# Insolvency and Bankruptcy Board of India v. Satyanarayan Bankatlal Malu & Ors

- **Citation:** 2024 INSC 319
- **Court:** Supreme Court of India
- **Decided:** 2024-04-19
- **Case number:** Criminal Appeal No. 3851 of 2023
- **Bench:** B.R. Gavai, Sandeep Mehta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/insolvency-and-bankruptcy-board-of-india-v-satyanarayan-bankatlal-malu-ors-37811
- **Pages:** 35

## Headnote

Special Court under the Insolvency and Bankruptcy Code, 2016
would be as provided u/s. 435 of the Companies Act as it existed
at the time when the Code came into effect, or it would be as
provided u/s.435 after the 2018 Amendment; and the reference to
'Special Court established under Chapter XXVIII of the Companies
Act, 2013' in s. 236(1) is 'legislation by incorporation' or 'legislation
by reference'.
Headnotes
Insolvency and Bankruptcy Code, 2016 - ss.236, 73(a) and
235A - Trial of offences by Special Court - Petition by the
Corporate Debtor for initiation of the Corporate Insolvency
Resolution Process - Petition admitted and interim Resolution
Professional appointed - Meanwhile, the respondent/ExDirector of the Corporate Debtor filed an application for the
withdrawal in light of One Time Settlement and the same was
allowed by the NCLT - On account of non-compliance of the
terms of the OTS by the respondents, the NCLT found it to be
a fit case to prosecute the respondents - Appellant-Board then
filed a complaint against the respondents before the Sessions
Judge u/ss. 73(a) and 235A - Sessions Judge directed issuance
of process against the respondents - Respondents filed writ
petition before the High Court for the quashing the order
passed by the Sessions Judge for the want of jurisdiction -
High Court allowed the petition - Correctness:
Held: Special Court presided by a Sessions Judge or an Additional
Sessions Judge would have jurisdiction to try the complaint under
the Code - Under s. 236(1) the reference is only to the fact that
the offences under the Code shall be tried by the Special Court
established under Chapter XXVIII of the Companies Act, 2013
- Reference is not general but specific - Instant case is a case
of 'legislation by incorporation' and not a case of 'legislation by
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reference' - Provision with regard to Special Court has been bodily
lifted from s. 435 of the Companies Act, 2013 and incorporated
in s. 236(1) - Provision of s. 435 of the Companies Act, 2013
with regard to Special Court would become a part of s. 236(1) as
on the date of its enactment - Any amendment to s. 435 of the
Companies Act, 2013, after the date on which the Code came into
effect would not have any effect on the provisions of s. 236(1) -
Special Court at that point of time only consists of a person who
was qualified to be a Sessions Judge or an Additional Sessions
Judge - Thus, the reasoning of the High Court that in view of the
2018 Amendment only the offences under the Companies Act
would be tried by a Special Court of Sessions Judge or Additional
Sessions Judge and all other offences including under the Code
shall be tried by a Metropolitan Magistrate or Judicial Magistrate
of the First Class, is untenable - High Court erred in quashing
the complaint only on the ground that it was filed before a Special
Court presided by a Sessions Judges - High Court could have
directed the complaint to be withdrawn and presented before the
appropriate court having jurisdiction - Impugned judgment passed
by the High Court is quashed and set aside. [Paras 41-46,48]
Legislation - 'Legislation by incorporation' or a 'legislation
by reference' - Distinction between:
Held: Effect of incorporation means the bodily lifting of the provisions
of one enactment and making it part of another so much so that the
repeal of the former leaves the latter wholly untouched - However,
in the case of a reference or a citation of the provisions of one
enactment into another without incorporation, the amendment or
repeal of the provisions of the said Act referred to in a subsequent
Act will also bear the effect of the amendment or repeal of the
said provisions. [Para 27]

## Text

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* Author
[2024] 5 S.C.R. 1 : 2024 INSC 319
Insolvency and Bankruptcy Board of India
v.
Satyanarayan Bankatlal Malu & Ors.
(Criminal Appeal No. 3851 of 2023)
19 April 2024
[B.R. Gavai* and Sandeep Mehta, JJ.]
Issue for Consideration
Special Court under the Insolvency and Bankruptcy Code, 2016
would be as provided u/s. 435 of the Companies Act as it existed
at the time when the Code came into effect, or it would be as
provided u/s.435 after the 2018 Amendment; and the reference to
'Special Court established under Chapter XXVIII of the Companies
Act, 2013' in s. 236(1) is 'legislation by incorporation' or 'legislation
by reference'.
