All insolvency cases involve several legal issues, such as restructuring of the company, asset distribution, debt recovery, etc. The jurisdiction of the Adjudicating Authority, the National Company Law Tribunal NCLT under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). These matters may require that one case be present before different courts, leading to jurisdictional challenges. The insolvency framework in India has addressed this challenge by specifically mentioning the jurisdiction of the Adjudicating Authority and its role in insolvency resolution.
Understanding NCLT under Section 60(5)
Scope of Section 60(5):
Section 60(5) grants the National Company Law Tribunal (NCLT) jurisdiction to entertain applications or proceedings “by or against the corporate debtor” during insolvency. It covers disputes arising from insolvency proceedings, including those involving creditors, employees, or third parties. The NCLT has jurisdiction to entertain or dispose of:
- any application or proceeding by or against the corporate debtor or corporate person,
- 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
- 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 IBC.
Suggested Reading : Constitution of Committee of Creditors under Section 21 of IBC
Importance of Centralized Jurisdiction:
Centralised jurisdiction under this section is crucial as it ensures that all matters related to a corporate debtor undergoing insolvency resolution or liquidation are handled solely by the NCLT. This prevents delays and avoids conflicts that jurisdictional overlaps may cause.
Challenges and Concerns Over Expansive Jurisdiction
The challenge and concerns about NCLT under Section 60(5) of the IBC primarily relate to the expansive jurisdiction of NCLT:
Encroachment on Other Forums:
The NCLT may overstep its intended role by adjudicating disputes that may not be directly related to the corporate debtor’s insolvency. This leads to concerns about judicial overreach, complexity in determining relevant claims, and potential delays in insolvency proceedings due to the need to resolve procedural issues.
Interpretation Issues:
The broad language of “arising out of” or “in relation to” the corporate debtor’s insolvency can lead to uncertainty about which disputes fall under NCLT’s jurisdiction. This potentially allows for unrelated claims to be brought before the NCLT, further leading to ambiguity and inconsistent application.
Risk of Overburdening NCLT:
The broad jurisdiction of the NCLT has led to case backlogs, essentially affecting the timely resolution of insolvency cases.
Judicial Interpretation of Section 60(5)
In the Supreme Court decision in ArcelorMittal India (P) Ltd v. Satish Kumar Gupta, NCLT under Section 60(5) grants the broad jurisdiction to handle any matter related to a corporate debtor. But this jurisdiction is limited to issues “arising out of or relation to” the insolvency process. This means that the NCLT cannot adjudicate matters completely outside the insolvency proceedings, defining the boundaries of its power under this section. In Embassy Property Developments Pvt. Ltd. v. State of Karnataka, the Supreme Court clarified that the NCLT cannot adjudicate disputes falling under public law, such as issues related to government approvals. In Sumati Suresh Hedge & Ors. v. Anand Sonbhadra, the National Company Law Appellate Tribunal (NCLAT) ruling restricted the NCLT under Section 60(5)by clarifying that the NCLT cannot interfere in matters that are not directly related to insolvency proceedings. This includes disputes involving public law or decisions made by government authorities, limiting the NCLT’s powers to matter strictly within the scope of insolvency resolution under IBC. Similarly in Dipco Private Limited v. Ariisto Developers, the NCLAT held that as per section 60(5), though the NCLT is empowered to entertain or dispose of any application or proceeding by or against the ‘Corporate Debtor’ or ‘Corporate Person’, it does not invest the NCLT with the jurisdiction to re-determine and collate the claim. The decision for collating the claim, if any, taken by the ‘Resolution Professional’, the same being judicial or quasi-judicial, the NCLT cannot sit in Appeal.
Suggested Reading :Section 30 of IBC – Insolvency and Bankruptcy Code, 2016
Jurisprudential Trends in Limiting NCLT’s Jurisdiction
Public Law vs. Private Law Distinction:
The language ofNCLT under Section 60(5) signifies that th jurisdiction over private law disputes related to the insolvency of a corporate debtor, but not over public law decisions made by government bodies. This is reaffirmed in Embassy Property Developments Pvt. Ltd. v. State of Karnataka and Dipco Private Limited v. Ariisto Developers. Therefore, the NCLT under Section 60(5) has jurisdiction in debtor-creditor disputes, thereby limiting the scope of NCLT>
The Role of Arbitration and Civil Courts:
This exclusive jurisdiction to hear and decide any application or proceedings related to the corporate debtor, limits the role of both arbitration and civil courts in matters arising during insolvency resolution or liquidation.
