Gujarat HC Upholds NCLT's Wide Jurisdiction Over Lease Disputes in Liquidation Proceedings

Ahmedabad, India – In a significant judgment reinforcing the expansive powers of the National Company Law Tribunal (NCLT), the Gujarat High Court has ruled that the tribunal possesses the necessary jurisdiction under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 (IBC) to adjudicate disputes concerning lease and license agreements during liquidation proceedings. The decision, delivered by Justice Niral R. Mehta in Fivebro Water Services Pvt Ltd & Anr. v. Bijay Murmuria & Ors. , clarifies the scope of the NCLT's authority and underscores the judiciary's reluctance to interfere with the IBC's statutory framework via writ petitions, except in the most exceptional of cases.

The ruling effectively dismisses a challenge to the NCLT's power, asserting that matters intrinsically linked to a corporate debtor's assets, including possession and control, fall squarely within the tribunal's purview to ensure an efficient and consolidated liquidation process.

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Background of the Dispute

The case originated from an application filed by the liquidator of a corporate debtor before the NCLT, Ahmedabad. The petitioners, Fivebro Water Services Pvt. Ltd. and another entity, held lease and license agreements for the corporate debtor's properties in Ahmedabad and Mumbai. Following the commencement of liquidation, the liquidator sought to reclaim possession of these properties, alleging non-payment of dues and the involvement of fraudulent transactions.

The NCLT ruled in favor of the liquidator, directing the petitioners to vacate the premises. Aggrieved by this order, the petitioners filed a writ petition before the Gujarat High Court, mounting a two-pronged attack on the NCLT's decision: first, on the grounds of a fundamental lack of jurisdiction, and second, on the procedural propriety of the NCLT's actions.

Arguments on Jurisdiction and Precedent

The core of the petitioners' argument was that the NCLT had overstepped its jurisdictional boundaries. They contended that the tribunal's power under Section 60(5)(c) of the IBC—which grants jurisdiction over any "question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings"—is not absolute. According to the petitioners, this power could only be invoked after a prior declaration had been made regarding preferential, undervalued, or fraudulent transactions under Sections 43, 45, or 49 of the IBC. Since no such formal declaration existed in this case, they argued the NCLT's order was void for want of jurisdiction.

Furthermore, the petitioners sought to draw a parallel with the Supreme Court's landmark decision in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209 . They argued that the validity and genuineness of lease and license agreements are contractual matters that do not inherently arise from insolvency. As such, they claimed these disputes fell outside the NCLT's specialized domain, and by adjudicating them, the tribunal had acted in excess of its jurisdiction, much like the concerns addressed in the Gujarat Urja case.

In response, the liquidator (respondent) raised a primary objection regarding the maintainability of the writ petition itself. It was argued that the petitioners had an alternative and efficacious statutory remedy available in the form of an appeal to the National Company Law Appellate Tribunal (NCLAT). The existence of this appellate mechanism, the respondent contended, should preclude the High Court from exercising its extraordinary writ jurisdiction under Article 226 of the Constitution.

High Court's Analysis: Jurisdiction, Procedure, and Judicial Restraint

Justice Niral R. Mehta meticulously dismantled the petitioners' arguments, providing a clear exposition on the NCLT's role and the High Court's own policy of judicial restraint.

1. On the Scope of NCLT's Jurisdiction under Section 60(5)(c):

The High Court affirmed a broad interpretation of Section 60(5)(c), holding that the NCLT's jurisdiction is not contingent on prior findings under Sections 43, 45, or 49. The bench clarified the distinction between a procedural error and a complete lack of jurisdiction.

The bench ruled that the NCLT is empowered to decide all incidental and ancillary issues pertaining to the possession, control, management, custody, or disposition of the assets of the corporate debtor, which bear a direct nexus to the proceedings before it.

The court reasoned that lease and license agreements concerning the properties of a corporate debtor are fundamentally connected to the liquidation estate. Any dispute over these assets directly impacts the liquidator's ability to consolidate, manage, and ultimately realize value for the stakeholders. To force the liquidator to litigate such matters in separate civil courts would defeat the IBC's primary objective of timely and streamlined resolution.

The court further observed that the petitioners' argument conflated procedural requirements with jurisdictional competence. It stated, "The non-compliance with sections 43, 45, or 49 may constitute a procedural or legal error but not a lack of jurisdiction." This distinction is crucial, as a procedural error can be corrected on appeal, whereas a lack of jurisdiction renders an order null and void. By framing the issue as one of jurisdiction, the petitioners were attempting to bypass the statutory appeal process, a move the court did not endorse.

2. On the Exercise of Writ Jurisdiction:

Addressing the maintainability of the writ petition, the court acknowledged its own expansive powers under Article 226.

The High Court observed that it has been consistently held that the power conferred upon the High Court under Article 226 is wide, plenary, and discretionary in nature, and the mere existence of an alternative statutory remedy does not, by itself, operate as an absolute bar to the exercise of such jurisdiction.

However, the court immediately followed this with a crucial caveat: this power is subject to "self-imposed restraints." It is to be invoked sparingly, primarily in exceptional circumstances, such as a violation of fundamental rights, a breach of the principles of natural justice, or where the proceedings are wholly without jurisdiction. In this instance, the court found no such exceptional circumstances that would warrant bypassing the well-defined appellate structure of the IBC.

3. On the Petitioners' Conduct:

Significantly, the court also took adverse notice of the petitioners' conduct. It noted their failure to "approach the court with clean hands," citing allegations of the involvement of the corporate debtor's suspended management and the execution of fresh agreements during the moratorium period. This conduct further weakened the petitioners' case for the court to exercise its discretionary and equitable writ jurisdiction in their favor.

Implications for Legal Practitioners and Stakeholders

The Gujarat High Court's decision carries several important takeaways for the legal community:

• Reinforcement of NCLT's Authority: The judgment solidifies the NCLT's position as the primary forum for all matters connected to a corporate debtor's assets during liquidation. This includes tenancy, lease, and license disputes, which are now clearly established as "incidental and ancillary issues" within its domain.
• Discouragement of Forum Shopping: The ruling sends a strong message against using writ petitions as a tool to circumvent the statutory appeal mechanism provided by the IBC. Practitioners must demonstrate truly exceptional circumstances to convince a High Court to intervene where an appeal to the NCLAT is available.
• Clarity on Jurisdictional Challenges: The distinction between a procedural lapse and a lack of jurisdiction is reinforced. Arguments challenging NCLT orders should be carefully framed, as incorrectly labeling a procedural issue as a jurisdictional one is unlikely to find favor, especially in writ proceedings.
• Emphasis on Good Faith: The court's focus on the petitioners' conduct serves as a reminder that equitable remedies are reserved for those who act in good faith. Any actions taken during a moratorium that appear to undermine the insolvency or liquidation process will be viewed critically by the courts.

Ultimately, the High Court refused to invoke its extraordinary jurisdiction under Article 226 and dismissed the petition, thereby upholding the NCLT's order. This judgment champions the legislative intent behind the IBC—to create a single, comprehensive ecosystem for resolving all issues related to corporate insolvency and liquidation efficiently and with minimal judicial fragmentation.