Calcutta High Court: The parameters of powers of the NCLT, as an Adjudicating Authority is circumscribed by the scope of Section 18(f)(vi) of the IBC

Calcutta High Court: The parameters of powers of the NCLT, as an Adjudicating Authority is circumscribed by the scope of Section 18(f)(vi) of the IBC

Justice Sabyasachi Bhattacharyya of the Calcutta High Court has held that the parameters of powers of the National Company Law Tribunal (NCLT), as an Adjudicating Authority under Section 60 of the Insolvency and Bankruptcy Code, 2016 (IBC), is defined and circumscribed by the scope of Section 18(f)(vi) of the IBC. Such exercise of power would fall within the ambit of the expression "arising out of or in relation to the insolvency resolution", as envisaged in Section 60(5)(c) of the IBC.

A Writ petition was filed by the Kolkata Municipal Corporation (KMC), a statutory authority under the Kolkata Municipal Corporation Act, 1980 (1980 Act), challenging an Order passed by the NCLT, acting as Adjudicating Authority under the IBC for handing over physical possession of the office premises at Sarat Bose Road in Kolkata.

The KMC, in exercise of its authority under Sections 217-220 of the 1980 Act, had distrained the said property in recovery of municipal tax dues from an assessee. Subsequently, the debt of the assessee came within the purview of a Corporate Insolvency Resolution Process (CIRP), thus prompting respondent no.4, the Resolution Professional, representing the owner of the asset, to approach the NCLT for handing over of such physical possession of the property-in-question from the KMC. Such action gave rise to the present writ petition

The petitioner, by relying on the 1980 Act, submitted that the KMC is a statutory authority and, as such, took possession of the asset in exercise of its statutory powers. Such independent statutory exercise, it was argued, could not be interdicted by the NCLT within the scope of the IBC.

The two main questions which arose were-whether the writ jurisdiction of the High Court under Article 226 of the Constitution of India can be invoked in the matter, despite the availability of an alternative remedy; and whether the property-in-question, having been seized by the KMC in recovery of its statutory claims against the debtor, can be the subject-matter of a Corporate Resolution Process under the Insolvency and Bankruptcy Code, 2016.

The Calcutta High Court stated that although a wrongful exercise of available jurisdiction would not be sufficient to invoke the High Court's jurisdiction under Article 226 of the Constitution, the ground of absence of jurisdiction could trigger such invocation. Hence, in view of the nature of challenge involved in the present writ petition, the same was maintainable in law. Hence the first question was decided in the affirmative.

According to the Court, there cannot be any doubt about the proposition that the contours of the powers conferred on the Adjudicating Authority, being the NCLT, under Section 60 of the IBC, are defined by the duties of the interim resolution professional under Section 18. The writ petitioner proceeded with acquiring possession of the property-in-question and putting up the same for attachment under its powers as flowing from Sections 217-220 of the 1980 Act.

The Court further held that the said provisions envisage a situation where an amount of tax, for which abill has been presented under Section 216 of the Act, is not paid within thirty days from the presentation thereof. In such event, the Municipal Commissioner may cause a notice of demand to be served on the person liable for payment and on non-payment of such tax, the petitioner is empowered under Section 219 of the 1980 Act to issue a distress warrant, for distraint of the property. The person charged with the execution of the warrant shall, in the presence of two witnesses, make an inventory of the property which he seizes under such warrant. Thereafter, steps are taken for disposal of such property, including attachment and sale.

The Court said, "Such action follows from non-payment of tax and the cause of action arises upon presentation of a bill under Section 216 of the 1980 Act. After non-payment on the bill, there is no further scope for determination of the ownership of the property by the writ petitioner under the 1980 Act. The procedure, as laid down in Sections 217- 220, automatically follow.

In the present case, the Corporation followed such procedure and took possession of the disputed property for non-payment of tax. Thus, there was no further scope for any "determination" of ownership of the property by the KMC. As such, there arose no question of the task of the interim resolution professional, in taking control and custody of the asset, being subject to the determination of ownership by any authority, as contemplated under Section 18(f)(vi) of the IBC."

According to the Court, the claim of the KMC, in the absence of any successful challenge thereto, attained finality, fastening a liability upon the corporate debtor. As per the interpretation in Embassy Property Developments Pvt. Ltd. vs. State of Karnataka and others, such a finalized claim would come within the purview of "operational debt" under Section 5(21) of the IBC. Hence, the Resolution Professional had jurisdiction to take custody and control of the same.

The Court concluded that the finalized claim of the KMC could very well be the subject-matter of a Corporate Resolution Process under the IBC. The writ petition was thus dismissed.