INNOVENTIVE INDUSTRIES VS ICICI BANK & ANR : CASE SUMMARY
The Supreme Court in Innoventive Industries Vs ICICI Bank (2018) 1 SCC 407 held that provisions of Maharastra Relief Undertaking (Special Provisions) Act, 1958 are repugnant to IBC under Article 254 of the Constitution as such void to that extent. The Supreme Court also held that non-obstante clause under Section 238 IBC will override limited non-obstante clause in Maharastra Act.
FACTS OF THE CASE
The Appellant was a multiproduct company. The Appellant began to suffer losses due to labour problems. As the Appellant was not able to service financial assistance given to it, the appellant proposed corporate debt restructuring. Joint Lender Fourm approved the restructuring plan. Section 7 Application was filed by ICICI Bank seeking initiation of CIRP against the appellant. In the reply the Appellant contended that there is no debt legally due as liabilities and enforcement thereof has been temporarily suspended for a period of one year vide notification dated 22nd July, 2015 and another year vide notification dated 18th July, 2016 under Maharashtra Relief Undertakings (Special Provisions ) Act, 1958.
By order dated 17th January, 2017, NCLT held that the IBC would prevail against Maharastra Act in view of non-obstante clause in Section 238 of the Code. Parliamentary Statute will prevail over State statute. Application was admitted by the NCLT. The appeal filed by the Appellant before the NCLAT was also dismissed.
FINDINGS OF THE SUPREME COURT
The Supreme Court noted that one of the objective of the IBC is to bring the insolvency law in India within a single umbrella with the object of speeding up the insolvency process. The Supreme Court made a detailed survey of several provisions of the Code.
Article 254 of the Constitution provides for inconsistency between laws made by Parliament and laws made by legislature of states.
The Supreme Court observed that repugnancy under Article 254 arises only if both Parliamentary and the State law is referrable to List III in 7th Schedule of the Constitution of India. Doctrine of Pith and Substance has to be applied in order to test that both statutes fall under concurrent list. The Language of Article 254 speaks of repugnancy of not only merely a stature but also “any provision” thereof. The onus of showing that a statute is repugnant has to be on party attacking its validity. Inconsistency must be clear and direct and be of such nature as to bring two acts or parts into direct collision between each other. Repugnant statute of state is void to the extent of repugnancy. Only that portion of the State’s statute which is found to be repugnant is to be declared void.
The Supreme Court held that Maharastra Act is repugnant to IBC, which has been enacted by Parliament” as under the Maharastra Act the State Government may take over management of the relief undertaking after which a temporary moratorium takes place under Section 4 of Maharastra Act. Moratorium under Section 4 of Maharastra Act directly clashes with moratorium under Section 14 IBC. Thus Central enactment being repugnant to the earlier state enactment by virtue of Article 254 (1) would operate to render Maharastra Act void vis-à-vis action taken under later Central enactment.
The Supreme Court also relied on Section 238 of IBC and observed that later non-obstante clause of Parliamentary enactment will prevail over the limited non-obstante clause contained in Section 4 of Maharastra Act.
The Supreme Court observed that Maharastra Act cannot stand in way of the Corporate Insolvency Resolution Process under the Code.
The Supreme Court was of the view that NCLT and NCLAT has rightly admitted the application for initiation of CIRP and dismissed the appeal filed by the Appellant.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.