File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Intervention of High Courts in IBC proceedings

In this article you will be seeing the instances where the High Courts has intervened in the matters of IBC. This article also demonstrates the cases where the High Court curtailed the power of IBC and oust the jurisdiction of NCLT while dealing with commercial laws. The High Court's power to intervene is unprecedented and also not prescribed anywhere in commercial laws. However the High Court has power to interfere in matters when the State is allowed, as the writ petitions can only be invoked when public authority and State is involved.

Purpose of IBC, 2016

Insolvency and Bankruptcy Code, 2016 itself is a complete code, which is considered as a strong regime serving two purposes:
  1. to restructure the entire financial position of company and save them from becoming insolvent, and
  2. for easy exit of businesses.
The IBC deals with Reorganisation and liquidation of an organization through an application filed by Financial Creditor or Operational Creditor or Corporate Debtor himself under section 6 of IBC. The four pillars of IBC are Insolvency professional, information utility, Adjudicating Authority and Insolvency and Bankruptcy Board of India.
  1. IP is the person who takes care of Company when company is going under CIRP and he is the temporary head of that company. (Section 3(19) of IBC, 2016)
  2. Information Utility means a person who is registered with the Board as an information utility under section 210, where it consists of all the information relating to CD that is required to an investor. (Section 3(21) of IBC, 2016)
  3. Adjudicating Authority is the National Company Law Tribunal defined under section 5(1), which decides whether company has to go for liquidation or for corporate restructuring.
  4. IBBI, is the board which selects IRP and IP who are important for the CIRP proceedings.

Moratorium Period under section 14 of IBC 2016

Moratorium under IBC is also known as 'calm period', the main aim of moratorium period is to ensure that Corporate Debtor is not burdened with other legal proceedings which indirectly affects the Corporate Insolvency Resolution Process. The Moratorium is imposed to prevent institution of suits related to money or assets and ensure smooth running of business. Moratorium is protection given to corporate debtor, where all suits, legal proceedings and recovery actions against corporate debtor come to a halt.

In Alchemist Asset Reconstruction Company Limited Vs. Hotel Gaudavan Private Limited, the Supreme Court affirmed that once a moratorium is imposed under the IBC, any proceeding initiated against the CD is non-est (does not exist) in law.

In Canara Bank Vs. Deccan Chronicle Holdings Limited, the NCLAT held that the moratorium will not affect any proceedings initiated or pending before the Supreme Court under Article 32 of the Constitution of India or where an order is passed under Article 136. Further, it will not affect the powers of any High Court under Article 226 of the Constitution.

Intervention of High Court in IBC and NCLT proceedings:

  1. The High court can intervene in NLCT proceedings, when NCLT passes an order or interim order pertaining to the public law. The National Company Law tribunal consolidates the commercial laws in India, Corporate jurisdiction of Company law and also in financial Reconstruction. Broadly classifying, the National Company Law tribunal has power relating to winding up a company, restructuring a company under Insolvency and Bankruptcy Code, 2016. Under section 5(1) of IBC, 2016, the adjudicating authority is the National Company Law Tribunal for matters relating corporate restructuring and for Corporate Insolvency Resolution process.

    The Application for initiating Insolvency is filed before National Company Law Tribunal under section 6 of IBC, 2016. However in the case of M/S Embassy Property Pvt. Ltd. v. The State of Karnataka, the Apex Court has held that NCLT don't have jurisdiction to adjudicate upon disputes arising under the Mines and Minerals Act 1957. The Apex Court further said that NCLT don't have power in adjudicating matters which revolve around statutory or quasi-judicial authorities, such as revenue department or Government Secretariat.
  2. The Insolvency and Bankruptcy Code 2016 is a consolidate code of all provision relating to liquidation and corporate restructuring. However during IBC proceedings, the NCLT does not have power to decide matters, where parties are of quasi-judicial or statutory or executive bodies. Matters revolving statutory or quasi judicial or executive authorities require a judicial review and judicial review must be sought by the parties. In these cases, the NCLT must refer those such matters to High Court or Supreme Court. Therefore in matters against orders of Statutory or quasi-judicial or executive bodies, the National Company Law tribunal must refer such matter to High Court or Supreme Court.
  3. The High Court have power to pass orders or interim orders when relationship between parties is statutorily governed.
  4. The High Court have power to interfere in IBC proceedings, when matter is relating to the public domain. For example: During on-going Insolvency and Bankruptcy Code, 2016 proceedings, the decision as to the extension of lease agreement between a corporate debtor and the Government, in this case NCLT doesn't have power to pass an interim order against Government. Only High Courts have power to pass an order against Government. However, a decision taken by the government or a statutory authority or an executive body in relation to a matter which is in the realm of public law, cannot by any stretch of imagination, be brought within the fold of the phrase 'arising out of or in relation to the insolvency resolution'.
  5. The exercise of Moratorium in restricting the High Courts power to intervene in the National Company law Tribunal Proceedings. Moratorium is not specifically defined under IBC, 2016, but Adjudicating Authority i.e., NCLT has power to declare moratorium and prohibit all legal proceedings under section 13 and 14 of the Code. As per the Oxford Dictionary, Moratorium means, "A legal authorisation to debtors to postpone payment". Moratorium under section 14 of the Code means a period wherein no legal proceedings or suit can be initiated for recovery or repayment of dues or enforcement of securities or charge on assets against Corporate Debtor.