Headnotes
Insolvency and Bankruptcy Code, 2016 - ss.236, 73(a) and
235A - Trial of offences by Special Court - Petition by the
Corporate Debtor for initiation of the Corporate Insolvency
Resolution Process - Petition admitted and interim Resolution
Professional appointed - Meanwhile, the respondent/ExDirector of the Corporate Debtor filed an application for the
withdrawal in light of One Time Settlement and the same was
allowed by the NCLT - On account of non-compliance of the
terms of the OTS by the respondents, the NCLT found it to be
a fit case to prosecute the respondents - Appellant-Board then
filed a complaint against the respondents before the Sessions
Judge u/ss. 73(a) and 235A - Sessions Judge directed issuance
of process against the respondents - Respondents filed writ
petition before the High Court for the quashing the order
passed by the Sessions Judge for the want of jurisdiction -
High Court allowed the petition - Correctness:
Held: Special Court presided by a Sessions Judge or an Additional
Sessions Judge would have jurisdiction to try the complaint under
the Code - Under s. 236(1) the reference is only to the fact that
the offences under the Code shall be tried by the Special Court
established under Chapter XXVIII of the Companies Act, 2013
- Reference is not general but specific - Instant case is a case
of 'legislation by incorporation' and not a case of 'legislation by
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reference' - Provision with regard to Special Court has been bodily
lifted from s. 435 of the Companies Act, 2013 and incorporated
in s. 236(1) - Provision of s. 435 of the Companies Act, 2013
with regard to Special Court would become a part of s. 236(1) as
on the date of its enactment - Any amendment to s. 435 of the
Companies Act, 2013, after the date on which the Code came into
effect would not have any effect on the provisions of s. 236(1) -
Special Court at that point of time only consists of a person who
was qualified to be a Sessions Judge or an Additional Sessions
Judge - Thus, the reasoning of the High Court that in view of the
2018 Amendment only the offences under the Companies Act
would be tried by a Special Court of Sessions Judge or Additional
Sessions Judge and all other offences including under the Code
shall be tried by a Metropolitan Magistrate or Judicial Magistrate
of the First Class, is untenable - High Court erred in quashing
the complaint only on the ground that it was filed before a Special
Court presided by a Sessions Judges - High Court could have
directed the complaint to be withdrawn and presented before the
appropriate court having jurisdiction - Impugned judgment passed
by the High Court is quashed and set aside. [Paras 41-46,48]
Legislation - 'Legislation by incorporation' or a 'legislation
by reference' - Distinction between:
Held: Effect of incorporation means the bodily lifting of the provisions
of one enactment and making it part of another so much so that the
repeal of the former leaves the latter wholly untouched - However,
in the case of a reference or a citation of the provisions of one
enactment into another without incorporation, the amendment or
repeal of the provisions of the said Act referred to in a subsequent
Act will also bear the effect of the amendment or repeal of the
said provisions. [Para 27]
Case Law Cited
Bolani Ores Ltd. v. State of Orissa [1975] 2 SCR 138 :
(1974) 2 SCC 777; Mahindra and Mahindra Ltd. v. Union
of India and another [1979] 2 SCR 1038 : (1979) 2
SCC 529; Ebix Singapore Private Limited v. Committee
of Creditors of Educomp Solutions Limited and another
[2021] 14 SCR 321 : (2022) 2 SCC 401; Embassy
Property Developments Private Limited v. State of
Karnataka and others [2019] 17 SCR 559 : (2020) 13 SCC
308; Bharti Airtel Ltd. and another v. Vijaykumar V. Iyer
[2024] 5 S.C.R.
3
Insolvency and Bankruptcy Board of India v.
Satyanarayan Bankatlal Malu & Ors.
and others [2024] 1 SCR 140 : (2024) SCC OnLine SC
4; Girnar Traders (3) v. State of Maharashtra and others
[2007] 9 SCR 383 : (2011) 3 SCC 1; Collector of Customs,
Madras v. Nathella Sampathu Chetty and Anr. [1962] 3
SCR 786 : AIR 1962 SC 316; New Central Jute Mills Co.
Ltd. v. Assistant Collector of Central Excise, Allahabad
& Ors. [1971] 2 SCR 92 : (1970) 2 SCC 820; Ujagar
Prints and others v. Union of India and others [1989] 1
SCR 344 : (1989) 3 SCC 488; Innoventive Industries
Limited v. ICICI Bank and another [2017] 8 SCR 33 :
(2018) 1 SCC 407; Principal Commissioner of Income
Tax v. Monnet Ispat and Energy Limited (2018) 18 SCC
786; E.S. Krishnamurthy and others v. Bharath Hi-Tech
Builders Private Limited [2021] 12 SCR 28 : (2022) 3
SCC 161; Pratap Technocrats Private Limited and others
v. Monitoring Committee of Reliance Infratel Limited and
another [2021] 8 SCR 938 : (2021) 10 SCC 623; V.
Nagarajan v. SKS Ispat and Power Limited and others
[2021] 14 SCR 736 : (2022) 2 SCC 244 - referred to.
List of Acts
Insolvency and Bankruptcy Code, 2016; Companies Act, 2013.
List of Keywords
Special Court; Legislation by incorporation; Legislation by reference;
Want of jurisdiction.
Case Arising From
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 3851
of 2023
From the Judgment and Order dated 14.02.2022 of the High Court
of Judicature at Bombay in WP No. 2592 of 2021
Appearances for Parties
S.V. Raju, A.S.G., Ms. Rashi Rampal, Apoorv Khatore, Vikas Mehta,
Advs. for the Appellant.
