Over Riding Effect of IBC Code on Other Acts - ICICI Bank Ltd Vs. Innoventive Industries Ltd
Over Riding Effect of IBC Code on Other Acts
ICICI Bank Ltd Vs.
Innoventive Industries Ltd
IBC is not a
Recovery Law, it is Revival Law
SHORT SUMMARY
In this Flash editorial column, the author begins by referring the
provisions of Insolvency and Bankruptcy Code, 2016 in relation to section 238
of IBC Code, 2016.
As IBC code has prescribed non-obstante clause under section 238. The
main shove of the article, is upon the question “Whether IBC Code, 2016 shall have
over riding effect on other Laws”
In this editorial author discuss the provisions under Section 238 of
the IBC and landmark judgement delivered by NCLT,
Mumbai Bench in case of ICICI Bank Ltd Vs. Innoventive Industries Ltd.
This is article no. 243 of the series of editorials
written by the author on corporate laws {Including Companies Act, 2013, SEBI,
RBI Regulations, IBC, LLP Act, 2008 etc.}.
Case element:
Case Name
|
ICICI Bank Ltd Vs. Innoventive Industries Ltd
|
Bench Name
|
The
National Company Law Tribunal (NCLT),
Mumbai Bench
|
Link:
|
http://nclt.gov.in/Publication/Mumbai_Bench/2017/Others/Innoventive%20Industries%20Ltd_1..pdf
|
Order No.
|
C.P. No.
1/I&BP/NCLT/MB/MAH/2016
|
Heard & Pronounced on Order
|
23rd January, 2017
|
Order Passed by
|
B.S.V.
Prakash Kumar, Judicial Member &
V. Nallasenapathy, Technical Member |
Section
|
7 Rule 4
|
Type of Creditor
|
Financial Creditor
|
A. Factual Background:
I.
Innoventive
Industries Ltd. (the “corporate debtor”) availed of term loan, working loan,
and external commercial borrowing (“ECB”) facilities from ICICI Bank Ltd. (the
“financial creditor”). However, a default occurred in respect of a part of the
debt on 30 November 2016, with the total outstanding amount payable being Rs.
1,019,177,034.
II.
Therefore, being
entitled under section 7 of the Code, the financial creditor initiated
application for corporate insolvency resolution process in respect of the
corporate debtor.
III.
The corporate
debtor, in turn, claimed that it is a “relief undertaking” under the provisions
of the MRU Act to which financial assistance of industrial promotion subsidy
has been provided by the Maharashtra Government. For a period of one year commencing
on 22 July 2016 and ending on 21 July 2017, the affairs of the industrial
undertaking shall be conducted to serve as a measure of preventing
unemployment. Moreover, in relation to such undertaking for the said time
period, the rights, privileges, obligations or liabilities accrued or incurred
before 22 July 2016 and any remedy for the enforcement thereof shall remain
suspended, and all proceedings relating thereto pending before any Court,
Tribunal, Officers or Authority shall be stayed. The debts said to have been
existing against the corporate debtor, as such, have been suspended.
IV.
The corporate
debtor, in turn, filed another application saying notice has not been served to
the debtor.(Para 14)
V.
The Corporate
Debtor claimed that this code can’t over ride the MRU Act. However, the
Applicant counsel states that non obstante clause in section 292 of IBC 2016
will have over riding effect over the operation of MRU Act, 1958.
B. Provisions relating to
Operational Creditor under the IBC, 2016:
as per Section 238 [1]The
provisions of this Code shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being in force
or any instrument having effect by virtue of any such law.
Findings of the NCLT Bench:
The issues the Tribunal considered were whether
the non-obstante clause contained in Section 238 of IBC, 2016 shall override
the inconsistent contained in any other law (like : Section 4 of MRU Act)?
Based on the above factual background, the
NCLT dismissed the case and held as follows:



Hence, it can be opine that non-obstante clause contained in Section
238 of IBC, 2016 shall override the inconsistent contained in any other law or
shall have over riding effect on other laws.
MATTER BEFORE NCLAT
The
appeal was filed against above order passed by the National Company Law
Tribunal (NCLT), Mumbai Bench (discussed here)
rejecting all contentions raised by Innoventive (the corporate debtor) and
admitting the application preferred by ICICI Bank (the financial creditor) by
holding it complete in terms of section 7(2) of the Code.
Case Name
|
ICICI Bank Ltd Vs. Innoventive Industries Ltd
|
Bench Name
|
The National Company Law Appellate Tribunal (NCLAT)
|
Link:
|
http://ibbi.gov.in/15thMay2017_in_the_matter_of_Innoventive_Industries_Ltd_Company_Appeal_AT_InsolvencyNo1and2of2017.pdf
|
Heard & Pronounced on Order
|
15th May, 2017
|
Order Passed by
|
Justice S. J. Mukhopadhaya
|
Section
|
7 Rule 4
|
Type of Creditor
|
Financial Creditor
|
The impugned judgment has been
challenged by appellant on the following grounds:
i.
