Time to provide the National Company Law Appellate Tribunal with supervisory jurisdiction under the Insolvency & Bankruptcy Code, 2016

Since December 2016, various amendments and ordinances have been introduced to the Insolvency and Bankruptcy Code, 2016 (IBC) to address teething issues that had not been foreseen at the time the Code was introduced.

Despite various amendments - some of which are questionable- one of the most important issues left unaddressed pertains to the lack of supervisory jurisdiction with the National Company Law Appellate Tribunal (NCLAT).

Despite the IBC being “a code in itself”, not subservient to any other law, such a fundamental issue has not been addressed by the Legislature. This has led to a spate of litigation where persons aggrieved by orders of the National Company Law Tribunal (NCLT) have conveniently triggered the writ mechanism under Articles 226 and 227 of the Constitution of India.

This approach either delays the commencement of the corporate insolvency resolution process (CIRP) or the process of liquidation itself. The entire point of the expeditious disposal mechanism under the IBC is therefore defeated. This article attempts to address this fundamental gap in the IBC, for which it is necessary to have an overview of the scheme of CIRP.

Scheme of CIRP under the IBC: A brief overview

The IBC essentially classifies a creditor into two categories i.e. a financial creditor and an operational creditor. Thus, if an amount is due and payable to either an operational creditor or a financial creditor, such creditors may file a petition before the NCLT to commence CIRP against a corporate debtor. Once a petition is filed and the NCLT is of the view that the petition of a creditor is to be admitted, the NCLT passes an order of admission and an Interim Resolution Professional (in short IRP) is appointed and directed to issue a public announcement and the moratorium against proceedings in respect of the particular corporate debtor is imposed.

Upon commencement of CIRP, the creditors of the corporate debtor file their respective claims and a Committee of Creditors (CoC) is formed by financial creditors, and in some cases, operational creditors as well. The IRP has multiple duties, which are not in the nature of adjudication. One of these is to prepare an Information Memorandum and invitation for expressions of interest to submit resolution plans for the corporate debtor.

Once proposals are received from resolution applicants, the said proposals are brought before the CoC which either votes for and approves a resolution or rejects each such proposal. If the CoC approves a resolution plan, the said plan is filed before the NCLT for further approval. If there is no resolution plan approved by the CoC, the corporate debtor must go through the process of liquidation.

Appellate vs Supervisory Jurisdiction

The IBC provides for an appeal against the orders of the NCLT which lies before the NCLAT. For the purposes of this article, it would be necessary to understand the scope and ambit of the appellate process provided in the IBC. For the ease of reference, this is reproduced hereunder along with the relevant rules governing NCLAT:

“61. Appeals and Appellate Authority. -

(1) Notwithstanding anything to the contrary contained under the Companies Act 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal.”

“11. Inherent powers – Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal."

(emphasis supplied)

Consequently, the NCLAT can hear and dispose of the appeals, whether by passing directions and remanding the matter for adjudication before the NCLT, or by adjudicating the appeal on merits. Even in the latter case, whenever appeals arise from orders of the NCLT passed in various applications filed before it during a CIRP, an adjudication on merits could still result in parties going back before the NCLT for further proceedings. In a scenario where the NCLAT remands a case to the NCLT with directions, there is no provision in the IBC to address a situation where the NCLT fails to comply with directions of the NCLAT for various reasons.

While looking at the NCLAT’s appellate jurisdiction, another question which comes to mind is whether it has jurisdiction to sit in appeal against such orders of the NCLT where simplicitor adjournments are granted or orders are not passed by the NCLT? Also, can parties approach the NCLAT at an interim stage before a petition is admitted?

For this, it is important to understand the difference between appellate and supervisory jurisdiction. The Supreme Court in Associated Cement v. Keshavanand held that:

“10. … It is trite legal position that appellate jurisdiction is coextensive with original court's jurisdiction as for appraisal and appreciation of evidence and reaching findings on facts and appellate court is free to reach its own conclusion on evidence untrammeled by any finding entered by the trial court. Reversional powers on the other hand belong to supervisory jurisdiction of a superior court. While exercising reversional powers the court has to confine to the legality and propriety of the findings and also whether the subordinate court has kept itself within the bounds of is jurisdiction vested in it. Though the difference between the two jurisdictions is subtle, it is quite real and has now become well recognised in legal provinces.”