Amir Arsiwala, Dhaval Deshpande, Anand Dilip Landge, Siddharth
Dharmadhikari, Aaditya Aniruddha Pande, Bharat Bagla, Sourav
Singh, Aditya Krishna, Ms. Preet S. Phanse, Adarsh Dubey, Advs.
for the Respondents.
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Judgment / Order of the Supreme Court
INDEX
I.
FACTUAL BACKGROUND
Paras 1 to 2
II.
SUBMISSIONS
Paras 3 to 17
III.
CONSIDERATION OF STATUTORY PROVISIONS
Paras 18 to 25
IV.
CONSIDERATION OF PRECEDENTS
Paras 26 to 40
V.
CONCLUSION
Paras 41 to 49
Judgment
B.R. Gavai, J.
I.
FACTUAL BACKGROUND
1.
This appeal challenges the judgement and order dated 14th
February 2022, passed by the learned Single Judge of the High
Court of Judicature at Bombay in Writ Petition No.2592 of 2021,
thereby allowing the petition filed by Satyanarayan Bankatlal Malu
and Ramesh Satyanarayan Malu, the Ex-Directors of M/s. SBM
Paper Mills Pvt. Ltd. (hereinafter referred to as 'the Respondents')
challenging the order dated 17th March 2021 passed by the learned
Additional Sessions Judge, 58th Court in Special Case No.853 of 2020
('learned Sessions Judge' for short). The learned Sessions Judge had
directed issuance of process against the Respondents on account of
a Complaint filed by the Insolvency and Bankruptcy Board of India
(hereinafter referred to as 'the Appellant-Board') under Section 236
of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred
to as "the Code") read with Sections 190, 193 and 200 of the Code
of Criminal Procedure, 1973 ("Cr.P.C.) for the offences punishable
under Section 73(a) and Section 235A of the Code.
2.
The facts in brief, giving rise to the present appeal are as under:
2.1 M/s. SBM Paper Mills Private Limited (hereinafter referred to as
"the Corporate Debtor") filed a petition on 4th September 2017
under Section 10 of the Code for initiation of the Corporate
Insolvency Resolution Process (hereinafter referred to as
"CIRP") of itself vide CP/1362/I&BC/NCLT/MB/MAH/2017. The
National Company Law Tribunal, Mumbai Bench (hereinafter
[2024] 5 S.C.R.
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Insolvency and Bankruptcy Board of India v.
Satyanarayan Bankatlal Malu & Ors.
referred to as "the NCLT") vide order dated 17th October 2017,
admitted the Petition and directed the moratorium to commence
as prescribed under Section 14 of the Code and directed certain
statutory steps to be taken as a consequence thereof. Vide the
said order, the NCLT also appointed Mr. Amit Poddar as the
Interim Resolution Professional (hereinafter referred to as "RP")
to carry out the functions as prescribed under the provisions
of the Code.
2.2 In the meanwhile, Mr. Satyanarayan Malu, i.e., the Respondent/
Ex-Director of the Corporate Debtor filed an application being
M.A. No. 1396/2018 before the NCLT under Section 12A of the
Code for the withdrawal of the aforesaid petition under Section
10 in light of a One Time Settlement ("OTS" for short) entered
into with the sole Financial Creditor, i.e., Allahabad Bank. On
the other hand, the RP had also filed an application being
M.A. No. 827/2018 for the approval of the Resolution Plan.
The NCLT vide order dated 20th December 2018 allowed the
M.A. No. 1396/2018 filed by the Respondent while observing
the consent for withdrawal of the petition by the sole Financial
Creditor vide letter dated 27th November 2018.
2.3 However, on account of non-compliance of the terms of the
OTS by the Respondents, the NCLT issued a Show-Cause
Notice against them vide order dated 11th March 2019. The
NCLT further found it to be a fit case to propose the prosecution
of the Respondents vide order dated 20th August 2019 while
hearing an application filed by the sole Financial Creditor being
M.A. 494 and 495 of 2019 thereby seeking prosecution of the
Respondents.
2.4 Thereafter, on 22nd September 2020, the Appellant-Board filed
a Complaint against the Respondents before the Sessions
Judge in Special Case No. 853/2020 under the aforementioned
provisions and for offences punishable under Section 73(a) and
235A of the Code for the non-compliance of the terms of the
OTS and for not having filed the M.A. 1396/2018 under Section
12A of the Code through the RP. The Sessions Judge vide Order
dated 17th March 2021 directed issuance of process against
the Respondents and further directed them to be summoned
on the next date of hearing.
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2.5 Being aggrieved thereby, the Respondents filed a Writ Petition
No. 2592 of 2021 before the High Court of Judicature at Bombay,
praying for the quashing and setting aside of the order dated
17th March 2021 passed by the Sessions Judge for the want
of jurisdiction. The High Court vide impugned judgement and
order dated 14th February 2022 allowed the Writ Petition No.
2592 of 2021 filed by the Respondents.
2.6 Hence, this Appeal.
II.
