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Supreme Court Stays NCLAT Order Holding NCLT Can Adjudicate Easement Dispute in Liquidation
The has intervened in a contentious arising under the , staying an order of the that allowed the to adjudicate an dispute during . A two-judge bench of Justices J.B. Pardiwala and K. Vinod Chandran, while staying the NCLAT’s order, directed the parties to explore a mediated solution and appointed a senior mediator to inspect the property in question. The development marks a significant pause in the debate over the extent of NCLT’s jurisdiction under the IBC, particularly when are entangled with the liquidation of a corporate debtor.
Background of the Dispute
The controversy stems from the liquidation of , a company that owned industrial land in Vadodara, Gujarat, originally purchased to establish a castor oil manufacturing unit. During the liquidation process, the liquidator sought access to the corporate debtor’s property through an existing pathway, but faced obstruction from , a third party unrelated to the insolvency proceedings. ARC claimed that the pathway was part of its own property and that the liquidator had no easementary right to use it. The NCLT, adjudicating the matter under the IBC, recognized the liquidator’s right of access against the objections of the third party.
ARC challenged this order before the NCLAT, which delivered a split verdict. A 2:1 majority comprising Technical Members Arun Baroka and Indevar Pandey upheld the NCLT’s order, holding that the NCLT could adjudicate disputes concerning easementary rights when the dispute has a “” with insolvency or and affects the “ of the corporate debtor’s assets.” The majority reasoned that the IBC’s overarching objective of maximising asset value would be undermined if a liquidator were forced to litigate in civil courts over a simple access issue.
However, Judicial Member Justice N. Seshasayee dissented sharply, arguing that disputes relating to easementary rights fall within the exclusive jurisdiction of civil courts. He noted that the IBC does not expressly confer jurisdiction over such third-party property disputes and that allowing the NCLT to determine these matters could lead to a conflict of jurisdiction and undermine the separation of powers.
Supreme Court’s Intervention and Observations
The Supreme Court, while admitting the filed by , stayed the operation of the NCLAT order. The bench expressed a clear preference for an rather than a legal battle over jurisdictional boundaries. “However, we believe that the parties should sit, talk, and try to find some viable solution to the problem,” the Court said, pressing for mediation.
A key factual issue that caught the Court’s attention was the existence of an alternative access route to the corporate debtor’s property. The NCLAT order had noted such an alternative, but this was disputed by ARC. The bench observed, “It appears, from the order by the NCLAT, that there is an alternative access to the property.” When counsel for ARC contested this, the Court responded, “This is a . We want the learned mediator to give us some idea in this regard also.”
The Court also made a telling remark when ARC’s counsel argued that the company’s property rights could not be affected merely because the dispute arose in the context of liquidation. The bench countered, “You may be justified in your legal submissions, but then should you not find a way out, you have blocked the entire block?” This statement signals that the Court, while respecting legal rights, is keen to avoid a deadlock that could frustrate the liquidation process.
ARC’s counsel responded by denying any blocking and referred to coloured maps showing an alternative route from the highway side, submitting that access could be provided from another location.
Mediation and Site Visit Ordered
The Supreme Court directed the parties to appear before the on a date fixed by the Court. It specifically requested the centre to appoint a senior mediator and tasked the mediator with visiting the site, surveying the entire property, and submitting an appropriate report before the next date of hearing. The mediator is also required to ascertain the position regarding the alleged alternative access to the corporate debtor’s property.
This emphasis on fact-finding through mediation rather than adversarial litigation is notable. The Court is essentially using the mediation process as a tool to verify the factual foundation of the legal dispute—specifically, whether a viable alternative access exists. If it does, the entire may become academic, as the liquidator could use that route without infringing on ARC’s rights.
Legal Implications: NCLT’s Jurisdictional Boundaries
The case raises fundamental questions about the ambit of NCLT’s jurisdiction under , which allows the tribunal to adjudicate “any question of law or fact arising out of or in relation to” insolvency or . The NCLAT majority adopted a broad interpretation, holding that any dispute that affects asset —even a third-party easement claim—falls within this umbrella. The dissent, on the other hand, warned against encroaching on the exclusive domain of civil courts, which have specialised procedures for determining property rights.
Legal experts will closely watch how the Supreme Court resolves this tension. A decision in favour of NCLT’s expansive jurisdiction could streamline liquidation processes by allowing tribunals to resolve without delay. Conversely, a ruling limiting NCLT’s powers could push liquidators to , potentially delaying and reducing recoveries for creditors.
The current stay and mediation direction suggest the Supreme Court may prefer a pragmatic, fact-specific resolution rather than a sweeping pronouncement on jurisdiction—at least at this stage. However, the ultimate judgment, if the matter proceeds, will have far-reaching implications for the IBC framework.
Impact on Insolvency Practice
For insolvency professionals, this case underscores the importance of early identification of that may affect access to a corporate debtor’s assets. Liquidators often assume that the NCLT can resolve all connected disputes, but this case demonstrates that the boundary is contested. The outcome may influence whether liquidators seek or parallel civil proceedings when dealing with easements, boundaries, or other real property issues.
The mediation directive also highlights the Court’s preference for in insolvency matters, even in cases involving technical legal questions. Practitioners should note that courts may encourage settlement before delving into complex jurisdictional issues, especially when factual disputes—like the existence of an alternative access—can resolve the matter practically.
Conclusion
The Supreme Court’s stay of the NCLAT order in the Adya Oils case provides temporary relief to , but the core remains open. By steering the parties towards mediation and ordering a , the Court has bought time for a negotiated outcome. Whether this leads to a final settlement or a full-fledged hearing on the jurisdictional issue, the case will serve as an important precedent on the interplay between the IBC and property law. For now, the message is clear: even in the high-stakes arena of insolvency, the Court believes that dialogue and fact-finding can sometimes untangle what the law alone cannot.
