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  • Shweta Kushe

Paper Tigers: NCLT and NCLAT’s Contempt Jurisdiction under the IBC

[Shweta is an Advocate practising at the Bombay High Court.]


Under the aegis of the Insolvency and Bankruptcy Code 2016 (IBC), there are several adjudicating authorities that are responsible for the resolution of insolvency proceedings. The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) are responsible for corporate debtors, while the Debt Recovery Tribunal and the Debt Recovery Appellate Tribunal are responsible for individuals and partnership firms. Therefore, the NCLT and the NCLAT play a pivotal role with respect to the corporate insolvency resolution process (CIRP). For effective adjudication, it is necessary that adjudicatory authorities possess sui generis power to initiate contempt proceedings. The NCLT / NCLAT’s contempt powers are covered by the Companies Act 2013, but the IBC does not grant any concurrent contempt jurisdiction to either NCLT or NCLAT. Therefore, this is essentially a Gordian knot caused due to the lack of harmonious construction between the Companies Act 2013 and the IBC. Consequently, there have been conflicting rulings regarding the extension of contempt provision under the Companies Act 2013 to proceedings conducted under the IBC.

 

Analysis of the Relevant Statutory Provisions


In order to pass the test of admissibility, the popular practice has been to file a contempt application under Rule 11 of National Company Law Tribunal Rules 2016 read with Section 425 of the Companies Act 2013 and Section 12 of the Contempt of Courts Act 1971 for initiating contempt proceedings for wilful disobedience. Following is an overview of all the relevant statutory provisions with respect to initiation of contempt proceedings under the IBC.

 

Sections 408, 425 and 433 of the Companies Act 2013


Section 408 establishes the NCLT with a President and members appointed by the Central Government to exercise powers and functions conferred by the Companies Act 2013 or other laws. Section 425 grants the NCLT and the NCLAT the same jurisdiction, powers and authority as the High Court in dealing with contempt themselves. Herein, the Contempt of Courts Act 1971 applies to them with some modifications. Further, Section 433 states that the Limitation Act 1963, applies to proceedings and appeals before the NCLT and the NCLAT.

 

IBC


There is no express provision in the IBC that grants the NCLT and the NCLAT the power to exercise contempt jurisdiction under the IBC. Although the Eleventh Schedule to the code amended certain provisions of the Act to eliminate inconsistencies between the Companies Act 2013 and the code, this revision did not include Sections 425 and 433. Therefore, the power to initiate contempt proceedings was not extended to the code.

 

Rule 11 of National Company Law Tribunal Rules 2016 (NCLT Rules) and National Company Law Appellate Tribunal Rules 2016 (NCLAT Rules)


Rule 11 of both the NCLT Rules and the NCLAT Rules states that, “Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the end of justice or to prevent abuse of the process of the Appellate Tribunal.”

 

Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016


There is no express rule in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 provisioning for a contempt application. 

 

Harmonious Construction of the IBC and the Companies Act


As noted above, the NCLT and the NCLAT have contempt jurisdiction under Section 425 of the Companies Act 2013. Furthermore, Section 408 of the Companies Act 2013, allows the NCLT to execute the authority granted to it not only by the Companies Act 2013, but also by any other law. If Sections 425 and 408 of the Companies Act 2013 are read together with Section 5(1) of the IBC, it is evident that the NCLT's contempt authority is exercisable in IBC proceedings. Yet, it is also true that there is no clear provision granting the NCLT and the NCLAT the capacity to exercise contempt jurisdiction under the said code. Despite this, the NCLT benches, as well as the the NCLAT, have heard contempt applications under the IBC to ensure obedience to their orders / rulings.

 

However, it is also crucial to emphasize that there is a distinct cloud of question over the legislative intent behind the omission of contempt jurisdiction from the IBC and whether the above-explained harmonious construction has any merit. This is because no changes were made to Sections 425 (Power to Punish for Contempt) and 433 (Limitation) of the Companies Act 2013 in order to make them applicable to proceedings under the IBC when the Eleventh Schedule was amended. As a result, there is one prevalent interpretation that unless otherwise permitted by law, the adjudicating bodies under the IBC and the tribunals under the Companies Act 2013, do not share the same contempt jurisdiction because the legislature never intended for them to. This raises the question whether an adjudicating authority under the IBC is different from tribunals under the Companies Act 2013.

 

A bare perusal of the text shows that the adjudicating authority under the IBC is different from the tribunals under the Companies Act 2013, but the apex court has often described the jurisdiction of the NCLT and the NCLAT to be the sum of the jurisdiction awarded by both the IBC and the Companies Act 2013. The Supreme Court of India in the case of Essar Steel India Limited v. Satish Kumar Gupta ruled that the NCLT and the NCLAT are strictly bound and limited to the jurisdiction conferred upon it by both the IBC and the Companies Act 2013. Further, in the case of Gujarat Urja Vikas Nigam Limited v. Amit Gupta, this court went a step ahead and ruled that the NCLT and the NCLAT owe their existence to the IBC and the Companies Act 2013. If an adjudicating authority derives its purpose, power and jurisdiction from two specific statutes, whose legal domain is not only inter-connected but co-existent, it will be a legal anomaly to treat the same adjudicating authority falling under these two statutes to be two distinct entities. An adjudicating authority cannot have a split personality; it is bizarre to postulate that an adjudicating authority has contempt jurisdiction under one statute but is barred from exercising it under another.