SUBMISSIONS
3.
We have heard Shri S.V. Raju, learned Additional Solicitor General
of India ("ASG" for short) appearing for the Appellant-Board and Shri
Amir Arsiwala, Advocate on Record, appearing for the Respondents/
Ex-Directors of the Corporate Debtor.
4.
Shri S.V. Raju, learned ASG submitted that the learned Single Judge
of the High Court has grossly erred in quashing the proceedings. Shri
Raju submitted that the learned Single Judge of the High Court has
grossly erred in holding that, in view of the Companies (Amendment)
Act, 2017 (which came into effect from 7th May 2018), only the
offences committed under the Companies Act can be tried by Special
Court consisting of Sessions Judge or Additional Sessions Judge. He
submitted that the reasoning given by the learned Single Judge that
the offences other than the Companies Act cannot be tried by the
Special Court consisting of Sessions Judge or Additional Sessions
Judge is totally in ignorance of the provisions of sub-section (1) of
Section 236 of the Code.
5.
Learned ASG submitted that sub-section (1) of Section 236 of the
Code provides that the offences under the Code shall be tried by the
Special Court established under Chapter XXVIII of the Companies
Act, 2013. He submits that the legislative intent is clear. There is no
general reference to the provisions of the Companies Act. He submits
that what has been done by sub-section (1) of Section 236 of the
Code is that the offences punishable under the Code are required
to be tried by the Special Court established under Chapter XXVIII
of the Companies Act, 2013
6.
Shri Raju further submitted that the legislative intent is clear. A specific
provision of the Companies Act, 2013 has been incorporated in subsection (1) of Section 236 of the Code. It is submitted that, if the
[2024] 5 S.C.R.
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Insolvency and Bankruptcy Board of India v.
Satyanarayan Bankatlal Malu & Ors.
legislative intent was that of legislation by reference, then a general
reference could have been made in sub-section (1) of Section 236
of the Code to Chapter XXVIII of the Companies Act. Learned ASG
therefore submitted that, if the reference made to the Special Court
established under Chapter XXVIII of the Companies Act, 2013 is held
to be legislation by incorporation, then the subsequent amendments
to the Companies Act, 2013 would not be applicable to the Code.
He submitted that since the Code has come into effect on 28th May,
2016, the provisions of Section 435, as it existed in Chapter XXVIII
of the Companies Act, 2013 then, would only be applicable. Learned
ASG in this respect refers to the judgments of this Court in the
cases of Bolani Ores Ltd. vs State of Orissa1 and Mahindra and
Mahindra Ltd. vs Union of India and another2.
7.
Learned ASG further submits that the Code has been held to be a
complete Code in itself in a catena of judgments of this Court. In
this respect, he relied on the judgments of this Court in the cases
of Ebix Singapore Private Limited vs Committee of Creditors of
Educomp Solutions Limited and another3, Embassy Property
Developments Private Limited vs State of Karnataka and others4,
and Bharti Airtel Ltd. and another vs Vijaykumar V. Iyer and
others5.
8.
Learned ASG submits that, if a statute is a complete Code in itself,
then normally a reference to the provisions of the prior statute
referred to in a subsequent statute would only have a restrictive
operation. In such a case, it would be a 'legislation by incorporation'
and not a 'legislation by reference'. In this respect, he relied on the
judgments of this Court in the case of Girnar Traders (3) vs. State
of Maharashtra and others6.
9.
Learned ASG further submits that the Statement of Objects
and Reasons (SOR) to the Companies (Amendment) Act, 2017,
amending the Companies Act, 2013 clearly shows that the
amendment is for the purposes of restricting only to the Companies
1
[1975] 2 SCR 138 : (1974) 2 SCC 777
2
[1979] 2 SCR 1038 : (1979) 2 SCC 529
3
[2021] 14 SCR 321: (2022) 2 SCC 401
4
[2019] 17 SCR 559 : (2020) 13 SCC 308
5
[2024] 1 SCR 140 : 2024 SCC OnLine SC 4
6
[2007] 9 SCR 383 : (2011) 3 SCC 1
8
[2024] 5 S.C.R.
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Act and not for any other purpose. He therefore submits that the
finding of the learned Single Judge of the High Court that in view
of the Companies (Amendment) Act, 2017, the Special Court
consisting of Sessions Judge or Additional Sessions Judge will
not have the jurisdiction to entertain the complaint in question is
totally erroneous.
10. Learned ASG submits that, in any event, the learned Single Judge of
the High Court has erred in quashing the complaint. It is submitted
that, in the event the learned Single Judge found that the Special
Court consisting of Sessions Judge or Additional Sessions Judge
did not have jurisdiction and it is the Special Court of Metropolitan
Magistrate or Judicial Magistrate First Class which has jurisdiction,
then it should have returned the complaint for presentation of the
same before the competent court having jurisdiction.
11. Shri Amir Arsiwala, learned Advocate on Record appearing for the
Respondents raises a preliminary objection. He submits that the
point with regard to 'legislation by incorporation' was not argued
before the learned Single Judge of the High Court and therefore
the said contention cannot be permitted to be raised for the first
time in this Court.