For example, High Courts have appellate powers arising out of various statutes, but they also have supervisory powers by virtue of Article 227 of the Constitution whereby they can quash proceedings which may be without jurisdiction or suffering from legal infirmities. They may also pass directions, like expeditious disposal of cases etc., in the interest of justice. As the scheme of IBC stands now, such powers do not appear to be vested or even inherent with the NCLAT.

Interpretation of IBC

One way to look at it is to argue that Section 61 of the IBC read with Rule 11 of the National Company Law Appellate Tribunal Rules allows a litigant to appeal any order, if the need arises, including an order of adjournment. The argument can therefore be stretched to mean that the provisions of the IBC relating to appeal ought to be given a purposive interpretation to adjudicate “any appeal” whatsoever.

This argument on first blush may seem to resolve the problem, but in fact it does not. Firstly, Rule 11 cannot go beyond the parent Act and hence cannot be read as a standalone provision. Thus, if the IBC does not provide for something, even the subordinate legislation in the rules cannot provide for it.

Secondly, the argument is untenable, as surely, that is not the interpretation that can be accorded to Section 61 of the IBC and is not borne out from a fair and natural reading of the statute. Section 61 of the IBC enables a person to maintain an appeal against an order on the merit of the matter where a person is “aggrieved” by the order of the NCLT and does not inherently provide for a supervisory power akin to a High Court’s power under Article 227 of the Constitution of India. In fact, a High Court’s appellate and supervisory jurisdictions are clearly laid down in law, unlike the NCLAT, which has an explicit appellate jurisdiction alone.

The second way to look at it is that the IBC does not empower the NCLAT with supervisory jurisdiction. Increasingly, therefore, it is being found that litigants trigger the process envisaged under Article 227 of the Constitution, which provides for supervisory powers of the High Court. The argument is that writ jurisdiction can never be excluded under any law. The ramification is that these petitions defeat the very purpose of the IBC being a code in itself. If the solitary purpose is to scuttle proceedings, petitions under Article 226 or Article 227 of the Constitution and notice on the writ petition by the High Court is sufficient to derail proceedings.

The third way to look at it is that a Special Leave Petition can be filed against orders of the NCLT adjourning matters or not passing orders pursuant to directions of the NCLAT. This is, of course, fraught with the dangers of the petition being dismissed, either at the first instance or with directions to approach a court providing an alternate efficacious remedy. Assuming that the Supreme Court does dismiss the petition, an aggrieved and bona fide litigant, who is being frustrated by the corporate debtor, cannot agitate this issue before the NCLT. This also gives the imprimatur to the NCLT to decide the matter at its own convenience, rather than really worrying about timelines anymore.

The solution

Since the Legislature has already brought multiple amendments to the IBC, there is no hindrance in introducing yet another amendment to give the NCLAT supervisory powers over NCLT. This would also ensure that the burden of the High Court is lightened considerably.

That apart, as the NCLT is subordinate to the NCLAT which has a far greater understanding of ground realities, it would make tremendous sense for the Legislature to provide the NCLAT with supervisory powers rather than handing the reins to the High Court in this respect. It is necessary to state that the Legislature has handed over the baton to the NCLAT earlier as well by giving it the power to punish for contempt, which was the exclusive domain of the courts of record (High Court and Supreme Court) at one time.

One argument is to cite judgments of the Supreme Court in L Chandra Kumar (supra) to state that the powers of a writ court cannot be excluded. Such an argument does not factor in or take into account the fact that when that judgment was rendered, the Central Administrative Tribunal (CAT) did not have an appellate body. It was in that vein that the judgment was rendered to provide a mechanism between the Tribunal and the Supreme Court. That is not the case here since the NCLAT is an appellate body to the NCLT and can adequately and efficaciously wield such a power, as and when required.

Conclusion

In conclusion, it is the estimation of the authors that, from whichever perspective one may look at it, it is imperative that the NCLAT is given supervisory powers by introducing an amendment to IBC duly providing such powers. Only then will the IBC be considered a complete code in itself.

Aaditya Vijaykumar is an Advocate practicing in the Delhi High Court and various Tribunals. Chitranshul Sinha is an Advocate-on-Record of the Supreme Court and a Partner at Dua Associates, Advocates & Solicitors.