Telangana High Court Refrains From Exercising Writ Jurisdiction In Challenge To IBC Proceedings Pending Before NCLT

The Telangana High Court has declined to entertain a writ petition challenging actions by Investcorp Score Fund under the Insolvency and Bankruptcy Code (IBC) reiterating that the exercise of its extraordinary jurisdiction was discretionary.

The Division Bench of Chief Justice Alok Aradhe and Justice N. V. Shravan Kumar directed the petitioner to address his concerns in the pending proceedings before the National Company Law Tribunal.

“The petitioner has received the notice on the proceedings before the National Company Law Tribunal, Hyderabad Bench and has entered appearance. Therefore, it is open for the petitioner to raise all contentions in the proceedings which are pending before the National Company Law Tribunal, Hyderabad Bench...We decline to exercise the extraordinary jurisdiction under Article 226 of the Constitution of India, which even otherwise is discretionary in nature.” 

The petitioner, who is a guarantor in a financial transaction, filed the petition to challenge the actions of Investcorp Score Fund, Mumbai. The petitioner's company had taken certain loans from Investcorp. Investcorp Score Fund initiated coercive measures under IBC by approaching the National Company Law Tribunal in Hyderabad.

The petitioner contended that this action was arbitrary, high-handed, and in violation of Section 60 of IBC. He further contended that Investcorp had not followed due procedure as prescribed under section 60 prior to approaching NCLT. It was argued that the moratorium would be set into motion only after an application was made under section 60. 

The bench observed that the petitioner had also received notice of the proceedings before NCLT and had even entered an appearance. Therefore, the petitioner has the opportunity to raise all relevant arguments and contentions during the ongoing proceedings before the tribunal.

“In substance, you must realise that this is all a plea of dishonesty. Even though entire law in in your favour, taking into consideration your conduct, we don’t want to exercise this extraordinary jurisdiction and you cannot compel us. With a sense of pride, you have said I have taken money,” the bench remarked orally.

Chief Justice Aradhe also orally shared an anecdote from his time practising as a lawyer in Madhya Pradesh:

“In my experience in Madhya Pradesh (as a lawyer), the Agricultural Market Committees used to levy tax under the Agriculture Market Committees Act. So, our clients, partnership firms, would change the constitution of the firm every three years to avoid tax, and there was the judgement of 1995 Supreme Court in our favour. The judge said the jurisdiction is discretionary and I do not want to adjudicate on the facts of the case, what do you have to say? And believe me, it's like I am telling you, I said I have nothing to say, the judge said okay and dismissed. Extraordinary discretionary jurisdiction even though the law is in your favour.”

Justice Aradhe also noted that now, this practice has been recognized as ‘tax planning’ through the Azadi Bachao Andholan Case, but at the time, it seemed illegal.

Without going into the merits of the case, the Bench declined to adjudicate upon the matter.

Given the circumstances of this case, the court decided not to entertain this writ petition. The court emphasized that all issues raised can be properly addressed and argued in the pending proceedings before the National Company Law Tribunal in Hyderabad. The court declined to exercise its discretionary power under Article 226.

The petitioner was granted the liberty to pursue any other legal remedies available to address their concerns. The writ petition was disposed of accordingly.  

Counsel for petitioner: V Murali Manohar

Counsel for respondent: Ranjani Ramesh, counsel representing A.Sanjay Kishore, Gadi Praveen Kumar, Deputy Solicitor General of India

Case Title: Satish Venkayalapati vs. Investcorp Score Fund

Case No: WP.35456 of 2021

Click Here To Read/Download Order