12. Shri Arsiwala submits that the judgment of this Court in the case of
Bolani Ores Ltd. (supra) would not be applicable in the facts of the
present case inasmuch as, in the said case what was incorporated in
the subsequent statute was a definition of 'motor vehicles' as found
in the earlier statute i.e. Motor Vehicles Act, 1939. It is therefore
submitted that, the definition cannot be in a state of flux subject to
the mercy of amendments to the Central Act.
13. Similarly, he submits that the judgment of this Court in the case of
Mahindra and Mahindra Ltd. (supra) would not be applicable to
the facts of the present case inasmuch as, in the said case what
was referred in Section 55 of the Monopolies and Restrictive Trade
Practices Act, 1969 was a right to file an appeal on any of the
grounds mentioned in Section 100 of the Code of Civil procedure,
1908 ("CPC" for short). He submitted that in the said case, this Court
was considering a provision which provided a substantive right to file
an appeal. As such, a reference to Section 100 of the CPC was held
amounting to be an 'incorporation' as the substantive right of appeal
could not be left at the mercy of subsequent amendments to the CPC.
[2024] 5 S.C.R.
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Insolvency and Bankruptcy Board of India v.
Satyanarayan Bankatlal Malu & Ors.
14. Insofar as the judgment of this Court in the case of Girnar Traders
(supra) is concerned, learned counsel submits that rather than the
said judgment supporting the case of the Appellant-Board, if the test
laid down in the said case is applied to the facts of the present case,
it will lead to a conclusion that the present case is that of 'legislation
by reference'.
15. Relying on the judgments of this Court in the cases of Collector of
Customs, Madras vs Nathella Sampathu Chetty and Anr.7, New
Central Jute Mills Co. Ltd. vs. Assistant Collector of Central
Excise, Allahabad & Ors.8, and Ujagar Prints and others vs
Union of India and others9, he submits that what has to be taken
into consideration is the plain language used by the legislation in
the statute to which a reference is made by the subsequent statute.
Learned counsel submits that in the present case, a general reference
is made to Chapter XXVIII of the Companies Act. It is therefore
submitted that, since a general reference is made, the present case
would not be a case of 'legislation by incorporation' but would be a
case of 'legislation by reference'.
16. Learned counsel submits that in any case, the Respondents Nos.1
and 2 have a good case on merits. He submits that the learned Single
Judge of the High Court has not considered the merits of the matter
and in the event this Court holds that the learned Single Judge was
not justified in quashing the proceedings, the matter be remitted to the
learned Single Judge of the High Court for deciding it afresh on merits.
17. Shri Vikas Mehta, learned Advocate on Record for the AppellantBoard, in rejoinder, reiterated the submissions made by Shri S.V.
Raju, learned ASG. He submits that the legislative intent is clear. If
the legislature wanted to take out the offences punishable under the
Code from the ambit of Chapter XXVIII of the Companies Act, 2013,
nothing prevented it from making an amendment to the Code itself.
III.
CONSIDERATION OF STATUTORY PROVISIONS
18. For considering the rival submissions, it will be necessary to refer
to Section 236(1) of the Code, which reads thus:
7
[1962] 3 SCR 786
8
[1971] 2 SCR 92 : (1970) 2 SCC 820
9
[1989] 1 SCR 344 : (1989) 3 SCC 488
10
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236. Trial of offences by Special Court.-(1)
Notwithstanding anything in the Code of Criminal
Procedure, 1973 (2 of 1974), offences under of this Code
shall be tried by the Special Court established under
Chapter XXVIII of the Companies Act, 2013 (18 of 2013).
19. It can thus be seen that Section 236(1) of the Code begins with a
non-obstante clause. It provides that the offences under the Code
shall be tried by the Special Court established under Chapter XXVIII
of the Companies Act, 2013. Chapter XXVIII of the Companies Act,
2013 deals with 'Special Courts'.
20. For appreciating the rival submissions, it will also be necessary to
refer to Section 435 of the Companies Act, 2013, as it was originally
enacted; Section 435 after the amendment in 2015 by the Companies
(Amendment) Act, 2015, which came into effect from 29th May 2015
(hereinafter referred to as "the 2015 Amendment"); and Section 435
as it existed after the amendment by the Companies (Amendment)
Act, 2017 with effect from 7th May 2018 (hereinafter referred to as
"the 2018 Amendment"), which reads thus:
Section 435 (originally enacted)
"435. Establishment of Special Courts.-(1) The Central
Government may, for the purpose of providing speedy
trial of offences punishable under this Act, by notification,
establish or designate as many Special Courts as may
be necessary.
(2) A Special Court shall consist of a Single Judge who
shall be appointed by the Central Government with the
concurrence of the Chief Justice of the High Court within
whose jurisdiction the judge to be appointed is working.
(3) A person shall not be qualified for appointment as a
Judge of a Special Court unless he is, immediately before
such appointment, holding office of a Sessions Judge or
an Additional Sessions Judge."
