The Supreme Court has delivered a primer on the Insolvency Code

The Supreme Court on Thursday ruled that the Insolvency and Bankruptcy Code, 2016 (Code), being a central statute, will prevail over the state laws that are repugnant to it..A Division Bench of Justice Rohinton Nariman and Justice Sanjay Kishan Kaul has painstakingly conducted a cross-country comparison for certain elements of the Code and the constitutional test of repugnancy while delivering this judgment..The ruling came when the widely reported case of Innoventive Industries vs. ICICI Bank, which was the first case admitted under the Code, reached the apex court challenging the NCLAT’s judgment..In December 2016, a petition at the Mumbai Bench of NCLT was filed by ICICI Bank in its capacity as a financial creditor under Section 7(1) of the Code against Innoventive Industries. The petition was for initiation of an insolvency resolution process against Innoventive, following an outstanding debt of ₹1,019,177,034..The bone of contention in this case from the very inception has been whether a notification suspending liabilities of a company issued under the Maharashtra Relief Undertaking (Special Provisions Act), 1958 (MRU Act) will prevail over the non-obstante provision contained in Section 238 of the Code..Following NCLT’s order of admission, Innoventive moved a writ petition in the Bombay High Court challenging the vires of the Code. The suit was disposed off in light of the appeal which was preferred to the NCLAT during its pendency with the Bombay High Court..The NCLAT in May, 2017 ruled in favour of ICICI Bank again – however with a flawed reasoning as noted by the Apex Court. The NCLAT, while disallowing Innoventive to take advantage of the MRU Act to stall insolvency process, ruled that the Code and MRU Act operate in different fields and are therefore not repugnant to each other– a point which was aggressively pursued by Abhishek Manu Singhvi in the Supreme Court, appearing on behalf of Innoventive. The Supreme Court noted,.“We are of the view that the NCLT 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.”.Appearing on behalf of ICICI in the Supreme Court, Senior Advocate Harish Salve argued that the present appeal is not maintainable since it is at the behest of erstwhile directors of Innoventive. The Supreme Court, while agreeing to this plea held that once an insolvency professional is appointed, the erstwhile directors who are no longer in management obviously cannot maintain an appeal on behalf of the company. The Supreme Court noted,.“In the present case, the company is the sole appellant. This being the case, the present appeal obviously is not maintainable. However, we are not inclined to dismiss the appeal on this score alone.”.Both judges found it necessary to provide a detailed a judgment since this was the first application moved under the Code. In doing so, the judges have in their 86 page judgment provided what may be referred to as a “Primer on the Insolvency Code”..The judgment can broadly be divided into two parts, first wherein the Bench has noted and quoted various parts of the Bankruptcy Law Reforms Committee Report, pursuant to which the Code was enacted. In doing so, the Bench has delved into provisions, which not only demonstrate the importance of a rock solid insolvency regime for better global rankings in terms of business, but also the role played by it in debt financing..The second part, which has consumed most of the judgment, is with respect to the constitutional position of “repugnancy” which is enshrined in Article 254 of the Constitution. In doing so, the Bench referred to the Government of India Act, 1935, the British North America Act, the US Constitution and the Australian Constitution Act, 1900. This is apart from the piles of case laws, both domestic and international, that were referred to, in order to arrive at principles which will serve as a precedent for futures cases while deciding cases of repugnancy..The Supreme Court thus ruled that repugnancy arises only if both the Parliamentary and State law are referable to the Concurrent list. And to decide whether they are referable to the Concurrent list, the doctrine of pith and substance must be applied. In case of conflict, ruled the Apex Court, the Parliamentary law will always prevail over the State law except in case where the State legislation has received Presidential assent. Even in cases where there is no direct conflict, the State law will be inoperative because the Parliamentary law is intended to be a complete, exhaustive or exclusive code..While observing these principles, the Court held that,.“Unless the MRU Act is out of the way, the Parliamentary enactment will be hindered and obstructed in such a manner that it will 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 MRU Act cannot possibly be held to apply to the Central enactment, inasmuch as a matter of constitutional law, the later Central enactment being repugnant to the earlier State enactment of Article 254(1), would operate to render the Maharashtra Act void vis-a-vis action taken under the later Central enactment.”.The Supreme Court finally ruled,.“We are of the considered view that the NCLT and the NCLAT were right in admitting the application filed by the financial creditor ICICI Bank Ltd.”.Harish Salve and Shyam Dewan, briefed by Cyril Amarchand Mangaldas represented ICICI (Respondent no.1). Abhishek Manu Singhvi, K Dayal and Shikhil Suri briefed by Crawford & Bayley appeared for Innoventive Industries. Central Bank of India (Respondent no. 2) was represented by Rajiv S. Roy, Avrojyoti Chatterjee and Abhijit Roy from R&A Legal..(Must)Read the judgment