The National Company Law Tribunal (NCLT), was formulated under the Insolvency and Bankruptcy Code, 2016 (IBC) to deal with insolvency and liquidation matters of 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 such powers to deal with sundry matters concerning these companies?
The Supreme Court had the occasion to opine on the scope of NCLT's power under Section 60(5) of the IBC in Embassy Property Developments v. State of Karnataka and Others and Gujarat Urja Vikas Nigam v. Amit Kumar Gupta and Others.
In the Embassy case, the Supreme Court concluded that a matter which is in the realm of public law could not be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in Clause (c) of Section 60(5) and therefore such a matter was outside the authority of the NCLT.
In the Gujarat Urja (GUVNI) 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 that arise solely from or relate to the insolvency of the company. The Supreme Court made it clear that nexus between the issue at hand and insolvency of the company must exist for 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 the 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. One wonders 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 an issue which is unrelated to the insolvency resolution process of the company, what happens to the case of a third party, (one who is barred from suing the company in any court or tribunal on account of a moratorium imposed by the IBC), who has a dispute with the company that does not arise out of or relate to the insolvency resolution of the company?
Does it mean that such a third party would have no remedy since it can neither approach a civil court nor can it approach the NCLT? For example, in the event there is a breach or default on part of the company which is dehors the insolvency process, the counter-party has no recourse in the form of the institution of 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 winding up or liquidation proceedings of a company 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 multiplicity of proceedings across different for a when they related to that 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.