Section 435 (after the 2015 Amendment)
"435. Establishment of Special Courts.-(1) The Central
Government may, for the purpose of providing speedy trial
of offences punishable under this Act with imprisonment of
[2024] 5 S.C.R.
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Insolvency and Bankruptcy Board of India v.
Satyanarayan Bankatlal Malu & Ors.
two years or more, by notification, establish or designate
as many Special Courts as may be necessary.
Provided that all other offences shall be tried, as the
case may be, by a Metropolitan Magistrate or a Judicial
Magistrate of the First Class having jurisdiction to try any
offence under this Act or under any previous company
law.
(2) A Special Court shall consist of a Single Judge who
shall be appointed by the Central Government with the
concurrence of the Chief Justice of the High Court within
whose jurisdiction the judge to be appointed is working.
(3) A person shall not be qualified for appointment as a
Judge of a Special Court unless he is, immediately before
such appointment, holding office of a Sessions Judge or
an Additional Sessions Judge."
Section 435 (after the 2018 Amendment)
"435. Establishment of Special Courts.-(1) The Central
Government may, for the purpose of providing speedy trial
of offences under this Act, except under section 452, by
notification, establish or designate as many Special Courts
as may be necessary.
(2) A Special Court shall consist of-
(a) a single judge holding office as Session Judge
or Additional Session Judge, in case of offences
punishable under this Act with imprisonment of
two years or more; and
(b) a Metropolitan Magistrate or a Judicial
Magistrate of the First Class, in the case of
other offences, who shall be appointed by the
Central Government with the concurrence of the
Chief Justice of the High Court within whose
jurisdiction the judge to be appointed is working."
21. It could thus be seen that as per Section 435(3) of the Companies
Act, 2013, as it existed on the date on which the Code came into
effect (i.e. after the 2015 Amendment), a person to be qualified for
appointment as a Judge of a Special Court was required to hold office
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of a Sessions Judge or an Additional Sessions Judge immediately
before his appointment as a Judge of a Special Court.
22. After Section 435 of the Companies Act, 2013 suffered an amendment
in the year 2015 by the 2015 Amendment (Act No. 21 of 2015), with
effect from 29th May, 2015, sub-section (1) thereof provided that
the Central Government may, for the purpose of providing speedy
trial of offences punishable under the said Act with imprisonment of
two years or more, by notification, establish or designate as many
Special Courts as may be necessary. It further provided that all
other offences shall be tried either by a Metropolitan Magistrate or
a Judicial Magistrate of the First Class having jurisdiction to try any
offence under the said Act or under any previous company law;
meaning thereby, the offences under the Companies Act punishable
with imprisonment of two years or more were to be tried by Special
Courts comprising of Sessions Judge or Additional Sessions Judge,
whereas all other offences punishable with imprisonment of less than
two years, were to be tried by the Courts of Metropolitan Magistrate
or Judicial Magistrate First Class having jurisdiction to try such
offences. Insofar as sub-sections (2) and (3) are concerned, there
was no change and as such, for being a person to be eligible for
appointment as a Judge of a Special Court it was necessary that he
occupied the office of a Sessions Judge or an Additional Sessions
Judge prior to his appointment.
23. Another amendment to Section 435 of the Companies Act, 2013 was
effected by the Companies (Amendment) Act, 2017 (i.e. Act No. 1
of 2018), with effect from 7th May, 2018. Vide the said amendment,
two classes of Special Courts were constituted. Firstly, a Special
Court presided by a single judge holding office as Session Judge
or Additional Session Judge, in case of offences punishable with
imprisonment of two years or more under the Companies Act, 2013;
and the second being presided by a Metropolitan Magistrate or a
Judicial Magistrate of the First Class in the case of other offences,
i.e., offences punishable with imprisonment of less than two years.
24. It is thus clear that Section 435 of the Companies Act, 2013 as it
originally existed, provided for only one class of Special Courts i.e. a
person holding office of a Sessions Judge or an Additional Sessions
Judge and all offences under the Companies Act, 2013 were required
to be tried by such Special Courts. The 2015 Amendment to Section
435 also provided for only one class of Special Courts i.e. a person
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holding the rank of a Sessions Judge or an Additional Sessions
Judge. The change that was brought out was that, only offences
punishable under the Companies Act, 2013 with imprisonment of
two years or more were to be tried by the Special Courts, whereas
all other offences i.e. offences punishable with imprisonment of less
than two years were to be tried by the jurisdictional Metropolitan
Magistrate or the Judicial Magistrate of the First Class. By the 2018
Amendment, two classes of Special Courts were established. The first
class of Special Courts comprised of an officer holding the office as
Sessions Judge or Additional Sessions Judge, whereas the second
class of Special Courts comprised of Metropolitan Magistrate or a
Judicial Magistrate of the First Class. The offences punishable under
the Companies Act with imprisonment of two years or more were
required to be tried by a Special Court comprising of Sessions Judge
or Additional Sessions Judge, whereas all other offences i.e. the
offences punishable with imprisonment of less than two years were
to be tried by a Special Court comprising of Metropolitan Magistrate
or the Judicial Magistrate of the First Class.
