[The
following post is contributed by Bhavin Gada, Partner at Economic Laws
Practice, Advocates and Solicitors, and Manendra
Singh, Associate Manager at Economic Laws Practice, Advocates and
Solicitors. The views of authors are personal.]
following post is contributed by Bhavin Gada, Partner at Economic Laws
Practice, Advocates and Solicitors, and Manendra
Singh, Associate Manager at Economic Laws Practice, Advocates and
Solicitors. The views of authors are personal.]
Preface
It is well known that in India a civil
court of relevant jurisdiction is the usual forum for resolving not just
disputes related to debt recovery, but also for resolving any contractual
disputes between parties. The civil courts draw their powers from the Code of
Civil Procedure, 1908 (“CPC”) to enforce
contracts under the law and to resolve such disputes.
court of relevant jurisdiction is the usual forum for resolving not just
disputes related to debt recovery, but also for resolving any contractual
disputes between parties. The civil courts draw their powers from the Code of
Civil Procedure, 1908 (“CPC”) to enforce
contracts under the law and to resolve such disputes.
In such a milieu, the National Company Law
Tribunal (“NCLT”) has been introduced
under the Companies Act, 2013 (“Companies
Act”), and is now designated as the adjudicatory authority under the Insolvency
and Bankruptcy Code, 2016 (“Code”)
to sit in judgment over the reorganisation and insolvency resolution of
corporate persons for maximisation of value of assets of such persons. It
cannot be denied that most such disputes will arise out of contractual
arrangements and business relations. Further, the report of the Bankruptcy Law
Reforms Committee Volume I: Rationale and Design, November 2015 (“BLRC Report”) explicitly envisages the
NCLT as an exclusive forum for
insolvency and liquidation adjudication.
Tribunal (“NCLT”) has been introduced
under the Companies Act, 2013 (“Companies
Act”), and is now designated as the adjudicatory authority under the Insolvency
and Bankruptcy Code, 2016 (“Code”)
to sit in judgment over the reorganisation and insolvency resolution of
corporate persons for maximisation of value of assets of such persons. It
cannot be denied that most such disputes will arise out of contractual
arrangements and business relations. Further, the report of the Bankruptcy Law
Reforms Committee Volume I: Rationale and Design, November 2015 (“BLRC Report”) explicitly envisages the
NCLT as an exclusive forum for
insolvency and liquidation adjudication.
In the above backdrop, although the Code has
been introduced as a piece of legislation, among other things, to provide a
sound legal framework to ensure flexibility for parties to arrive at the most
efficient solution to maximise value during negotiations, and the intent seems bona fide, a crucial question arises as
to whether the Code allows the NCLT to exercise the exclusive jurisdiction only
in matters of insolvency disputes or whether it has an over-arching
jurisdiction vis-à-vis matters that
can be dealt by the civil courts. It is indeed this precise question that this post
intends to discuss.
been introduced as a piece of legislation, among other things, to provide a
sound legal framework to ensure flexibility for parties to arrive at the most
efficient solution to maximise value during negotiations, and the intent seems bona fide, a crucial question arises as
to whether the Code allows the NCLT to exercise the exclusive jurisdiction only
in matters of insolvency disputes or whether it has an over-arching
jurisdiction vis-à-vis matters that
can be dealt by the civil courts. It is indeed this precise question that this post
intends to discuss.
The Code supersedes other laws
The Code is given enough teeth to stamp its
supremacy over other laws with the language embodied in section 238 of the Code.
Section 238 says that the provisions of the Code shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue of any such
law.
supremacy over other laws with the language embodied in section 238 of the Code.
Section 238 says that the provisions of the Code shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue of any such
law.