Ensuring Efficiency in Insolvency Resolution:
By limiting the NCLT under Section 60(5)jurisdiction, the IBC ensures that insolvency proceedings remain focused on resolution while avoiding unnecessary delays caused by non-core disputes. The intention is to centralise dispute resolution within the NCLT to ensure swift and efficient insolvency proceedings.
Challenges and Implications for Stakeholders
For Creditors and Resolution Applicants:
Section 60(5) is a broad provision where any action of the resolution professional, Committee of Creditors (CoC), or likewise any action against a non-complying party is to be challenged. Any jurisdiction conflicts can delay the resolution process, impacting creditors’ recovery and applicants’ plans.
For Government and Regulatory Bodies:
This section presents challenges for the Government and regulatory bodies by granting broad jurisdiction to the NCLT to entertain and dispose of any question of law or fact arising out of or related to insolvency proceedings. This leads to potential overlaps with other regulatory bodies and complexities in adjudicating disputes.
For NCLT and Judicial Bodies:
Granting broad jurisdiction to hear and decide “any question of law or fact arising in relation to any insolvency resolution process” can lead to complex legal interpretations. It also requires careful judicial discretion to manage its application effectively.
Recommendations for Clarifying NCLT’s Jurisdiction Under Section 60(5)
It is recommended to establish legislative amendments to explicitly define the scope of NCLT’s powers under Section 60(5).
There is a need to introduce specialized benches or tribunals to deal with ancillary disputes related to insolvency, such as debtor-creditor disputes.
It suggested that the Insolvency and Bankruptcy Board of India (IBBI) improve coordination between NCLT, civil courts, and regulatory bodies for seamless dispute resolution.
It is also crucial to emphasize the role of arbitration and mediation in resolving disputes that do not fall within the core insolvency framework.
Comparative Analysis: Jurisdiction of Insolvency Tribunals Globally
US bankruptcy courts handle bankruptcy cases in each of the 94 federal judicial districts. District courts have original and exclusive jurisdiction over bankruptcy cases, which refer bankruptcy matters to the bankruptcy court. In the bankruptcy case in the US, the jurisdiction of bankruptcy courts is well-defined, avoiding overlaps with other forums. In the United Kingdom, the insolvency framework includes tribunals to handle disputes while ensuring minimal encroachment on other jurisdictions. India can adopt the clarity that the US and UK have included in their framework to reduce delays in the insolvency resolution and the burden of NCLT cases and avoid jurisdiction overlaps.
The Future of NCLT Jurisdiction Under Section 60(5)
Section 60(5) of the IBC gives the NCLT exclusive jurisdiction over insolvency matters. This means that the NCLT has the final say on all matters related to a corporate debtor’s insolvency. To avoid the challenges that arose due to the complexity of insolvency cases, there is a need to refine NCLT’s jurisdiction to strike a balance between effective insolvency resolution and avoiding overreach. Clarifying the jurisdiction of the NCLT under the IBC will enhance the efficiency, stakeholder confidence, and trust in the IBC framework.
Conclusion
The IBC is designed to be time-sensitive, and section 60(5) supports this objective by enabling the NCLT to efficiently resolve disputes without unnecessary delays. This section eliminates the need to pursue separate legal actions in multiple courts regarding insolvency proceedings, thereby streamlining the process. The broad and “residuary” jurisdiction to entertain and dispose of any application or proceedings by or against a corporate debtor, gives the sole authority to handle matters related to insolvency resolution and liquidation proceedings. However, this expansive jurisdiction leads to potential issues, encroaching on other courts’ jurisdictions interfering with public law decisions made by statutory authorities, and creating uncertainty in complex commercial disputes. To avoid these issues and reduce NCLT backlogs it is necessary to establish legal reforms.