Error in jurisdiction vs. Excessive Jurisdiction – SC’s View on NCLT’s Powers

Introduction: A question which appeared in the CA final Paper troubled the author at the age of 23 and carried on for almost a decade thereafter: The question was: “Distinguish between mistake of fact and mistake of law under all the three Direct Taxes and illustrate the difference between both, with particular reference to wealth Tax Act. On seeing the question, many students like the author of this article felt at that time that even taking up CA course itself was a monumental mistake and felt very disillusioned! Later, as the author’s career began in the tax arena, the author understood that only referable questions of law could be taken to HC, that too by filing a reference application before the same Tribunal and obtaining their leave (for taking it up to the higher forum). In the later years, the Courts also changed their outlook in many cases by admitting a mixed question fact and law before them and later the relevant provisions were substituted with the present day concept of substantial questions of law that alone can be raised before HC in terms of Sec 260 A of the Act.

If a young reader gets rattled on reading the previous paragraph, a similar thing happened now to the author after almost 45 years later on reading the SC Judgment rendered recently wherein the concept – error in jurisdiction versus excessive jurisdiction – was illustrated with some famous English case laws. Though this judgment was rendered in the context of Insolvency & Bankruptcy Code (IBC), the author is of the view that this judgment will be very useful in all proceedings under other Acts also. During his long career, many times the author came across instances of tax authorities exercising jurisdictional errors as also actions which could be termed as excessive jurisdictional action. This article is only to highlight the wonderful principles laid down in this judgment and in the process, strengthen the hands of the assessee to come up with convincing arguments against the action of the department authorities.

SC in Embassy Property Development Private limited V State of Karnataka [LSI-682-SC-2019(NDEL)] (civil Appeal no 9170 of 2019) – order dated 3-12-2019

FACTS:

This was a case which arose under IBC where in respect of a mining lease held by the Corporate Debtor in the State Of Karnataka, the interim Resolution Professional (RP) sought extension of the lease by two more years. Finding no response to his application, he sought for deemed extension of the mining lease rights in terms of The Mines & Minerals (Development & Regulation) Act (MMDR). After some time, the Government of Karnataka rejected the application made by the RP. The RP filed a miscellaneous application before the NCLT, which set aside the order passed by the Government of Karnataka on the ground that the same was in violation of moratorium declared under IBC proceedings and directed the government of Karnataka to grant lease rights in favour of the Corporate Debtor. Against this order, the Government of Karnataka filed a writ petition in the HC to set aside the order of NCLT. The RP conceded before the HC that the matter could be set aside before NCLT once again to render a decision on merits as the order was passed by NCLT on ex-parte without the State of Karnataka being represented. In the subsequent proceedings before NCLT the Government of Karnataka raised 2 objections – viz. the jurisdiction of the NCLT to pass orders in disputes arising out of mining leases between a lessor and a lessee and also alleged fraudulent action by the Corporate Debtor and their related parties to corner the mining rights. Overruling the objections, the NCLT Chennai directed the State of Karnataka to execute supplemental lease deeds in favour of the Corporate Debtor. Against this order, another writ was filed by the Karnataka Government and a stay was granted by the HC. It is against this stay order that the RP and the Committee of Creditors came up before the SC.

Arguments by the petitioners:

1. The HC ought not to have entertained the writ petition and if the State has not agreed with the action of the NCLT, it should go to NCLAT as permitted under IBC and not through writ jurisdiction.
2. The NCLT has already approved the resolution plan and as such the HC cannot destroy the resolution plan.
3. In terms of sec 238, the IBC has overriding effect on all other Statutes and this includes the Mining Act also.

Arguments by Respondents: (Main Legal Contentions)

1. If a case falls under inherent lack of jurisdiction of a tribunal, the HC can definitely interfere.
2. The jurisdiction of NCLT (akin to debt Recovery Tribunal) is confined only to contractual matters inter-parties.
3. An order passed by an authority under special MMDR Act falls in the realm of public law and the NCLT would have no power of judicial review of such orders.
4. When an inferior tribunal passes an order which is a nullity, the superior court need not drive the party to the appellate forum stipulated by the Act.

Analysis by the Supreme Court: (edited extracts)

A: English authorities:

• Traditionally, English courts maintained a distinction between cases where a statutory / quasi-judicial authority exercised a jurisdiction not vested in it in law and cases where there was a wrongful exercise of the available jurisdiction.
• An “error of jurisdiction” was always distinguished from “in excess of jurisdiction” until the advent of the decision rendered by the House of Lords, by a majority of 3:2 in Anisminic Ltd. vs. Foreign Compensation Commission. After acknowledging that confusion had been created by the observations made in Reg. vs. Governor of Brixton Prison, Ex parte Armah to the effect that if a Tribunal has jurisdiction to go right, it has jurisdiction to go wrong, it was held in Anisminic that the real question was not whether an authority made a wrong decision but whether they enquired into and decided a matter which they had no right to consider.
• Anisminic, hailed as a breakthrough and a legal landmark (see In Re: Racal Communications Ltd.) abolished the old distinction between errors of law that went to jurisdiction and errors of law that did not.