The legal position with respect to such a non-obstante
provision is clear in the words of the Supreme Court in KSL and Industries Ltd.
v. Arihant Threads Ltd., MANU/SC/7980/2008, that:
provision is clear in the words of the Supreme Court in KSL and Industries Ltd.
v. Arihant Threads Ltd., MANU/SC/7980/2008, that:
…the law is fairly well
settled. A provision beginning with non-obstante clause (“notwithstanding
anything inconsistent contained therein in any other law for the time being in
force”) must be enforced and implemented by giving effect to the provisions of
the Act and by limiting the provisions of other laws…
settled. A provision beginning with non-obstante clause (“notwithstanding
anything inconsistent contained therein in any other law for the time being in
force”) must be enforced and implemented by giving effect to the provisions of
the Act and by limiting the provisions of other laws…
NCLT and its locus under the
Code
Code
Section 60 of the Code empowers the NCLT to
exercise jurisdiction with respect to the matters arising in the context of the
Code. Section 60(5), again being a non-obstante provision like the one in
Section 238, confers the NCLT with jurisdiction to entertain or dispose of the
following:
exercise jurisdiction with respect to the matters arising in the context of the
Code. Section 60(5), again being a non-obstante provision like the one in
Section 238, confers the NCLT with jurisdiction to entertain or dispose of the
following:
(a) any
application or proceeding by or against the corporate debtor or corporate
person;
application or proceeding by or against the corporate debtor or corporate
person;
(b) any
claim made by or against the corporate debtor or corporate person, including
claims by or against any of its subsidiaries situated in India; and
claim made by or against the corporate debtor or corporate person, including
claims by or against any of its subsidiaries situated in India; and
(c) any
question of priorities or any question of law or facts, arising out of or in
relation to the insolvency resolution or liquidation proceedings of the
corporate debtor or corporate person under the Code.
question of priorities or any question of law or facts, arising out of or in
relation to the insolvency resolution or liquidation proceedings of the
corporate debtor or corporate person under the Code.
Sections 60(5)(b) and 60(5)(c) seem to have
given extensive powers to the NCLT in deciding matters that may come before it
under the Code. As evident from the language in items (b) and (c) above, the
NCLT is inter alia empowered to deal
with (i) claims made by or
against the corporate debtor or corporate person, and (ii) any question of
priorities or any question of law
or facts, arising out of or
in relation to the insolvency resolution or liquidation proceedings of the
corporate debtor or corporate person under the Code. Two key takeaways from the
aforementioned provision are the NCLT’s power to (i) exercise jurisdiction in
relation to “claims” and (ii) decide “questions of law” arising out of
insolvency resolution under the Code.
given extensive powers to the NCLT in deciding matters that may come before it
under the Code. As evident from the language in items (b) and (c) above, the
NCLT is inter alia empowered to deal
with (i) claims made by or
against the corporate debtor or corporate person, and (ii) any question of
priorities or any question of law
or facts, arising out of or
in relation to the insolvency resolution or liquidation proceedings of the
corporate debtor or corporate person under the Code. Two key takeaways from the
aforementioned provision are the NCLT’s power to (i) exercise jurisdiction in
relation to “claims” and (ii) decide “questions of law” arising out of
insolvency resolution under the Code.
What is a “claim” that NCLT can
decide
decide
It is interesting to note that the Code has
defined the terms like “claim”, “debt” and “default” to offer clarity to various provisions in relation to
insolvency resolution and liquidation under the Code. In accordance with section
3(6) of the Code, the term “claim” means:
defined the terms like “claim”, “debt” and “default” to offer clarity to various provisions in relation to
insolvency resolution and liquidation under the Code. In accordance with section
3(6) of the Code, the term “claim” means:
(a) a
right to payment, whether or not such right is reduced to judgment, fixed,
disputed, undisputed, legal, equitable, secured or unsecured;
right to payment, whether or not such right is reduced to judgment, fixed,
disputed, undisputed, legal, equitable, secured or unsecured;
(b) right
to remedy for breach of contract under any law for the time being in
force, if such breach gives rise to a right to payment, whether or not
such right is reduced to judgment, fixed, matured, unmatured, disputed,
undisputed, secured or unsecured.
to remedy for breach of contract under any law for the time being in
force, if such breach gives rise to a right to payment, whether or not
such right is reduced to judgment, fixed, matured, unmatured, disputed,
undisputed, secured or unsecured.
