NCLAT Upholds NCLT Order Allowing Liquidator To Challenge JDA, GPA Termination Before Civil Court.

The National Company Law Appellate Tribunal (NCLAT) at Chennai has upheld an order allowing the liquidator of a company under liquidation to approach a civil court to challenge the unilateral termination of a Joint Development Agreement (JDA) and cancellation of a General Power of Attorney (GPA) relating to the Manapakkam project.

A bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Jatindranath Swain found no error in the National Company Law Tribunal's decision granting leave to the liquidator to initiate proceedings before a competent civil court.

The bench observed,

“However, in our view, the code itself prescribes and embodies an exception that, such a type of contingency, where a particular document creating a right is subjected to challenge owing to its termination would always fall for its judicial consideration before the regular civil proceedings, as it entails a detailed process of entertaining evidence and its appreciation.”

The appeal was filed by Sri Brindhavan Brick Works against DiMax Restructuring Private Limited, acting through its authorised signatory Ashish Vyas, the liquidator of Maan Sarovar Properties Development Private Limited.

The liquidator had sought leave to institute proceedings before a civil court. The proposed proceedings would challenge the unilateral termination of a JDA dated November 14, 2003, and cancellation of a GPA executed on the same date by Sri Brindhavan Brick Works in relation to the Manapakkam project.

The National Company Law Tribunal, Chennai, granted the request. Aggrieved by that order, Sri Brindhavan Brick Works approached NCLAT.

It argued that the Manapakkam property was already the subject matter of pending company appeals before the appellate tribunal. According to it, permitting the liquidator to pursue civil proceedings concerning the termination of the two documents would adversely affect those appeals.

NCLAT rejected the contention. The tribunal observed that questions concerning the validity of the termination of the JDA and GPA required a detailed examination of evidence. Such issues, it held, could not be dealt with by the adjudicating authority or in the pending company appeals.

The tribunal further noted that the Insolvency and Bankruptcy Code permits proceedings involving a corporate debtor to be initiated before other forums, subject to leave being granted by the tribunal.

“Grant of permission to challenge the termination is exclusively within the domain of exercise of powers by the Learned Adjudicating Authority as contemplated under the proviso to Section 33(5) of the I & B Code, 2016.”, it noted.

It further held that the leave granted to the liquidator would only facilitate adjudication of whether the termination was valid. It would not affect any rights claimed by Sri Brindhavan Brick Works in relation to the property.

The tribunal observed that those rights remained reserved for adjudication in the pending company appeals on their own merits.

Holding that the impugned order did not suffer from any apparent error warranting appellate interference, NCLAT dismissed the appeal.