The order has been
passed by NCLT without notice to the CD is against the “principle of rules of
natural justice, as stipulated u/s 424 of CA, 2013. (Para 4)
ii.
It was also contended that the NCLT, being a creation of the Act, is
bound by section 420 of the Act, which required ‘reasonable opportunity of
being heard’ to be given to the parties before passing an order. (Para 6)
iii.
Further, Section 424 of the Act 2013, which
grants liberty to the Tribunal to regulate its own procedure mandate to follow
the principles of natural justice. Therefore, the aforesaid sections cast duty
upon the Tribunal to issue notice to and hear a party before passing any order
affecting the rights of the party. (Para
6)
iv.
It was contended that the provisions of
(Maharashtra Relief Undertaking (Special Provisions Act (Bombay Act XCVI of
1958) (the MRU Act, 1958), will prevail over the Code as it was a beneficial
piece of legislation.
v.
it was contended that ICICI Bank did not obtain
consent from the Joint Lenders Forum (JLF) to initiate the present proceedings
Findings of the NCLAT Bench:
The key issue for consideration before NCLAT
was whether a notice is required to be given to the corporate debtor for
initiation of insolvency resolution process and Whether IBC, 2016 have over
riding effect on other Laws.
NCLAT has ruled on certain important
requirements to be complied with while admitting an application filed under
Section 7 of the Insolvency & Bankruptcy Code, 2016 (the Code).
1. Condition to be satisfied by the NCLT u/ s 7(5):
The Judgment makes it
clear that:
v Under Section 7(5) of
the Insolvency Code, the NCLT is only required to be satisfied on whether:
i.
The corporate debtor has defaulted- The
statute mandates the Adjudicating Authority to ascertain and record
satisfaction as to the occurrence of default before admitting the application.
Mere claim by the financial creditor that the default has occurred is not
sufficient.
ii.
An application filed by the financial creditor is complete.
iii.
Disciplinary proceeding is pending against the insolvency
resolution professional, proposed by the financial creditor.
Beyond the abovementioned issues, the NCLT is not required
to look into any other factor, including the question of whether permission or
consent has been obtained from one or other authority, including the
JLF. Once it is satisfied it is required to admit the case but in case the
application is incomplete application, the financial creditor is to be granted
seven days' time to complete the application.
2.
whether a notice is
required to be given to the corporate debtor for initiation of insolvency
resolution process
The
NCLAT examined various decisions of the Supreme Court and also cited a recent
Calcutta High Court decision in the case of “Sree Metaliks Limited & Anr.
(Writ Petition 7144 (W) of 2017)”, wherein the Court held:
“When
the NCLT receives an application under Section 7 of the Code of 2016, it must
afford a reasonable opportunity of hearing to the corporate debtor as Section
424 of the Companies Act, 2013 mandates it to ascertain the existence of
default as claimed by the financial creditor in the application.”
In
conclusion, the NCLAT held that the Adjudicating Authority is bound to issue a
limited notice to the corporate debtor before admitting a case for
ascertainment of existence of default based on material submitted by the
corporate debtor and to find out whether the application is complete and or
there is any other defect required to be removed.
3.
whether Provisions of
section 238 of IBC have over riding effects on other laws
The
NCLAT held that section 238 of the Code is a non-obstante clause which overrides
the all other Acts, and thus the provisions of the Code shall prevail over the
provisions of the MRU Act.
4.
Distinction Between
Section 7 & 9
S.
No.
|
Section
7
|
Section
9
|
1.
|
The occurrence of default has to be ascertained and
satisfaction recorded by the Adjudicating Authority
|
There no similar provision under this section
|
2.
|
Neither a notice of demand nor a notice of dispute is
relevant
|
Notice of demand and notice of dispute become relevant
both for the purposes of admission as well as for and rejection
|
Conclusion:
The
judgment provides much needed clarity with regard to the scope and extent of
the corporate debtor’s right to contest admission of insolvency applications
filed by financial creditors and will provide guidance to the NCLTs across the country
in deciding insolvency applications filed by financial creditors.
(Author
– CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice
from Delhi and can be contacted at csdiveshgoyal@gmail.com).
Disclaimer: The entire
contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
[1]
Interpret
the above mentioned sentence:
The provisions of IBC, 2016 shall effect
“Despite / in spite of” anything inconsistent to this code contained in any
other law for the time being in force.
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