chowdhury and Mr Dilwar Khan.
The Respondent No 4 Resolution Professional/Liquidator was represented by Mr Rishav Banerjee who argued the case on behalf of the RP upon been briefed by Mr Pranay Agarwal and Ms Ankita Baid.
Case Title: Kolkata Municipal Corporation & Anr. v. Union of India & Ors.
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