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:
- to restructure the entire financial position of company and save them from
becoming insolvent, and
- 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
- 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,
- 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)
- 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.
- IBBI, is the board which selects IRP and IP who are important for the
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,
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:
- 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.
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.
- 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.
- The High Court have power to pass orders or interim orders when relationship
between parties is statutorily governed.
- 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
- 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
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
- 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.
- 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
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.
- 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.
- 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.
- Therefore Moratorium period under section 14 of IBC, do not restrict the
High Courts to intervene in the matters involving:
- Public domain
- Statutory authority
- Quasi judicial authority
- Tax proceedings
- Arbitration proceedings
- Writ exercise
- Criminal proceedings
- Negotiable instruments act
- 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:
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
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
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.
- [(2018) 16 SCC 94]
- [Company Appeal (AT) (Insolvency) No. 147 of 2017]
- Civil appeal no. 9170/19 Supreme Court
- M/s Embassy Property Pvt. Ltd. V. State of Karnataka, SC Civil appeal No. 9170/19
- Canara Bank v. Deccan Chronicle Holdings Ltd, Company Appeal (AT)(insolvency) No. 147 of 2017
- Company Appeal (AT) (Insolvency) No 493 of 2018
-  ibclaw.in 25 NCLAT
- 2017, ibclaw.in.02SC
- ibclaw.in 14 HC
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