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SUPREME COURT OF INDIA
R.F. Nariman, Sanjay Kishan Kaul, JJ.
M/S. INNOVENTIVE INDUSTRIES LTD. – APPELLANT
VERSUS
ICICI BANK & ANR. – RESPONDENTS
CIVIL APPEAL NOs. 8337-8338 OF 2017
Decided On : 31-08-2017
(b) Insolvency and Bankruptcy Code of 2016 – Section 12 – Time is of essence – Entire process should be completed within 180 days from date of admission – Can be extended for further period not exceeding 90 days on decision by 75% voting shares of creditors. (Para 31)
(c) Insolvency and Bankruptcy Code of 2016 – Section 7 and 238 – Insolvency resolution procedure set in motion – Based on notification under Maharashtra Relief Undertakings (Special Provisions Act), 1958 suspending debt appellant raising plea that no debt is due in law – Adjudicating authority rightly holding that a notification under the Maharashtra Act would not stand in the way of the corporate insolvency resolution process under the Code. (Para 34)
(d) Constitution of India – Article 254 – Repugnancy between statutes – Parliamentary law and State law – Both statutes should be referable to Concurrent List, Seventh schedule, Constitution of India – Pith and substance doctrine can be applied to repugnancy principles – Subjects of the statutes/provisions, rather than entries in the List is important – Repugnancy must exist in fact and not depend upon a mere possibility – The inconsistency must be clear and direct – Repugnant State law is void only to the extent of the repugnancy subject to Article 254(2) and its proviso. (Para 41, 50)
(1955) 1 SCR 799; (1956) SCR 393; 1959 Supp. (2) SCR 8 – Relied upon
(1932) 48 CLR 128; (1939) FCR 188; (1964) 1 SCR 926; (1979) 3 SCR 254; 38 CLR 441; (1957) SCR 423; AIR 1942 FC 27; (1964) 4 SCR 461; (1969) 3 SCR 65; (1983) 3 SCR 130; (1990) 2 SCC 562; (2011) 8 SCC 708 – Referred
AIR 1939 Cal 628 – Cited with approval
(e) Constitution of India – Article 254 – Maharashtra Act referable to Entry 23, List III, 7th Schedule, Constitution of India – Insolvency and Bankruptcy Code, 2016 – A Parliamentary law and complete code in itself enacted under Entry 9, List III, 7th Schedule, Constitution of India – In terms of Section 4 of the Act state empowered to take over the relief undertaking after which moratorium takes place – Action under the Act hinders or obstructs action under the Code – In direct clash with sections 13 and 14 of the Code – Held, both cannot co-exist – Further, non-obstante clause in section 4 of the Act will not apply to later Central Code – Article 254(1), Constitution of India – Moreover, non-obstante clause in section 238 of the Code would exclude operation of the Act – Held, the Act cannot stand in the way of the corporate insolvency resolution process under the Code. (Para 52, 53, 55)
(1956) SCR 577; (1962) 3 SCR. 497; (1977) 3 SCC 280 – Relied upon
(f) Constitution of India – Article 254 – Suspension of debt under Maharashtra Act may continue from 1 year to 15 years – The Code requiring relief undertaking to be put back on its feet within 6 months – Held, Maharashtra Act is repugnant to the Code – Further, by virtue of section 238 the Code overrides any right of the corporate debtor under any other law – Tribunal correctly holding repugnancy between the two statutes. (Para 56)
Facts of the case:
The appellant before us is a multi-product company catering to applications in diverse sectors. From August, 2012, owing to labour problems, the appellant began to suffer losses. Since the appellant was not able to service the financial assistance given to it by 19 banking entities, which had extended credit to the appellant, the appellant itself proposed corporate debt restructuring which was finally approved by the lenders.
Accordingly, a master restructuring agreement was entered into.
An application was made by ICICI Bank Ltd., stating that the appellant being a defaulter within the meaning of the Code, the insolvency resolution process ought to be set in motion.
The application was admitted and a moratorium was declared.
The NCLAT held that the Code and the Maharashtra Act (Maharashtra Relief Undertakings (Special Provisions Act), 1958) operate in different fields and, therefore, are not repugnant to each other. The NCLAT went on to hold that the appellant cannot derive any advantage from the Maharashtra Act to stall the insolvency resolution process under Section 7 of the Code.
Finding of the Court:
Provisions of the Maharashtra Act cannot come in the way of the Code.
Result: Appeals dismissed.
The legal judgment clarifies several important principles regarding the interplay between the Insolvency and Bankruptcy Code (IBC) and other laws, particularly state laws such as the Maharashtra Relief Undertakings (Special Provisions) Act.
Firstly, the adjudicating authority is permitted to reject an application for insolvency only if the debt in question is either interdicted by law or has not yet become payable (!) . This underscores that a debt must be legally due and payable for insolvency proceedings to be initiated under the Code.