A combined reading of section 60(5)(b) with
Section 3(6) seems to empower the NCLT to decide such claims which give rise to
a right of payment, whether due to breach of a contract or not, or whether such
claim is disputed or not.
Section 3(6) seems to empower the NCLT to decide such claims which give rise to
a right of payment, whether due to breach of a contract or not, or whether such
claim is disputed or not.
Now, there are usual protection clauses in
contracts which require payment in cases like breach of contract by way of damages
(which could be liquidated at times) or in cases of indemnity (which at times includes
payment for any loss suffered due to breach of contract). In such situations,
an immediate question would arise whether the NCLT is able to exercise
jurisdiction in cases of disputes for breach of contract or occurrence of an
event related to an indemnity.
contracts which require payment in cases like breach of contract by way of damages
(which could be liquidated at times) or in cases of indemnity (which at times includes
payment for any loss suffered due to breach of contract). In such situations,
an immediate question would arise whether the NCLT is able to exercise
jurisdiction in cases of disputes for breach of contract or occurrence of an
event related to an indemnity.
What is a “question of law”
that NCLT can decide
that NCLT can decide
Another important juncture where the NCLT
can exercise jurisdiction is where there arises any question of law arising out
of or in relation to the insolvency resolution or liquidation proceedings of
the corporate debtor or corporate person under the Code. Now, this seems to
have given the NCLT an important tool to decide on its jurisdiction in cases
where its jurisdiction is challenged. It may also decide upon questions such as
whether there existed any contract or not or whether any claim made therein is
legally tenable or not.
can exercise jurisdiction is where there arises any question of law arising out
of or in relation to the insolvency resolution or liquidation proceedings of
the corporate debtor or corporate person under the Code. Now, this seems to
have given the NCLT an important tool to decide on its jurisdiction in cases
where its jurisdiction is challenged. It may also decide upon questions such as
whether there existed any contract or not or whether any claim made therein is
legally tenable or not.
Take example of Tata-Docomo dispute wherein
NTT Docomo was claiming that the contract between Tata Group and NTT Docomo was
breached and that it had succeeded in obtaining an arbitral award for payment
of damages to it. The Delhi High Court has recently
ruled on the question whether such payment is permissible under the
applicable Indian laws where the Reserve Bank of India has filed an
intervention application to dispute payment of such amounts to NTT Docomo. The
Court has given its go ahead for settlement entered into between the parties
for making the payment of damages. An interesting question that arises is
whether the NCLT would be able to exercise jurisdiction in such cases wherein
breach of contract is claimed giving right to payment under the Code.
NTT Docomo was claiming that the contract between Tata Group and NTT Docomo was
breached and that it had succeeded in obtaining an arbitral award for payment
of damages to it. The Delhi High Court has recently
ruled on the question whether such payment is permissible under the
applicable Indian laws where the Reserve Bank of India has filed an
intervention application to dispute payment of such amounts to NTT Docomo. The
Court has given its go ahead for settlement entered into between the parties
for making the payment of damages. An interesting question that arises is
whether the NCLT would be able to exercise jurisdiction in such cases wherein
breach of contract is claimed giving right to payment under the Code.
Conclusion
BLRC Report has specifically stated that to
ensure the sanctity of the liquidation or bankruptcy process, it is essential
that the jurisdiction of any civil court or authority should
be specifically barred where NCLT has jurisdiction. It has gone on to say that by bringing all litigation that may have
a monetary impact on the economic value of debtor firm’s assets within the
jurisdiction of the NCLT, the liquidation or bankruptcy process will be streamlined
and efficient. In light of what BLRC Report has to say (which is an important
source to interpret the Code and thus cannot be ignored), does it mean that any
dispute arising out of a breach of contract will now rest with the NCLT and
civil courts will not have any say in such matters?
ensure the sanctity of the liquidation or bankruptcy process, it is essential
that the jurisdiction of any civil court or authority should
be specifically barred where NCLT has jurisdiction. It has gone on to say that by bringing all litigation that may have
a monetary impact on the economic value of debtor firm’s assets within the
jurisdiction of the NCLT, the liquidation or bankruptcy process will be streamlined
and efficient. In light of what BLRC Report has to say (which is an important
source to interpret the Code and thus cannot be ignored), does it mean that any
dispute arising out of a breach of contract will now rest with the NCLT and
civil courts will not have any say in such matters?
