Gujarat High Court Upholds NCLT's Order to Vacate Premises in Insolvency Case

Petitioners' Plea Rejected; Directed to Vacate and Pay Arrears in Liquidation Proceedings

In a significant judgment, the Gujarat High Court has dismissed the petition filed by Fivebro Water Services Pvt Ltd and another, challenging the order of the National Company Law Tribunal (NCLT), Ahmedabad, which directed them to vacate premises and pay rent arrears in connection with the liquidation proceedings of Doshion Pvt Ltd, a corporate debtor under insolvency.

The case revolves around the lease and license agreements executed between the petitioners and the corporate debtor prior to its insolvency proceedings. The petitioners contended that the NCLT lacked jurisdiction over the matter as it pertained to non-payment of rent, a subject they claimed was not directly related to the insolvency resolution process.

However, the High Court, presided by Justice Niral R. Mehta, held that the NCLT indeed possesses jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016, to adjudicate issues relating to the possession, management, and disposition of the corporate debtor's assets. The court emphasized that such matters are inherently linked to the liquidation proceedings.

The petitioners argued that the Tribunal's jurisdiction is contingent upon a prior declaration under Sections 43, 45, or 49 of the Code, which deal with preferential, undervalued, and fraudulent transactions. The High Court, however, rejected this contention, stating that the Tribunal's jurisdiction is broadly defined to cover any legal or factual questions arising from the liquidation process.

Justice Mehta further noted that the petitioners failed to disclose their connections with the suspended management of the corporate debtor, which suggested collusion in the contested transactions. The court underscored that equitable relief under Article 226 of the Constitution is reserved for those who approach the court with clean hands, and that the petitioners had suppressed material facts.

The judgment also highlighted the existence of an efficacious statutory remedy available under Section 61 of the Insolvency and Bankruptcy Code, which provides for an appeal to the National Company Law Appellate Tribunal (NCLAT). The High Court reiterated that its extraordinary jurisdiction under Article 226 is not typically exercised when an alternative legal remedy exists, unless specific exceptional circumstances are present.

In conclusion, the High Court dismissed the petition for lack of merit and declined to extend interim relief, thereby upholding the NCLT's decision to enforce the liquidation process and protect the assets of the corporate debtor from alleged fraudulent transactions.

Bottom Line:

Jurisdiction of National Company Law Tribunal under section 60(5)(c) of Insolvency and Bankruptcy Code, 2016 (IBC) - Tribunal can entertain questions of law and fact arising out of or in relation to insolvency resolution or liquidation proceedings of a corporate debtor, including disputes over assets and agreements directly connected to liquidation estate.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 60(5)(c), 43, 45, 49; Article 226, Article 227 of the Constitution of India

Fivebro Water Services Pvt Ltd v. Bijay Murmuria, (Gujarat) : Law Finder Doc Id # 2796741