B: Indian Supreme Court’s view:

• Before a court can be held to have jurisdiction to decide a particular matter it must not only have jurisdiction to try the suit brought, but must also have the authority to pass the orders sought for.
• This court also pointed out that it is not sufficient that it has some jurisdiction in relation to matter of the suit, but its jurisdiction must include (1) the power to hear and decide the questions at issue and (2) the power to grant the relief asked for.
• The distinction between the lack of jurisdiction and the wrongful exercise of the available jurisdiction should certainly be taken into account by High Courts, when Article 226 is sought to be invoked bypassing a statutory alternative remedy provided by a special statute. 

C: Views in this case and the decision:

• Whether the case of the State of Karnataka fell under the category of (1) lack of jurisdiction on the part of the NCLT to issue a direction in relation to a matter covered by MMDR Act, 1957, and the Statutory Rules issued thereunder or (2) mere wrongful exercise of a recognised jurisdiction, say for instance, asking a wrong question or applying a wrong test or granting a wrong relief is to be looked at.
• The decision of the Government of Karnataka to refuse the benefit of deemed extension of lease, is in the public law domain and hence the correctness of the said decision can be called into question only in a superior court which is vested with the power of judicial review over administrative action.
• The NCLT, being a creature of a special statute to discharge certain specific functions, cannot be elevated to the status of a superior court having the power of judicial review over administrative action.
• The NCLT is not even a Civil Court which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognizance is either expressly or impliedly barred.
• Therefore NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which, it is called upon to administer.
• NCLT and NCLAT are constituted, not under the IBC, 2016, but under Sections 408 and 410 of the Companies Act, 2013.
• A decision taken by the government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase “arising out of or in relation to the insolvency resolution” appearing in Clause (c) of Subsection (5) of Sec 60.
•  Let us take for instance a case where a corporate debtor had suffered an order at the hands of the Income Tax Appellate Tribunal at the time of initiation of CIRP. If Section 60(5)(c) of IBC is interpreted to include all questions of law or facts under the sky, an Interim Resolution Professional / Resolution Professional will then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT, instead of moving a statutory appeal under Section 260A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results.
• In any case a tribunal which is the creature of a statute cannot be clothed with a jurisdiction by any concession made by a party.
• Since NCLT chose to exercise a jurisdiction not vested in it in law, the High Court of Karnataka was justified in entertaining the writ petition on the basis that NCLT was coram non judice. 

Back to Income Tax Proceedings – Error in Jurisdiction V Lack of Jurisdiction / Excessive Jurisdiction – Few Instances: 

For an avid tax reader of judgments, many instances will immediately come to his mind if he is asked to quickly recall under which sections he can illustrate actions by income tax authorities which could be termed as errors in jurisdiction and lack of jurisdiction. To tabulate the following instances under the two separate categories as mentioned in the heading may be a good examination question but in practical terms this will test the complete knowledge of the income tax law of the participants – an exercise wholly unnecessary. 

• Proceedings initiated after the time limit fixed under the Act expired;
• Re-opening of completed assessments without proper basis;
• Not complying with procedural aspects prescribed under the Act;
• Revising orders passed by lower authorities without properly adhering to the provisions;
• Issuing notice to persons who are already assessed by a different AO;
• Justifying the action by arguments based on inherent powers;
• Applying the newly inserted legal provisions with retrospective effect to overcome difficulties;
• Circulars issued by the Board which are beyond their powers;
• Referring to the valuation officer in exercise of powers exercised under sections 131(1) and 133(6) – not permitted under the provisions – 130 Taxmann (511) SC
• Impounding of passport of the assessee;
• Assessment order passed in the name of an amalgamating company after it ceases to exist;
• Tribunal cannot adjudicate on vires of a provision – its constitutional validity; 

Conclusion:

For the first time, we became aware of the historical background to the distinction between twin expressions – error in jurisdiction vs. lack of jurisdiction (excessive jurisdiction) and also the growth of jurisprudence on this subject, explained in a live situation, through this wonderful judgment by the SC. May be, after this, one can expect all the Authorities not to exceed their domain powers! 

Epilogue:

If after reading this article some readers accuse the author that he has unnecessarily mixed up an IBC case with income tax issues, the answer lies in the illustration cited by the SC itself as extracted above. Anyway, the (mix or miss) deed is done here by the author!