Embassy Property Development Pvt. Ltd. v. State of Karnataka (2019)

Unit 4 is about institutions, and the first question about any institution is what it may decide. Section 60(5) is drawn very widely and has been said to ensure that the Tribunal alone has jurisdiction over applications and proceedings by or against a corporate debtor. Taken at face value that would make the Tribunal a general court for everything touching a company in insolvency. Embassy Property is where the Court drew the line, and it drew it along a boundary students must be able to state: the difference between a private law dispute arising from the insolvency and a public law decision of a statutory authority.

The corporate debtor held a mining lease granted by the State. The State declined to extend it, or took a decision adverse to the lease, under the mining legislation and the rules made under it. The resolution professional went to the Adjudicating Authority, invoking its jurisdiction under s. 60(5), for relief in respect of that decision. The issue was whether the Tribunal could sit in judgment on the Government's decision.

Although the Adjudicating Authority and the Appellate Tribunal have jurisdiction to enquire into questions of fraud, they would not have jurisdiction to adjudicate upon disputes such as those arising under the Mines and Minerals (Development and Regulation) Act, 1957 and the rules made under it, especially when the disputes revolve around decisions of statutory or quasi-judicial authorities, which can be corrected only by way of judicial review of administrative action.

The distinction is between the source of the dispute and its subject. Section 60(5) is a residuary provision within a statute about insolvency; its purpose is to gather into one forum the questions that the insolvency itself throws up, so that a corporate debtor is not fragmented across a dozen courts. It is not a conferment of general jurisdiction over every matter in which the debtor has an interest.

A decision of a statutory authority under a different Act is a public law act. Its validity is tested against the standards of administrative law — power, procedure, reasonableness — in the constitutional jurisdiction of the High Court. Those standards are not part of the Code, and the Adjudicating Authority is not a court of judicial review. To let the Tribunal set aside such a decision because the debtor is in insolvency would be to create a parallel and unreviewable route around Article 226.

The carve-out for fraud is consistent with that reasoning rather than an exception to it. Fraud in relation to the insolvency — in the transactions of the debtor, in the initiation of the process — is a question the Code itself puts before the Tribunal, and it arises from the insolvency.

1. On the jurisdiction of the Adjudicating Authority, state the wide proposition from the s. 60(5) authority first, then immediately qualify it with this case. An answer that gives only the wide proposition is incomplete.
2. Give the test: does the dispute arise from the insolvency, or does it require review of a statutory or quasi-judicial decision under another Act? The first is for the Tribunal; the second for judicial review.
3. Use the same boundary elsewhere. The residuary jurisdiction has been held not to extend to interpreting the terms of a third-party contract, and not to matters falling within the purview of another authority under separate legislation such as the law on money laundering or on benami transactions, each of which operates in its own field.
4. What it does not decide. It does not withdraw the Tribunal's power to enquire into fraud, and it does not decide when a contract termination falls inside the Tribunal's jurisdiction. That is the next case.