25. The question that requires to be considered is, as to whether the
Special Court under the Code would be as provided under Section
435 of the Companies Act as it existed at the time when the Code
came into effect, or it would be as provided under Section 435 of
the Companies Act after the 2018 Amendment. The answer to that
question would depend upon as to whether the reference to 'Special
Court established under Chapter XXVIII of the Companies Act, 2013'
in Section 236(1) of the Code is a 'legislation by incorporation' or
a 'legislation by reference'. If it is held that it is a 'legislation by
incorporation', then the subsequent amendments would not have
any effect on the Code and the Special Court would continue to be
as provided under Section 435 of the Companies Act, as it existed
when the Code came into effect. Per contra, if it is held that it is a
'legislation by reference' then the subsequent amendments would
also be applicable to the Code and the Special Courts would be as
provided under Section 435 of the Companies Act after its amendment
by the 2018 Amendment.
IV.
CONSIDERATION OF PRECEDENTS
26. A Constitution Bench of this Court in the case of Collector of
Customs, Madras vs Nathella Sampathu Chetty and Anr. (supra)
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has considered the distinction between 'legislation by reference'
and 'legislation by incorporation'. It will be apposite to refer to the
following observations of this Court in the said case:
".........To consider that the decision of the Privy Council
has any relevance to the construction of the legal effect
of the terms of Section 23-A of the Foreign Exchange
Regulation Act is to ignore the distinction between a
mere reference to or a citation of one statute in another
and an incorporation which in effect means the bodily
lifting of the provisions of one enactment and making it
part of another so much so that the repeal of the former
leaves the latter wholly untouched. In the case, however,
of a reference or a citation of one enactment by another
without incorporation, the effect of a repeal of the one
"referred to" is that set out in Section 8(1) of the General
clauses Act:
"8. (1) Where this Act, or any Central Act or Regulation
made after the commencement of this Act, repeals and
re-enacts, with or without modification, any provision
of a former enactment, then references in any other
enactment or in any instrument to the provision so
repealed shall, unless a different intention appears:
be construed as references to the provision so reenacted."
On the other hand, the effect of incorporation is as stated
by Brett, L.J. in Clarke v. Bradlaugh [1881 8 QBD 63] :
"Where a statute is incorporated, by reference, into
a second statute the repeal of the first statute by a
third does not affect the second."
This is analogous to, though not identical with the principle
embodied in Section 6-A of the General Clauses Act
enacted to define the effect of repeals effected by repealing
and amending Acts which runs in these terms:
"6-A. Where any Central Act or Regulation made
after the commencement of this Act repeals any
enactment by which the text of any Central Act or
Regulation was amended by the express omission,
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insertion or substitution of any matter, then, unless a
different intention appears, the repeal shall not affect
the continuance of any such amendment made by
the enactment so repealed and in operation at the
time of such repeal."
We say "not identical" because in the class of cases
contemplated by Section 6-A of the General clauses Act,
the function of the incorporating legislation is almost wholly
to effect the incorporation and when that is accomplished,
they die as it were a natural death which is formally effected
by their repeal. In cases, however, dealt with by Brett, L.J.
the legislation from which provisions are absorbed continue
to retain their efficacy and usefulness and their independent
operation even after the incorporation is effected."
27. It could thus be seen that the effect of incorporation means the
bodily lifting of the provisions of one enactment and making it part
of another so much so that the repeal of the former leaves the latter
wholly untouched. However, in the case of a reference or a citation
of the provisions of one enactment into another without incorporation,
the amendment or repeal of the provisions of the said Act referred
to in a subsequent Act will also bear the effect of the amendment
or repeal of the said provisions.
28. In the case of Bolani Ores Ltd. (supra), this Court was considering
the question as to what would be the effect of amendment of the
definition of 'motor vehicles' for the purposes of Bihar and Orissa
Motor Vehicles Taxation Act, 1930 (for short "the Orissa Taxation
Act"). The Orissa Taxation Act had adopted the definition of 'motor
vehicles' as provided in the Motor Vehicles Act, 1939 for the purposes
of taxation. The definition at the time of adoption brought the motor
vehicle under the ambit of the said definition. It excluded the 'motor
vehicles' used solely upon the premises of the owner. However,
the said enactment suffered an amendment in the year 1956 and
specifically excluded vehicles of special type adapted for use only
in a factory or in any other enclosed premises. It was sought to be
urged on behalf of the State of Orissa that the definition of 'motor
vehicles' as adopted in Section 2(c) of the Orissa Taxation Act was
not the definition by 'incorporation' but a definition by 'reference' and
therefore amendment to the said definition would also be applicable
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for the purposes of taxation under the Orissa Taxation Act.
