While analysing Sections 63 and 231 of the IBC, which are classical ouster clauses that bar the jurisdiction of civil courts in respect of any matter over which the NCLT or the NCLAT has jurisdiction under the IBC, the Delhi High Court held that the issues raised in the plaint fall squarely within the jurisdiction of the NCLT under Sections 65, 75, and 60(5)(c) of the IBC, and consequently, the suit is statutorily barred by Sections 63 and 231 of the IBC.
The Court characterised the suit as a “textbook example” of a proceeding that, while couched in declaratory overtones, is in reality an “impermissible collateral attack on the jurisdiction and functioning of the NCLT” and an attempt to secure an “anti-tribunal injunction”. The Court cautioned against this “new breed of anti-tribunal suits” and emphasised that civil courts must decline to entertain such actions at the threshold to prevent forum shopping and procedural circumvention.
Further, declaring the suit as “luxury litigation”, the Court imposed costs of Rs. 2 lacs on the plaintiff to be deposited with the Delhi State Legal Services Authority (DSLSA), which shall be utilised by the DSLSA for providing counselling/psychological support to the victims of offences under the Protection of Children from Sexual Offences Act, 2012.
The Court emphasised that the IBC was enacted to consolidate and amend laws relating to insolvency into a single, unified code, thereby replacing the previous fragmented and ineffective legal framework. Essentially, a primary objective of the IBC is to create a single forum (the NCLT) to deal with matters of insolvency in a time-bound manner, preventing delays and the scattering of connected matters across multiple fora.
The Court pointed out that Section 65 explicitly empowers the NCLT to adjudicate on whether CIRP was initiated “fraudulently or with malicious intent for any purpose other than for the resolution of insolvency”. Furthermore, Section 75 empowers the NCLT to penalise any person for furnishing false information in a Section 7 application, which inherently includes the power to determine the veracity of documents and statements.
A Single Judge Bench of Justice Purushaindra Kumar Kaurav observed that Section 60(5)(c) of the IBC grants the NCLT wide residuary jurisdiction to entertain “any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings”. This power is intended to ensure that all disputes having a nexus with the insolvency of the corporate debtor are adjudicated by a single forum.
The Bench found that the NCLT Rules, 2016, provide a comprehensive procedural framework that equips the NCLT to conduct a full-fledged fact-finding exercise, including summoning and examining witnesses, ordering cross-examinations, and compelling the production of documents. This makes the NCLT institutionally equipped to adjudicate complex disputes involving allegations of fraud, forgery, and collusion.
Moving ahead, the Bench observed that the reliefs prayed for by the plaintiff, namely, a declaration of loan discharge and the invalidity of the BTA, are directly and inextricably linked to the question of the existence of a legally enforceable debt, which is the cornerstone of the Section 7 petition pending before the NCLT.
The determination of whether the BTA is fraudulent or forged is an incidental question necessary to decide the broader issue of the existence of debt and the fraudulent initiation of CIRP, all of which fall within the NCLT’s domain, added the Bench.
Briefly, the plaintiff had availed a term loan facility of Rs. 80 Crores from defendant no. 2 (then Sonata Investments Ltd.) under a loan agreement dated October 31, 2006. The defendant no. 2 allegedly assigned the debt in favour of defendant no. 1 through a ‘Business Transfer Agreement’ (BTA) dated March 06, 2020. Subsequently, the defendant no. 1 instituted a petition under Section 7 of the IBC before the NCLT, alleging a default in the repayment of the said loan.
The plaintiff’s primary contention is that its obligations under the loan agreement were completely discharged through various payments made during the financial years 2023-24 and 2024-25. The plaintiff has claimed that the BTA, which forms the basis of the Section 7 petition, is fraudulent, forged, void-ab-initio, and not binding upon it. Consequently, the plaintiff filed the present suit seeking, inter alia, a declaration that its loan obligations stand discharged and that the BTA is void.
Appearances:
Advocates Tanmaya Mehta and Palash Singhai, for the Plaintiff
Senior Advocates Darpan Wadhwa and Pooja M. Saigal, along with Advocates Amek Vaid, Chanan Parwani, Shivam Shukla, Kaustubh Singh, Shubhi Agarwal, Rajat Sinha, Ekta Kalra Sikri, Ajay Pal Singh Kullar, Prakhar Khanna, and Shubham Jain, for the Defendant
