Madras High Court Clarifies Scope of Section 231 IBC and Power to Reject Plaint at Filing Stage

The Madras High Court in G. Jothipaul Vs Kanishk Gold Private Limited has delivered an important ruling on two key procedural and jurisdictional issues:

  1. Whether Section 231 of the Insolvency and Bankruptcy Code, 2016 (IBC) bars a civil suit seeking declaration in respect of sale deeds when the NCLT has already declined jurisdiction; and
  2. Whether a trial court can invoke Order VII Rule 11 CPC to reject a plaint suo motu at the very stage of institution, even before numbering the suit and issuing summons.

The Court ultimately set aside the order of the Principal District Judge, Kanchipuram, who had rejected the plaint at the filing stage, and restored the suit to file with directions.

Background and Procedural History

The civil revision petition came before the Madras High Court at the instance of the plaintiffs, who were aggrieved by the rejection of their plaint at the inception itself. The trial court had refused to even number the suit and, at the stage of presentation of the plaint, proceeded to reject it on two grounds:

  • Alleged bar of jurisdiction under Section 231 of the Insolvency and Bankruptcy Code, 2016; and
  • Alleged bar of limitation.

The suit filed by the plaintiffs sought a declaration challenging certain sale deeds. These deeds, according to the pleadings, related back to the year 2017.

Before approaching the civil court, the plaintiffs had already:

  1. Filed writ petitions under Article 226 of the Constitution of India before the Madras High Court, and
  2. Pursuant to liberty granted by the High Court, approached the National Company Law Tribunal (NCLT).

The writ petitions were dismissed, but with explicit liberty to move the NCLT. When the matter was taken to the NCLT, that forum declined to entertain the case, holding that it did not have the power to grant the relief the plaintiffs were seeking. In light of this, the plaintiffs adjusted their reliefs and instituted the present civil suit.

Despite this background, the trial court, at the threshold, rejected the plaint invoking:

  • The jurisdictional bar under Section 231 IBC; and
  • The plea of limitation arising from the date of the sale deeds.

The plaintiffs, therefore, invoked the revisional jurisdiction of the High Court to challenge this rejection order.

Issues Before the High Court

The High Court was effectively called upon to decide:

  1. Whether Section 231 IBC absolutely barred the filing of the civil suit in the facts of the case, particularly when the NCLT had already declined jurisdiction to grant the relief sought.
  2. Whether the question of limitation, arising from sale deeds of 2017 and subsequent developments in 2024, could be adjudicated at the inception of the suit so as to justify rejection of the plaint under Order VII Rule 11 CPC even before numbering the suit.
  3. Whether, at the stage of institution and numbering, the trial court was justified in assuming the role of the defendants and rejecting the plaint suo motu.

Arguments on Behalf of the Petitioners

On the bar under Section 231 IBC

Counsel for the petitioners contended that the reliance placed by the trial court on Section 231 of the Insolvency and Bankruptcy Code, 2016 was misplaced. The relief in the civil suit was in the nature of declaration in respect of sale deeds, whereas:

  • The earlier writ petitions under Article 226 did not seek confirmation of any sale, and
  • After the dismissal of those writ petitions with liberty, the plaintiffs approached the NCLT, which explicitly held that it lacked jurisdiction to grant the relief sought.

The petitioners argued that once the NCLT itself had concluded that it had no power to adjudicate or grant the declaratory relief in question, Section 231 could not be pressed into service to deny access to the civil court. In other words, the statutory bar under Section 231 could not operate where the specialised forum had no jurisdiction in the first place.

On limitation as a mixed question