SC Usurped Appellate Tribunal’s Jurisdiction in Jaypee Case

One bench proposes, another disposes. The Supreme Court lived up to its reputation of being not one court but multiple courts when it passed an order on Monday in a Public Interest Litigation (PIL) filed against insolvency resolution process initiated against Jaypee Infratech by the National Company Law Tribunal, Allahabad. The order effectively stayed the insolvency resolution proceedings till further orders.

This comes right after another bench of the Supreme Court passed a detailed judgment on Friday extolling the virtues of the Insolvency and Bankruptcy Code (the Code) and established the Code’s primacy over other laws which may otherwise be in conflict with the Code.

However, from what we understand, the Supreme Court is now going to look at the legality of provisions of the Code vis-a-vis rights of homebuyers.

The PIL filed by a home owner assails the actions of the Tribunal which, while admitting the insolvency application filed by a financial creditor against Jaypee, had appointed an interim resolution professional in August for invitation of claims against the debtor company and for initiation of the insolvency resolution process.

During the currency of the resolution proceedings, all legal proceedings pending against the debtor company are stayed by virtue of the order of the Tribunal, and no new legal proceedings against the debtor company can be initiated till the time the resolution proceedings continue. As per the Code, this period may extend up to 180 days, or a maximum of 27 days, as the case may be.

For all practical purposes, home buyers would have been left high and dry till the time the resolution process continued.

Genesis of The Controversy

The genesis of the controversy, in my opinion, started with the interim resolution professional announcing to the world that he would be accepting claims by home buyers against Jaypee Infratech.

Under the Code, claims could only have been filed by creditors, including financial and operational creditors. However, no separate form for creditors other than financial and operational creditors had been provided under the Code.

This situation, and ensuing confusion, was sought to be rectified by the Insolvency and Bankruptcy Board of India which came out with a separate form to be filed by other creditors.

However, this could very well prove to be a false dawn as no creditor other than financial creditors gets a seat at the table for preparation of a resolution scheme.

Only financial creditors are empowered to vote upon and approve any resolution scheme, and even such resolution schemes are supposed to mainly provide for mechanism for payments to be made to operational creditors.

Therefore, home buyers would have been required to wait for their turn to agitate against the resolution scheme until after the scheme is tabled before the Tribunal for its approval.

Petitioners Could’ve Approached Appellate Tribunal Instead of Directly Approaching SC

Interestingly, there is another petition appealing the order of the Tribunal which was listed along with the PIL today.

Such an appeal by-passes the appeal procedure provided under the Code by approaching the Supreme Court directly.

Under Section 61 of the Code an appeal against an order of the Tribunal can be filed before the National Company Law Appellate Tribunal. Such an appeal can be filed by ‘any person’ aggrieved by the order of the Tribunal and not just a party to the proceedings.

Therefore, even the public interest petitioners could have approached the Appellate Tribunal instead of directly approaching the Supreme Court. These are still early days and maintainability of such petitions can still be assailed by the parties to the proceedings.

SC Usurped The Appellate Tribunal’s Jurisdiction

Nobody can doubt the Supreme Court’s intentions in staying the resolution proceedings so far as it adversely affects home buyers.

Home buyers as a bloc are the most aggrieved lot due to actions of various builders across the country and the protection provided by the Code acts as a shield for the Company against actions by home buyers.

There definitely needs to be a safeguard against unscrupulous builders, but by directly staying the resolution process the Supreme Court has usurped the jurisdiction provided to the Appellate Tribunal under law.

It is definitely a welfare-minded step, but ends up undermining the provisions of the Code which is one of the most reform-oriented legislations in recent times.

While deciding the PIL and other petitions, the Supreme Court must be mindful of the fact that getting carried away beyond the scheme of the Code may just hurt such reforms in the longer run.

(Chitranshul Sinha is a lawyer practicing in the Supreme Court. He tweets using the handle @ghair_kanooni . This is an opinion piece and the views expressed above are the author’s own. neither endorses nor is responsible for the same.)

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