M/S EMBASSY PROPERTY DEVELOPMENTS PVT. VS THE STATE OF KARNATAKA AIRONLINE 2019 SC 1652

CASE NAME	M/S Embassy Property Developments Pvt. vs. The State of Karnataka
CITATION	AIRONLINE 2019 SC 1652
COURT	Supreme Court of India
PETITIONER	M/S Embassy Property Developments Pvt.
RESPONDENTS	The State of Karnataka
DECIDED ON	3 December, 2019

INTRODUCTION

On December 3, 2019 the  Supreme Court ruled in M/S Embassy Property Developments Pvt. vs. The State of Karnataka on issues of significant interest , that are the extent and bounds of the jurisdiction of the National Company Law Tribunal (herein referred to as NCLT) under the Insolvency and Bankruptcy Code (herein referred to as IBC), 2016. The assessment in this case required an understanding of the boundaries of public law in the legislative construct as constituted by the Mines and Minerals (Development and Regulation) Act, 1957 (herein called the MMDR Act), and on behalf of insolvency legally regulated processes (the substance of this role). The newly minted decision further contributed to the still open-ended discourse on judicial review in administrative process, particularly when jurisdiction is bound by multi-jurisdictional context, noting the difficulty of demarcation within this cohort of Indian Forums. This case is more remarkable because it captures the challenging entanglement of insolvency law with some predictably conflicting legal jurisdiction related to similar subject matter. This case became a turning point because it forced the Court to balance two competing concerns, the efficiency of the IBC process and the authority of constitutional courts in matters of public law. It highlighted how insolvency proceedings often intersect with government-controlled resources like mining leases, raising questions no single law can answer in isolation. The judgment also reassured that while tribunals like the NCLT are powerful, they cannot replace the supervisory role of High Courts in areas outside their domain. In that sense, the case is not just about insolvency or mining law, but about drawing clear boundaries of jurisdiction in India’s legal system

FACTS

The case involved these facts:

1. Corporate Debtor and Financial Creditor: M/s. Udhyaman Investments Pvt. Ltd. expressed themselves as a financial creditor, and initiated a Corporate Insolvency Resolution Process (CIRP) against M/s. Tiffins Barytes Asbestos & Paints Ltd. (the Corporate Debtor) when they filed their application under Section 7 of the IBC to the NCLT Chennai. This initiation arose from the Corporate Debtor’s apparent decline in financial condition, causing concern for creditors.
2. Admission of the Application: On March 12, 2018, the NCLT after hearing the application, admitted the application, and commenced the CIRP, in respect of M/s. Tiffins Barytes Asbestos & Paints Ltd. The NCLT further appointed an Interim Resolution Professional (IRP) and passed an order declaring a moratorium against the Corporate Debtor under section 14 of the IBC which prohibited any recovery efforts which might have been taken against the Corporate Debtor. The moratorium is intended to protect the Corporate Debtor from the actions of creditors while a Resolution Plan was being constructed.
3. Mining Lease: At the time of commencement of the CIRP the Corporate Debtor had a registered mining lease from the Government of Karnataka which was to expire on 25th May 2018. The Government had already issued a notice for a premature termination of the lease based on alleged breaches of the conditions of the lease, and as yet had not issued an order prematurely terminating the lease. This context demonstrates how tenuous the operating state was in which the Corporate Debtor was being deprived while facing insolvency proceedings. 
4. Petition for Extension: The IRP informed the authorities of the commencement of the CIRP and now requires a deemed extension of the mining lease in accordance with Section 8A(6) of the MMDR Act, which provided for deemed extensions of mining leases, at the expiry, in certain circumstances. The IRP’s actions were intended to maintain the value of the Corporate Debtor’s assets throughout the insolvency process.
5. Government Rejection: The Karnataka Government rejected the extension application and trouble with breaches of the original lease terms and evident breaches of MMDR Act as reasons for rejecting extension. When rejecting the application the IRP subsequently filed a writ petition before the High Court of Karnataka to confirm that the mining lease remained valid until March 31, 2020. This act demonstrates the troubling relationship between the Corporate Debtor and the Government.
6. High Court hearings: The High Court set aside the order of the NCLT which sided with IRP and remitted the matter back to the NCLT for fresh consideration so that the Government can file objections. Upon remitting, the Government filed a statement of objections, raising the point that NCLT may not have jurisdiction to even consider the application.
7. NCLT order: NCLT ruled favourably to the IRP, set aside the Government’s rejection of the deemed extension and ordered the Government to execute supplementary lease deeds.
8. Appeal to High Court: Government of Karnataka filed a writ petition against the NCLT’s order claiming NCLT had jurisdictional overreach because it heard a case that governed public law issue, MMDR Act.
9. Appeals to the Supreme Court: Appeals were filed against the interim order of the High Court which required the Supreme Court to consider questions of jurisdiction and whether the NCLT was the appropriate forum to hear applications involving mining leases.