Also, another important interpretation that
will be questioned here is where section 9 of the Code of Civil Procedure, 1908
stands in light of the above deliberation. Section 9 states that the civil
courts shall have jurisdiction to try all suits of a civil nature excepting
suits of which their cognizance is either expressly or impliedly barred.
Does it mean that the NCLT’s jurisdiction to entertain cases under the Code
relating to breach of contract acts as a bar to civil court’s jurisdiction?
will be questioned here is where section 9 of the Code of Civil Procedure, 1908
stands in light of the above deliberation. Section 9 states that the civil
courts shall have jurisdiction to try all suits of a civil nature excepting
suits of which their cognizance is either expressly or impliedly barred.
Does it mean that the NCLT’s jurisdiction to entertain cases under the Code
relating to breach of contract acts as a bar to civil court’s jurisdiction?
It will be interesting to see how these
matters will be dealt with by the NCLT. Given that the Code is still in its
nascent stage of implementation, greater clarity is required in delineating the
scope of the NCLT’s jurisdiction. Thus far, there is a considerable lack of
clarity.
matters will be dealt with by the NCLT. Given that the Code is still in its
nascent stage of implementation, greater clarity is required in delineating the
scope of the NCLT’s jurisdiction. Thus far, there is a considerable lack of
clarity.
– Bhavin
Gada & Manendra Singh
Gada & Manendra Singh
Great write up. It will be really be interesting to see the jurisdictional power to be exercised by the NCLT. It will further be good to go through if any writ petition is being filed before any High Court or Supreme Court on any ultra vires activity of NCLT.
In recent times, there has been at least yet another instance of legislation,- albeit not entirely a money matter of the subject kind- in which jurisdiction of civil court has been similarly excluded; to know more, look up the central enactment , popularly called the RERA Act (of 2016)- see sec 79 of the Act. And, the power to adjudicate and settle disputes has been vested in the Appellate Tribunal to be set up, state wise, there under.
Proceedings before the NCLT are not in the nature of recovery proceedings. In case of recovery of monies a person will necessarily have to go before the civil court. So I don't see how NCLT's jurisdiction will overlap that of a Civil Court when it comes to enforcing a contractual claim.
@Saloni Whats the difference between Recovery Proceedings and Contractual obligations in case of corporates?
OFFHAND (to share a few personal thoughts)
Should regard be had to a few areas in which, as per discussion, there is immense scope for conflict of opinions, it may be worth for Experts to spare further thoughts and attempting a much deeper study.
To pose a few additional doubts, seemingly grey areas, hence deserving an in-depth deliberation:
1. While civil courts' jurisdiction is intended to be largely barred, – with NCLT having been specially conferred , and correspondingly vested with, exclusive jurisdiction, – in respect of any matter verging on criminality, such as involving fraud, would not criminal courts continue to have exclusive jurisdiction ?
2. Would not , the basic question- whether or not in a given case, depending on the nature of claims or dispute, – NCLT has to rightly be regarded to have exclusive jurisdiction, by itself be a question of law or substantial question of law, calling for adjudication, upfront ?
3. Would not disputes of a peculiar kind, such as that recently reported @http://app1.businessstandard.in/bsmailers/lt.php… , stemming from causes of action such as 'discrimination', be obliged to be inevitably taken straightaway to courts, invoking the special ' WRIT' jurisdiction; not being the ordinary type of civil or criminal disputes?