    In the case of Canara Bank v. Deccan Chronicle Holdings Ltd., the NCLT has held moratorium is not absolute and it will not affect the proceedings which is pending before High Court or Supreme Court. Therefore we can say that moratorium preserves the status quo and essence of corporate debtor and his assets. Moratorium does not create a right to Corporate Debtor under IBC.
  6. Any criminal proceedings or civil proceedings initiated under Prevention of Money laundering Act, 2018 will not be barred by virtue of Section 14 of the IBC. In the case of Varssana Ispat Limited vs Deputy Director of Enforcement, the Hon'ble NCLAT has held that, the PMLA deals with "Proceeds of Crime", whereas the IBC is not applicable to such proceeding.

    The Apex court averred that one of the main purposes of enacting the IBC is to ensure there is insolvency resolution of corporate persons and liquidation of corporate person, but, at the same time ensure that, there is promotion of Entrepreneurship. However, once CIRP has already been initiated, by virtue of Section-14 of the Code, a major portion of proceedings before other authorities comes to a standstill position and matter relating to monetary subject will be halted.
  7. In Canara Bank vs. Deccan Chronicle Holdings Limited, the Hon'ble NCLAT has held that, the Wide powers of the High Courts under Article 226 of the Constitution of India and Power of the Supreme Court under Article 32 of the Constitution of India will remain unbridled by the provisions of Section -14 of the IBC. The Hon'ble Tribunal held that, the language ingrained in the said provision only affects the suit or any other pending proceeding initiated against the corporate debtor.

    Whereas, no original suit for recovery of money or debt can be filed against the Corporate Debtor in the Supreme Court, the suit invoking original jurisdiction of the High Court will still be affected by the prohibition ingrained u/s-14 of the code.
  8. The High Court explicitly said in the case of Power Grid Corporation of India v. Jyoti Structures Limited, 2017 that, section 14 would not apply to those proceeding which benefit the corporate debtor. Any application filed before the High Court relating to arbitration against the Corporate debtor, then such case shall be trailed by the High Court itself, and section 14 doesn't restrict the appellate court to do so.
  9. In the case of M/s Innovative Industries Ltd. v. ICICI bank, the High Court averred the purpose of IBC and Moratorium period is to protect the assets from dissipation or diminishment and further maximise the value of assets for paying the creditors and to restructure its financial purpose.
  10. Therefore Moratorium period under section 14 of IBC, do not restrict the High Courts to intervene in the matters involving:
    1. Public domain
    2. Statutory authority
    3. Quasi judicial authority
    4. Tax proceedings
    5. Arbitration proceedings
    6. Writ exercise
    7. Criminal proceedings
    8. Negotiable instruments act
    9. Other matters which decides the relationship between the corporate debtor and other party or the State.

The High Court in the case Ajay Kumar Bishnoi Former Managing Director M/s.Tecpro Systems Ltd. Vs. M/s.Tap Engineering, 2020 had categorically held that, the proceedings under Section 138 of the NI Act will not be stayed or halted by virtue of Section 14 of IBC, 2016 i.e., moratorium.

CJI Dr. D Y Chandrachud said that NCLT has jurisdiction to adjudicate dispute which arises solely from or which relate to the insolvency of the Corporate Debtor. The jurisdiction of NCLT in IBC proceedings is only to decide whether the Corporate Debtor is going through liquidation or corporate restructuring, and to decide the Contractual obligations.

The Supreme Court, in the case of Gujarat Urja Vikas Nigam Limited v. Amit Gupta, 2021 averred that:
"NCLT's residuary jurisdiction, through wide, is nonetheless defined by the text of IBC. Specifically, the NCLT cannot do what the IBC,2016 consciously did not provide it the power to do. The exercise of Article 226 must be entertained by the High Courts very carefully and with utmost diligence when IBC proceedings are on-going.

There must be a clear distinction whether High Court is exercising its jurisdiction in manner prescribed or beyond when IBC proceedings are on-going. Interfering in a judicial body's function is considered as in violation of Principles of Natural Justice.

The Cautionary principle is acknowledged in the case of Kamal K Singh v. Union of India, where the Bombay High Court emphasised on the violation of natural justice. The High Courts do not have power to intervene into IBC proceedings, and the IBC explicitly oust the jurisdiction of High Courts and other civil and criminal Courts. Intervening in matters related to IBC will impinge the main essence of the Code and eliminates the factor of time bound.

Intervention of High Courts may deteriorate and defragment the jurisprudence of IBC, as it leads to dilution of Code due to multiple judicial literature on same code might lead to ambiguity. However the High Court has the power to interfere in matters relating to Public domain, when parties are of Statutory authority, quasi judicial or executive, and matters of Tax proceedings, Arbitration, Criminal and Negotiable Instruments when such right is invoked using writ petitions under Article 226 of the Constitution.

  1. [(2018) 16 SCC 94]
  2. [Company Appeal (AT) (Insolvency) No. 147 of 2017]
  3. Civil appeal no. 9170/19 Supreme Court
  4. M/s Embassy Property Pvt. Ltd. V. State of Karnataka, SC Civil appeal No. 9170/19
  5. Canara Bank v. Deccan Chronicle Holdings Ltd, Company Appeal (AT)(insolvency) No. 147 of 2017
  6. Company Appeal (AT) (Insolvency) No 493 of 2018
  7. [2017] 25 NCLAT
  9. 2017,
  10. 14 HC

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers

Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


How To File For Mutual Divorce In Delhi


How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Increased Age For Girls Marriage


It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

Facade of Social Media


One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

Section 482 CrPc - Quashing Of FIR: Guid...


The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

The Uniform Civil Code (UCC) in India: A...


The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

Role Of Artificial Intelligence In Legal...


Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

Lawyers Registration
Lawyers Membership - Get Clients Online

File caveat In Supreme Court Instantly