Article 227 Cannot Be Used To Bypass NCLAT Remedy Against NCLT Orders: Kerala High Court

The Kerala High Court on 14 July held that parties cannot invoke the High Court's supervisory jurisdiction under Article 227 of the Constitution to challenge orders passed by the National Company Law Tribunal (NCLT) when the Insolvency and Bankruptcy Code, 2016 provides an effective statutory appellate remedy before the National Company Law Appellate Tribunal (NCLAT).

Justice T.R. Ravi dismissed a petition filed by Erattupetta Municipality, observing:

“When a person chooses not to take any action against orders which are passed against them, when the statue provides for remedies, they cannot be allowed to approach this Court under Article 227 of the Constitution of India, seeking an extraordinary discretionary relief.”

The case arose from insolvency proceedings against Raihan Healthcare Private Limited. During the Corporate Insolvency Resolution Process (CIRP), the Municipality entered into an agreement with the company's liquidator to take over and operate the hospital as a COVID-19 treatment facility for 120 days. Since it lacked the infrastructure to operate the hospital, the Municipality entrusted its management to a private agency.

The arrangement subsequently failed, following which the liquidator approached the NCLT seeking recovery of dues from the Municipality. As the Municipality failed to appear before the NCLT, the Tribunal proceeded ex parte and directed it to pay Rs. 19.57 lakh with 6% interest.

The Municipality's application seeking to set aside the ex parte order was dismissed, following which contempt proceedings were initiated for non-compliance with the NCLT's directions. Aggrieved by these orders, the Municipality approached the High Court under Article 227 challenging the NCLT proceedings and the contempt action.

Rejecting the petition, the Court referred to the statutory appellate remedy available under the Insolvency and Bankruptcy Code and relied on the Supreme Court's decision in State of U.P. v. Raghavendra Nath Srivastava. It observed:

“…..this Court is not expected to function as an appellate forum over orders which are passed by a statutory authority created under a specific legislation...It cannot be disputed that appellate powers are available with the NCLAT, against orders passed by the NCLT.”

Further, the Bench noted that the Municipality was aware of the ex parte order and the dismissal of its application to set it aside but “chose to remain silent”. It noted:

“The petitioner woke up from the slumber only at that point of time. When a person chooses not to take any action against orders which are passed against them, when the statue provides for remedies, they cannot be allowed to approach this Court under Article 227 of the Constitution of India, seeking an extraordinary discretionary relief.”

It also held that the Municipality could not claim any special treatment merely because it was a local self-government institution.

Accordingly, the High Court dismissed the petition while clarifying that if the Municipality chooses to pursue the statutory remedies available against the NCLT orders, the period spent prosecuting the proceedings before the High Court would be excluded while calculating the limitation period.

For Petitioner: Advocate Sunil V Mohammed

For Respondents: Advocates Joseph George (Kannampuzha) and A.G Sathyanarayana