Companies Act 2013
The National Company Law Tribunal (NCLT) was formulated under the Insolvency and Bankruptcy Code 2016 (IBC) to deal with insolvency and liquidation matters relating to corporate entities.
Experience has shown that litigants tend to approach the NCLT for redressal of all grievances against companies undergoing insolvency resolution or liquidation. However, does the NCLT really have the power to deal with all matters concerning such companies?
The Supreme Court had the occasion to opine on the scope of NCLT's power under section 60(5) of the IBC in two recent cases:
- Embassy Property Developments v State of Karnataka; and
- Gujarat Urja Vikas Nigam (GUVNL) v Amit Kumar Gupta.
In the Embassy case, the Supreme Court concluded that a matter which is in the realm of public law cannot be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in section 60(5)(c) and therefore such a matter was outside the authority of the NCLT.
In the GUVNL case, the Supreme Court asked the NCLT to ensure that it does not entertain matters falling within the jurisdiction of other forums and to entertain cases which arise solely from or relate to the insolvency of the company. The Supreme Court made it clear that there must be a nexus between the issue at hand and the insolvency of the company for the NCLT to exercise jurisdiction.
The decisions in the Embassy and GUVNL cases leave many questions and propositions unanswered. Importantly, these cases have been decided based on the interpretation of only clause (c) of section 60(5).
Clause (a) of the section, which gives the NCLT jurisdiction to entertain "all applications or proceedings by or against the corporate debtor notwithstanding any other law for the time being in force" was not called out for interpretation. The question remains whether the Supreme Court would have decided these cases differently had it been called upon to consider this provision.
If indeed the NCLT cannot decide on an issue that is unrelated to the insolvency resolution process of the company, what happens if a third party that is barred from suing the company in any court or tribunal on account of a moratorium imposed by the IBC has a dispute with the company that does not arise out of or relate to the insolvency resolution of the company?
Does this mean that such a third party would have no remedy since it could approach neither a civil court nor the NCLT? For example, if there is a breach or default on the part of the company that is outside the insolvency process, the counterparty would be unable to institute a suit against the corporate debtor going by the dicta in Embassy and GUVNL.
It would indeed be a travesty if legitimate claims were left remediless in such a manner. This could not have been the Supreme Court's intention. Under the Companies Act, the Company Court overseeing a company's winding up or liquidation proceedings had the power to entertain any suits or proceedings against the company being wound up.
The logic behind this was to make the procedure simple and avoid the multiplicity of proceedings relating to a company being wound up. The IBC, which aims to be a comprehensive code in itself – effectively replacing the winding up provisions and installing the NCLT as the adjudicatory authority in place of the Company Court – does not seem to include such express powers for the NCLT.
Under section 424 of the Companies Act 2013, the NCLT, for the purpose of discharging its functions under the IBC, has powers as vested in a civil court under the Code of Civil Procedure 1908, including the examination of evidence and taking evidence on oath.
Given the ambit of section 424, perhaps an argument can be made that the powers of the NCLT under section 60(5) are much wider than envisaged under Embassy and GUVNL. It is, however, equally true that matters before the NCLT are required to be disposed of in a time-bound manner given the limited time period for the completion of processes under the IBC. It would be impossible for the NCLT to decide complex questions of fact and law, like the Company Court could do, in a limited time frame.
Given that the attention of the Supreme Court has not yet been drawn to several critical and important provisions within the IBC and the Companies Act 2013, it can be argued that Embassy and GUVNL are limited in their scope and application.
Until the Supreme Court finds another occasion to delve into the scope and extent of the NCLT's jurisdiction, there remains a substantial question mark over what matters the NCLT can and cannot entertain.
For further information on this topic please contact Ameya Gokhale or Radhika Indapurkar at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email ([email protected] or [email protected]). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.
An earlier version of this article first appeared in Hindu Business Line.