The NCLAT confirmed that the NCLT lacked jurisdiction to adjudicate closure disputes that occurred before the initiation of insolvency proceedings.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that the NCLT lacks jurisdiction under Section 60(5)(c) of the IBC to adjudicate disputes related to the legality of a closure or lockout that occurred prior to the initiation of insolvency proceedings, as such matters fall within the domain of specialized labour forums under applicable industrial laws.
The Era Labourer Union of SIDCUL, Pant Nagar, appealed to the National Company Law Appellate Tribunal (NCLAT) against the order of the National Company Law Tribunal (NCLT), New Delhi, dated April 2, 2024, which dismissed IA No. 2545 of 2021. The union sought relief against the NCLT's rejection of their claims concerning the lockout and closure initiated by Apex Buildsys Limited at its Pant Nagar factory. The closure process began on July 31, 2017, following the transfer of workers to a Nagpur plant earlier that year. Disputing the closure, the union pursued litigation in the Uttarakhand High Court, but insolvency proceedings initiated by ICICI Bank under Section 7 of the IBC on August 20, 2018, redirected the union to pursue its claims before the NCLT.
The union filed a claim of ₹2.89 crore with the Resolution Professional and moved the NCLT to declare the lockout illegal. On August 8, 2019, the NCLT referred the issue to the Committee of Creditors (CoC). However, with the CoC’s decision to proceed with liquidation, the liquidator partially admitted the union’s claim for ₹1.09 crore. Subsequent efforts to auction the company as a going concern were cancelled by the NCLT. Following these developments, the union filed IA No. 2545 of 2021, seeking wages and contesting the closure’s legality. The NCLT dismissed the application, holding that it lacked jurisdiction over the closure dispute, as it predated the insolvency commencement.
On appeal, the NCLAT upheld the NCLT’s order, emphasizing that Section 60(5)(c) of the IBC grants jurisdiction to the NCLT only over matters connected to insolvency and related proceedings. The NCLAT cited the Supreme Court’s rulings in Gujarat Urja Vikas Nigam Limited v. Amkit Gupta and Others, REEDLAW 2021 SC 03533, reiterating that public law issues, such as those governed by the Uttar Pradesh Industrial Disputes Act, 1947, fall outside the NCLT's purview. The NCLAT clarified that neither the High Court nor the Supreme Court had directed the NCLT to adjudicate the closure dispute, as no binding decision on the legality of the closure had been rendered by either court.
The NCLAT dismissed the union’s reliance on various precedents, including Kunhayammed v. State of Kerala and Somesh Tiwari v. Union of India, finding them inapplicable to the facts of the case. It held that the closure of the Pant Nagar factory was legally executed, and the liquidator had correctly rejected claims for wages and bonuses beyond the closure date of July 31, 2017. Concluding that the NCLT acted within its jurisdiction by refusing to entertain the closure dispute and rejecting claims arising from the post-closure period, the NCLAT dismissed the appeal.
Ms. Bhargavi Kannan, Mr. Ishaan Karki, Ms. Shivani K., Advocates represented the Appellant.
Mr. Abhishek Anand, Mr. Karan Kohli, Ms. Ridhima Mehrotra and Ms. Palak Kalra, Advocates appeared for the Respondent.
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