 

Nature of Sui Generis Contempt Jurisdiction


The Constitution of India explicitly designates the Supreme Court of India and the High Courts to be the courts of record. This designation is further bolstered by the provisions of the Contempt of Courts Act 1971. Contempt jurisdiction is an extraordinary jurisdiction, not exercisable by ordinary courts / tribunals, unless it is specifically conferred upon. If the code is strictly construed, the adjudicating authorities will not be considered trite to exercise contempt jurisdiction under the IBC because such jurisdiction requires extraordinary jurisdiction, which can only be conferred through an express amendment to the existing legislation. However, in recent times, the apex court has widened the interpretative definition of court under the Contempt of Courts Act 1971, by interpreting it through the lens of judicial propriety, discipline and dignity. For instance, in Subramanian Swamy v. Arun Shourie, a five-judge bench of the Supreme Court of India held that, “..the court under the Contempt Act means the authority which has the legal power to give a judgment which, if confirmed to some other authority, would be definitive. The ‘court’ is an institution which has power to regulate legal rights by the delivery of definitive judgments and to enforce its orders by legal sanctions and if its procedure is judicial in character in such matters as the taking of evidence and the administration of oath, then it is a court…” Therefore, the phrase ‘courts of record’ possesses a wide definition in the interest of effective dispensation of justice as held by the Supreme Court of India multiple times, notably here, here and here. Given this ratio, the argument that the NCLT/NCLAT's inherent contempt authority applies to IBC cases has some merit.

 

In this regard, the case of Manoj K Daga v. ISGEC Heavy Engineering Private Limited and Others is especially significant since, by not interfering with the NCLAT's ruling, the Supreme Court of India implicitly acknowledged the NCLAT's contempt authority under the IBC. In this matter, ISGEC Heavy Engineering Private Limited applied to the NCLT under Section 9 of the IBC to initiate CIRP against the respective corporate debtor. Following the admission of this application by the NCLT, the director of the corporate debtor filed an appeal with the NCLAT, disputing the admission of the application. During the NCLAT proceedings, it was discovered that the corporate debtor's directors had made unauthorized withdrawals and transfers from the corporate debtor's bank account. The NCLAT required the directors to restore the withdrawn funds, but the directors failed to do so within the time frame specified; as a result, the NCLAT determined their acts to be illegal and threatened them with contempt action. The directors of the corporate debtor then filed an appeal with the Supreme Court of India against the relevant NCLAT ruling. On 6 March 2020, the Supreme Court of India categorically refused to intervene in NCLAT's order giving the tribunal wide rein to guarantee compliance with its instructions. This also answers the question whether by ruling in favour of its own contempt powers, a court can grant itself contempt jurisdiction as notably done by the NCLAT here and here. Technically, this question is moot since the Supreme Court of India's refusal to stay contempt proceedings under the IBC speaks volumes about such a move’s legality.

 

Interpreting Legislative Intent


Where the legislature does not express itself clearly, the statute must be understood by donning the glasses worn by the legislature while crafting the subject statute. As elucidated before, the IBC and the Companies Act 2013 are in clear conflict when it comes to the NCLT and the NCLAT’s contempt jurisdiction. However, should the mere absence of a concurrent provision/amendment in an interconnected statute disempower and render the adjudicating authorities ineffective? In this existing scenario, the current controversy brings us to the legal maxim of ut res magis valeat quam pereat, also known as the principle of effectiveness. The maxim means that it is better for a thing to be effective, than it to be rendered ineffective or inoperative solely on the basis of its construct. In Tinsukhia Electric Supply Company Limited v. Assam and Others, the apex court had upheld the principle of effectiveness and propounded that the provision of a statute must be construed as to make it effective and operative. The courts should always prefer a construction which will give some meaning and effect to the words used by the legislature, rather than that which will reduce its futility. Concurrently, despite not granting the tribunals contempt powers to ensure compliance, the Statement of Object and Reasons of the Insolvency and Bankruptcy Code (Amendment) Bill 2019 recognises the problem of undue delay, “...in some cases extensive litigation is causing undue delays, which may hamper the value maximisation. There is a need to ensure that all creditors are treated fairly, without unduly burdening the Adjudicating Authority whose role is to ensure that the resolution plan complies with the provisions of the Code.” Therefore, the legislative intent to reduce undue delays of all kinds including those caused due to non-compliance of orders permeates across the code. Consequently, in this case, applying the maxim of ut res magis valeat quam pereat to meet the objective of the legislative intent neither would be a far stretch nor would be considered a jurisprudential gymnastic.


Conclusion


The power to punish contempt enables adjudicating authorities of all nature to protect the dignity of the judicial system and ensure efficient delivery of justice. One needs to be alive to the fact that the current status of jurisprudence on this issue has muddied the waters far more than usual. Therefore, until the time that this question of law seizes the Supreme Court of India, in the interest of justice, the tribunals cannot continue to remain paper tigers. As rightly espoused by the NCLAT in Shailendra Singh v. Nisha Malpani, “It will be a travesty of justice if the 'Tribunals' are to permit 'gross contempt of court' to go unpunished, if there are no mitigating factors.” A court of law that cannot ensure compliance to its orders is a mere courthouse of brick and mortar.

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