INSOLVENCY AND BANKRUPTCY BOARD OF INDIA VS SATYANARAYAN BANKATLAL MALU : SESSIONS JUDGE OR ADDITIONAL SESSIONS JUDGE HAS JURISDICTION TO ENTERTAIN COMPLAINT UNDER IBC
The Supreme Court in Insolvency and Bankruptcy Board of India (IBBI ) Vs Satyanarayan Bankatlal Malu & Ors. (Criminal Appeal No. 3851 of 2023) has held that Sessions Judge or Additional Sessions Judge has jurisdiction to entertain complaint against offences under Insolvency and Bankruptcy Code, 2016
BRIEF FACTS OF THE CASE
M/S SBM Paper Mills Pvt Ltd filed Petition on 4th September, 2017 under Section 10 of the Code for initiation of CIRP. NCLT, Mumbai Bench admitted the Petition and appointed Sh. Amit Poddar as Interim Resolution Professional. Mr. Satya Narayan Malu, the Respondent/Ex-director of the Corporate Debtor filed application for withdrawal of CIRP. The Resolution Professional also filed application for approval of Resolution Plan. NCLT allowed the application for withdrawal.
The terms and conditions of the OTS was not complied with as such the NCLT, Mumbai Bench found it a fit case for prosecution. The IBBI filed a complaint before Sessions Judge under Section 73 (a) and 235 A of the Code. The Sessions Judge issued the process against the Respondents.
The Respondent filed Writ Petition before the High Court wherein High Court quashed the order of the Sessions Judge on the Ground that Sessions Judge did not have jurisdiction to entertain the matter.
FINDINGS OF THE COURT
Section 236 of the Code provides that offences under the Code will be tried by Special Courts constituted under Chapter XXXVIII of the Companies Act, 2013. Section 435 of the Companies Act, 2013 deals with establishment of Special Courts. Section 435 originally provided for only one class of special courts i.e. Court presided by Sessions Judge. 2015 amendment to Section 435 also provided for one class of Special Courts i.e. Court presided by Sessions Judge but offences having punishment of less than two years were to be tried by Metropolitan Magistrate or Judicial Magistrate of the First Class. By 2018 amendment two classes of special courts were provided for – Special Courts presided by Sessions Judge and Special Courts presided by Metropolitan Magistrate or Judicial Magistrate of the First Class.
The issue in this case was whether reference to Special Court in Section 236 (1) of the Code is “Legislation by Incorporation” or “Legislation by reference”. If reference is “legislation by incorporation” then subsequent amendment in Section 435 of the Companies Act, 2013 will have no impact and if reference is “legislation by reference” then subsequent amendment has to be taken in consideration.
The Supreme Court noted that in Girnar Traders (3) Vs. State of Maharastra & Ors (2011) 3 SCC 1 it has been observed as under :
“When there is general reference in the Act in question to some earlier Act but there is no specific mention of the provisions of the former Act, then it is clearly considered as legislation by reference. In the case of legislation by reference, the amending laws of the former Act would normally become applicable to the later Act; but, when the provisions of an Act are specifically referred and incorporated in the later statute, then those provisions alone are applicable and the amending provisions of the former Act would not become part of 47 the later Act. This principle is generally called legislation by incorporation.”
The Supreme Court noted that in various judgments it has been held that Insolvency and Bankruptcy Code, 2016 is a self-contained code. Reference under Section 236 of the Code to Chapter XXXVIII is not general but specific. The reference herein is “legislation by incorporation” and not “legislation by reference”. The effect would be that provision of Section 435 of Companies Act, 2013 would be applicable as existing at the time of enactment of the Code. Any subsequent amendment will not have any impact. At the time of enactment of the Code the Special Court consisted of person who was qualified to become a sessions judge or additional sessions judge. The provision regarding reference to Companies Act stood frozen on date of its enactment.
The Supreme Court held that Special Court presided by Sessions Judge or Additional Sessions Judge has jurisdiction to try the complaint under the Code.
The order of the High Court was set aside and matter was remitted back to the High Court for consideration on merits.
________________________________________
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.
