|Case Name||:||M/S. Innoventive Industries Ltd. Vs. ICICI Bank & Anr.|
|Appeal No.||:||Civil Appeal Nos. 8337-8338 of 2017|
|Appellant(s)||:||M/S. Innoventive Industries Ltd.|
|Respondent(s)||:||ICICI Bank & Anr.|
|Date of Judgment||:||31-Aug-17|
|Tribunal/Court||:||Supreme Court of India|
Brief about decision:
Once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company – The Insolvency and Bankruptcy Code, 2016 is an Act to consolidate and amend the laws relating to reorganization and insolvency resolution, inter alia, of corporate persons – The Insolvency and Bankruptcy Code is a Parliamentary law that is an exhaustive code on the subject matter of insolvency in relation to corporate entities – On reading of section 238 of the code it is clear that the later non-obstante clause of the Parliamentary enactment will also prevail over the limited non-obstante clause contained in Section 4 of the Maharashtra Act and therefore, the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code – There would be repugnancy between the provisions of the two enactments. i.e Insolvency Code overrides Maharashtra Relief Undertakings (Special PRovisions) Act, 1958. Any Direction given under that Act does not affect passing of order under Insolvency Code.
Analysis of case:
Section 238 of the Insolvency and Bankruptcy Code, 2016 read with Section 4 of the Maharashtra Relief Undertaking (Special Provisions) Act, 1958 read with Article 254 of the Constitution of India – Provision of this Code to override other Laws
Facts of the case & NCLT:
In its order dated 17th January 2017 the NCLT held that the Insolvency and Bankruptcy Code, 2016 (Code) would prevail against the Maharashtra Relief Undertaking (Special Provisions) Act, 1958 (Maharashtra Act) in view of the non-obstante clause in Section 238 of the Code. It, has further, held that the Parliamentary statute would prevail over the State statute and this being so; it is obvious that the corporate debtor had defaulted in making payments, as per the evidence placed by the financial creditors. Hence, the application was admitted and a moratorium was declared. The second application with a different plea filed by the Corporate Debtor was rejected by the NCLT vide its order dated 23rd January 2017 on the ground that it was filed belatedly and thus, not maintainable.
On appeal, the NCLAT upheld the order passed by the NCLT, however, held that the Code and the Maharashtra Act operate in different fields and, therefore, are not repugnant to each other and therefore, the appellant cannot derive any advantage from the Maharashtra Act to stall the insolvency resolution process under Section 7 of the Code.
Read NCLAT’s full verdicts, refer case: Innoventive Industries Ltd. Vs. ICICI Bank & Anr.- NCLAT.
Supreme Court verdict:
The appellant/Corporate Debtor filed this appeal before the Supreme Court against the order of NCLAT which had upheld the order passed by the NCLT.
Once an insolvency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company. In the present case, the company is the sole appellant. This being the case, the present appeal is obviously not maintainable. However, we are not inclined to dismiss the appeal on this score alone. Because this is the very first application that has been moved under the Code, we thought it necessary to deliver a detailed judgment so that all Courts and Tribunals may take notice of a paradigm shift in the law. Entrenched managements are no longer allowed to continue in management if they cannot pay their debts.
It is clear that the earlier State law is repugnant to the later Parliamentary enactment. There is no doubt that by giving effect to the Maharashtra Relief Undertakings (Special Provisions Act), 1958, the plan or scheme which may be adopted under the Parliamentary statute will directly be hindered and/or obstructed to that extent in that the management of the relief undertaking, which, if taken over by the State Government, would directly impede or come in the way of taking over of the management of the corporate body by the interim resolution professional. Also, the moratorium imposed under Section 4 of the Maharashtra Act would directly clash with the moratorium to be issued under Sections 13 and 14 of the Code.
It was further held that unless the Maharashtra Act is out of the way, the Parliamentary enactment will be hindered and obstructed in such a manner that it will not be possible to go ahead with the insolvency resolution process outlined in the Code. Further, the non-obstante clause contained in Section 4 of the Maharashtra Act cannot possibly be held to apply to the Central enactment, in as much as a matter of constitutional law, the later Central enactment being repugnant to the earlier State enactment would operate to render the Maharashtra Act void vis-à-vis action taken under the later Central enactment.
The Supreme Court however held that it is precisely for this reason that the non-obstante clause, in the widest terms possible, is contained in Section 238 of the Code, so that any right of the corporate debtor under any other law cannot come in the way of the Code. For all these reasons, we are of the view that the Tribunal was correct in appreciating that there would be repugnancy between the provisions of the two enactments. The judgment of the Appellate Tribunal is not correct on this score because repugnancy does exist in fact.
The obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant company. Also, the argument taken for the first time before us that no debt was in fact due under the MRA as it has not fallen due (owing to the default of the secured creditor) is not something that can be countenanced at this stage of the proceedings. In this view of the matter, we are of the considered view that the Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd.
Case Reference: In The Supreme Court of India in the case of Innoventive Industries Ltd. (Corporate Debtor) Vs. ICICI Bank & Anr., Civil Appellate Jurisdiction, Civil Appeal No. 8337-8338 of 2017, Date of Order: 31.08.2017.