29. Rejecting the said contention and referring to various earlier
judgments, this Court observed thus:
"29. The question then remains as to whether these
vehicles though registrable under the Act are motor
vehicles for the purpose of the Taxation Act. It has
already been pointed out that before the amendment
vehicles used solely upon the premises of the owner,
though they may be mechanically propelled vehicles
adapted for use upon roads were excluded from the
definition of 'motor vehicle'. If this definition which
excludes them is the one which is incorporated by
reference under Section 2(c) of the Taxation Act, then
no tax is leviable on these vehicles under the Taxation
Act. Shri Tarkunde for the State of Orissa contends
that the definition of 'motor vehicle' in Section 2(c) of
the Taxation Act is not a definition by incorporation but
only a definition by reference, and as such the meaning
of 'motor vehicle' for the purpose of Section 2(c) of the
Taxation Act would be the same as defined from time
to time under Section 2(18) of the Act. In ascertaining
the intention of the legislature in adopting the method of
merely referring to the definition of 'motor vehicle' under
the Act for the purpose of the Taxation Act, we have to
keep in mind its purpose and intendment as also that of
the Motor Vehicles Act. We have already stated what these
purposes are and having regard to them the registration
of a motor vehicle does not automatically make it liable
for taxation under the Taxation Act. The Taxation Act is
a regulatory measure imposing compensatory taxes for
the purpose of raising revenue to meet the expenditure
for making roads, maintaining them and for facilitating
the movement and regulation of traffic. The validity of the
taxing power under Entry 57 List II of the Seventh Schedule
read with Article 301 of the Constitution depends upon
the regulatory and compensatory nature of the taxes. It
is not the purpose of the Taxation Act to levy taxes on
vehicles which do not use the roads or in any way form
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part of flow of traffic on the roads which is required to
be regulated. The regulations under the Motor Vehicles
Act for registration and prohibition of certain categories
of vehicles being driven by persons who have no driving
licence, even though those vehicles are not plying on the
roads, are designed to ensure the safety of passengers
and goods etc. etc. and for that purpose it is enacted to
keep control and check on the vehicles. Legislative power
under Entry 35 of List III (Concurrent List) does not bar
such a provision. But Entry 57 of List II is subject to the
limitations referred to above, namely, that the power of
taxation thereunder cannot exceed the compensatory
nature which must have some nexus with the vehicles
using the roads viz. public roads. If the vehicles do not
use the roads, notwithstanding that they are registered
under the Act, they cannot be taxed. This very concept is
embodied in the provisions of Section 7 of the Taxation
Act as also the relevant sections in the Taxation Acts of
other States, namely, that where a motor vehicle is not
using the roads and it is declared that it will not use the
roads for any quarter or quarters of a year or for any
particular year or years, no tax is leviable thereon and if
any tax has been paid for any quarter during which it is
not proposed to use the motor vehicle on the road, the
tax for that quarter is refundable. If this be the purpose
and object of the Taxation Act, when the motor vehicle is
defined under Section 2(c) of the Taxation Act as having the
same meaning as in the Motor Vehicles Act, 1939, then the
intention of the Legislature could not have been anything
but to incorporate only the definition in the Motor Vehicles
Act as then existing, namely, in 1943, as if that definition
was bodily written into Section 2(c) of the Taxation Act.
If the subsequent Orissa Motor Vehicles Taxation
(Amendment) Act, 1943, incorporating the definition
of 'motor vehicle' referred to the definition of 'motor
vehicle' under the Act as then existing, the effect of
this legislative method would, in our view, amount
to an incorporation by reference of the provisions of
Section 2(18) of the Act in Section 2(c) of the Taxation
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Act. Any subsequent amendment in the Act or a total
repeal of the Act under a fresh legislation on that topic
would not affect the definition of 'motor vehicle' in
Section 2(c) of the Taxation Act. This is a well-accepted
interpretation both in this country as well as in England
which has to a large extent influenced our law. This
view is further reinforced by the use of the word 'has' in
the expression "has the same meaning as in the Motor
Vehicles Act, 1939" in Section 2(c) of the Taxation Act,
which would perhaps further justify the assumption that
the Legislature had intended to incorporate the definition
under the Act as it then existed and not as it may exist
from time to time. This method of drafting which adopts
incorporation by reference to another Act whatever
may have been its historical justification in England in
this country does not exhibit an activists draftsmanship
which would have adopted the method of providing its
own definition. Where two Acts are complimentary or
interconnected, legislation by reference may be an easier
method because a definition given in the one Act may be
made to do as the definition in the other Act both of which
being enacted by the same Legislature. At any rate, Lord
Esher, M.R. dealing with legislation by incorporation, in In
re. Wood's Estate [(1886) 31 Ch D 607] said at p. 615:
"If a subsequent Act brings into itself by reference
some of the clauses of a former Act, the legal effect
of that, as has often been held, is to write those
sections into the new Act just as if they had been
actually written in it with the pen, or printed in it, and,
the moment you have these clauses in the later Act,
you have no occasion to refer to the former Act at all."
The observations in Clarke v. Bradlaugh [(1881) 8 QBD
63 607] are also to the same effect. Brett, L.J. in that case
had said at p. 69:
"... there is a rule of construction that, where a statute
is incorporated by reference into a second statute,
the repeal of the first statute by a third statute does
not affect the second."
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30.