ISSUES

The Supreme Court reflected on the following two matters:

1. Jurisdiction of High Court: Is a petition under Article 226 of the Constitution possible before the High Court, in relation to an order of NCLT, where there is a statutory remedy of an appeal to the National Company Law Appellate Tribunal (NCLAT)? This question highlights a tension between a need for judicial deference, and a need for judicial review on grounds of jurisdictional excess.
2. NCLT jurisdiction regarding Fraud: Is the NCLT jurisdictionally authorized to decide on fraud allegations regarding the initiation of the CIRP, especially by related parties of the Corporate Debtor? The question will be useful to determine the entire extent of the powers of the NCLT in fraudulent actions.

CONTENTIONS

APPELLANT’S CONTENTIONS (M/S EMBASSY PROPERTY DEVELOPMENTS PVT.)

1. No Jurisdiction Granting Authority to High Court for Interference: The Appellants contended that the High Court should not have entertained the writ petition as there was a remedy available to the Appellants by way of an appeal to the NCLAT, and judicial discipline demanded that the statutory remedy be exhausted before relying on constitutional provisions. The appellants argued that this approach promotes legal efficiency and respects the established hierarchy of legal forums.

2. NCLT Power to Preserve the Assets: The Appellants asserted that the NCLT had the power to preserve the Corporate Debtor’s assets, including the mining lease, which the appellants defined as “property” under Section 3(27) of the IBC. The appellants insisted that NCLT involvement was imperative for the effective resolution of insolvency and maximizing the value of the assets.

3. Jurisdictional Framework under the IBC as a Unified Whole: The Appellants cited earlier decisions characterizing the IBC as a complete code, and the provisions of the IBC create an avenue exclusively for dealing with insolvency. They argued that if interference by the High Court was permitted, it would defeat the purpose of the IBC.

RESPONDENTS’ CONTENTIONS (STATE OF KARNATAKA)

1. Public Law Jurisdiction: The Respondents contended that the NCLT does not have jurisdiction in relation to the MMDR Act, which is concerned with public law. The Respondents contended that disputes relating to mining leases are public law matters, which are subject to judicial review by higher courts.

2. CIRP Initiated by Fraud: The Government contended that this CIRP was started by the Corporate Debtor’s associated parties under fraudulent means, and that was the basis that they had for deciding not to pursue or address the remedies through an appeal to NCLAT, or to seek judicial review from the High Court. 

3. NCLT Order did not acknowledge jurisdiction issues: The Respondents indicated that the NCLT made an order and made no indication the NCLT even considered its own limitation of jurisdiction issue, particularly with the MMDR Act. They argued that was the nature of absent jurisdiction and that therefore the High Court could make its own order in relation to issues of jurisdiction.

JUDGEMENT

The Supreme Court delivered a nuanced judgment addressing the raised issues:

1. High Court Jurisdiction: The Court clarified that the High Court usually does not intervene when there is an alternative remedy, but does have the jurisdiction to intervene when the lower tribunal exceeds its jurisdiction. In this instance the Court held that the NCLT exceeded its jurisdiction when it attempted to adjudicate issues that related to the mining lease, which was regarded as a public law question under the MMDR Act. This decision essentially stressed the significance of keeping judges to their jurisdictions.
2. NCLT’s Jurisdiction related to Fraud: The Court clarified that the NCLT did have jurisdiction to look at fraudulent conduct particularly with respect to the application for the CIRP, but the NCLT did not have jurisdiction to adjudicate a dispute that stemmed from an underlying public law issue.
3. The NCLT Order was Set Aside: The Court upheld the High Court decision to set aside the NCLT Order and to send the matter back to the NCLT for deliberation and to state that jurisdictional issues had to assess squarely. The remand was meant to ensure that all the parties would have a chance to put forward their arguments and evidence properly.
4. Appeals Dismissed: The appeal before the Court by the Appellants was dismissed with the finding that the High Court had a clear jurisdiction to intervene and that the NCLT had acted beyond its statutory jurisdiction. This dismissal reinforced the principle that jurisdictional overreach cannot be tolerated, preserving the integrity of the legal framework.

CONCLUSION

The decision of the Supreme Court in the matter of M/S Embassy Property Developments Pvt. vs The State Of Karnataka was a milestone decision on the jurisdiction of the NCLT and the High Court in insolvency and public law cases. The Court reaffirmed the necessity to follow jurisdictional constraints, particularly where there are statutory provisions governing certain matters.

This case is a good example of the requirement for statutory signposts defining the roles of the various Indian courts in terms of invoking judicial review to consider exercise of executive actions. The Supreme Court further strengthened the doctrine that while the IBC attempts to codify and forensic action of insolvency practitioners as a streamlined process, it does not displace higher courts in deciding public law matters, thereby ensuring the conventional legal framework governing corporate insolvency and/or cases of public interest.

This article has been written by Tamanna Jain from University Five Year Law College, University of Rajasthan.