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Introduction
In the Previous Article we saw the dynamics of NCLT proceedings and who are the various players in the game of insolvency. While in the previous article we got familiar with the legal jargons associated with IBC like Financial Creditors, CIRP etc., it’s time to move forward to understand the role of High Courts when it comes to actions taken by Government during insolvency proceedings. Should a party approach a High Court or NCLT if the Government has taken an action against the Corporate Debtor Compan?
These and some other seminal questions will be answered in this Article. So let’s continue from where we have left.
What Other Steps Can a Resolution Professional Take?
As explained earlier the Resolution Professional is the head of the management of the Corporate Debtor Company. So, it will try to maximize its profits by taking care of its assets. That’s why in the instant case the Resolution Professional applied to the Karnataka Government to renew a lease of mining given to the Corporate Debtor Company i.e. A. The Karnataka Government denied to do so, hence the Government denied the Resolution Professional’s request for renewing the lease.
Against this order of the Karnataka Government the RP went to the NCLT, whereby the NCLT directed the Karnataka Government to execute the lease deed in favour of the A. This was challenged by the Karnataka Government and the matter finally went to Supreme Court of India which held that the NCLT does not have the authority to decide whether the lease can be terminated or renewed by the Karnataka Government and High Court of Karnataka is the appropriate authority to decide that. The reasons for this are as follows.
The mining lease is given under a statute namely Mines & Minerals (Development and Regulation) Act, 1957 (in short MMDR Act). So when Government cancelled the lease and declined to renew it, this act of Government becomes an administrative act. So NCLT which is created under a special law i.e. Companies Act, 2013 (most people believe that NCLT and NCLAT are the creature of IBC but instead they are formed under Section 408 and 410 of Companies Act), cannot judicially review the administrative action.
But What is Administrative Act and Doctrine of Judicial Review
Administrative Act is an act of executive (read Government like Government of Delhi or Government of India). We all know that everyday the Government takes many actions like granting of licenses, demolition of structures etc. In doing so it may commit mistakes. So, when such mistakes are committed the wronged person can approach either High Court of the State under Article 226/227 of the Constitution of India or can approach directly the Supreme Court of India under Article 32.
The difference is that while the Supreme Court under Article 32 can only decide the matters in which a party’s Fundamental Rights have been breached, the High Court have wider jurisdiction and it can also decide the matters in which an authority have given a decision against you which it did not have power to give.
Any person can approach the High Court against Government
For example let’s consider policy of Delhi government namely Planned Development of Delhi. Under this policy Government of Delhi acquires land in Delhi for its development (Dwarka is developed mainly under this policy/scheme). As per this policy if Delhi Government acquires your land and it measures between One to Five Bighas, then you are entitled to 80 Square Yard plot in Delhi. So, you move an application before the Government asking it to give you the land you deserve. But the Collector declines your request without giving any reason or after giving invalid reasons. This action of Government is called Administrative Act.
Now what are your remedies? You can directly approach Delhi High Court asking for this decision to be set aside and direct the Delhi government to give you 80 Square Yard of plot. This is called Judicial Review which is taken against an administrative action. This power of High Court is given under Constitution of India and not by some law and hence it cannot be taken by anyone, including Union of India.
But so far as NCLT it is concerned, power to it is given under IBC and this power is limited to decide the questions relating to insolvency of the Corporate Debtor and no power under IBC is given to it for to review the administrative action. So when Karnataka Government decided not to renew the lease, this action under the MMDR Act have to be challenged before Karnataka High Court and not NCLT, as NCLT is incapable of deciding it due to lack of power in these matters. And that is the reason why Supreme Court decided that the decision of NCLT was incorrect as it did not power to decide action of Government under various statutes.
Conclusion
So in this Article we saw that when Government takes an administrative action, NCLT does not have any authority (called jurisdiction in legal parlance) to either rescind that decision or give directions to the Government to act in a particular way. For challenging the action of the Government, High Court is the proper forum or even one can go to Supreme Court if the very act infringes your Fundamental Rights. That’s exactly what happened in Maneka Gandhi’s case which is now a legal benchmark.
That’s why it is important for a litigation lawyer to understand the dynamics and the limits of the authority of a Forum because only if he is aware of these nuances he can approach the right Court or Tribunal and can get justice for his client.
Parveen Semwal
Advocate, High Court of Delhi and Supreme Court of India