Secondly, the judgment emphasizes that provisions of state laws, such as the Maharashtra Act, cannot obstruct or impede the functioning of the central insolvency framework established by the IBC. The Code contains a non-obstante clause that overrides any inconsistent state law, and the provisions of the Code will prevail over state laws in case of conflict (!) (!) (!) .
Thirdly, the principle of repugnancy between statutes is discussed extensively. For laws to be deemed repugnant, there must be a clear, direct, and irreconcilable conflict in their provisions, and the conflict must be in fact, not merely hypothetical or possible (!) (!) (!) (!) . The doctrine of pith and substance is distinguished from the concept of repugnancy; the latter requires that the laws operate in the same field and produce conflicting results, whereas the former is used to determine the true legislative competence and scope of the laws.
Furthermore, the judgment highlights that when two laws occupy different fields or pertain to different subjects, there is generally no question of repugnancy, and both can operate simultaneously (!) (!) . The constitutional framework allows Parliament to enact laws that may overlap with state laws, but in cases where conflicts arise, the central law will prevail if it is intended to be exhaustive or if there is a direct conflict.
Finally, the judgment underscores that the specific provisions of the Code, such as the requirement for debts to be legally payable and the time-bound nature of the insolvency process, are designed to promote efficiency, certainty, and fairness in insolvency proceedings. These principles aim to facilitate the resolution of distressed companies within a prescribed timeframe, ensuring that the interests of all stakeholders are balanced and protected.
In summary, the legal principles reaffirm that the Insolvency and Bankruptcy Code is a comprehensive and overriding legislation that seeks to streamline insolvency resolution, and any conflicting state laws or laws that obstruct the process are deemed invalid to the extent of their inconsistency.
JUDGMENT
R.F. Nariman, J.
1. The present case raises interesting questions which arise under the Insolvency and Bankruptcy Code of 2016 (hereinafter referred to as the Code), which received the Presidential assent on 28th May, 2016, but which provisions were brought into force only in November-December, 2016.
2. The appellant before us is a multi-product company catering to applications in diverse sectors. From August, 2012, owing to labour problems, the appellant began to suffer losses. Since the appellant was not able to service the financial assistance given to it by 19 banking entities, which had extended credit to the appellant, the appellant itself proposed corporate debt restructuring. The 19 entities formed a consortium, led by the Central Bank of India, and by a joint meeting dated 22nd February, 2014, it was decided that a CDR resolution plan would be approved. The details of this plan are not immediately relevant to the issues to be decided in the present case. The lenders, upon perusing the terms of the CDR proposal given by the appellant and a techno-economic viability study, (which was done at the instance of the lenders), a CDR empowered group admitted the restructuring proposal vide minutes of a meeting dated 23rd May, 2014. The Joint Lenders Forum at a meeting of 24th June, 2014 finally approved the restructuring plan.
3. In terms of the restructuring plan, a master restructuring agreement was entered into on 9th September, 2014 (hereinafter referred to as the MRA), by which funds were to be infused by the creditors, and certain obligations were to be met by the debtors. The aforesaid restructuring plan was implementable over a period of 2 years.
4. Suffice it to say that both sides have copiously referred to various letters which passed between the parties and various minutes of meetings. Ultimately, an application was made on 7th December, 2016 by ICICI Bank Ltd., in which it was stated that the appellant being a defaulter within the meaning of the Code, the insolvency resolution process ought to be set in motion. To this application, a reply was filed by means of an interim application on behalf of the appellant dated 17th December, 2016, in which the appellant claimed that there was no debt legally due inasmuch as vide two notifications dated 22nd July, 2015 and 18th July, 2016, both under the Maharashtra Relief Undertakings (Special Provisions Act), 1958 (hereinafter referred to as the Maharashtra Act), all liabilities of the appellant, except certain liabilities with which we are not concerned, and remedies for enforcement thereof were temporarily suspended for a period of one year in the first instance under the first notification of 22nd July, 2015 and another period of one year under the second notification of 18th July, 2016. It may be added that this was the only point raised on behalf of the appellant in order to stave off the admission of the ICICI Bank application made before the NCLT. We are informed that hearings took place in the matter on 22nd and 23rd December, 2016, after which the NCLT adjourned the case to 16th January, 2017.
5. On this date, a second application was filed by the appellant in which a different plea was taken. This time, the appellant pleaded that owing to non-release of funds under the MRA, the appellant was unable to pay back its debts as envisaged. Further, it repaid only some amounts to five lenders, who, according to the appellant, complied with their obligations under the MRA. In the aforesaid circumstances, it was pleaded that no default was committed by it.
6. By an order dated 17th January, 2017, the NCLT held that the Code would prevail against the Maharashtra Act in view of the non-obstante clause in Section 238 of the Code. It, therefore, 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
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