# MIS. INNOVENTIVE INDUSTRlES LTD v. ICICI BANK & ANR

- **Citation:** [2017] 8 S.C.R. 33
- **Court:** Supreme Court of India
- **Decided:** 2017
- **Case number:** Civil Appeal Nos. 8337-8338 of 2017
- **Bench:** R. F. Nariman, Sanjay Kishan Kaul
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-innoventive-industrles-ltd-v-icici-bank-anr-32155
- **Pages:** 76

## Headnote

Insolvency and Bankruptcy Code, 2016:
A
B
ss. 7 and 238 - Maharashtra Relief Undertakings (Special
Provisions Act), 1958 - Insolvency resolution process - Default by c
appellant company in payment of amount due under certain credit
facilities obtained from the bank-financial creditor - Insolvency
petition by bank against the appellant-defaulter company, to set
the insolvency resolution process in motion - Appellants interim
application that no debt legally due since its liability stood
temporarily suspended under the 1958 Act, for one year, which
D
was later extended for one more year - Second application that
owing to non-release of funds under the master restructuring
agreement-MRA, the appellant was unable to pay back its debts -
NCLT held that the Code would prevail against the 1958 Act in
view of the non-obstante clause in s. 238; and that the corporate
E
debtor had defaulted in making payments, as per the evidence placed
by the financial creditors, thus, the application was admitted and
moratorium was declared - In appeal, the NCLAT, held that the
Code and the Maharashtra Act operate in different fields and, thus,
not repugnant to each other; defaulter company failed to pay debt
and cannot derive any advantage from the 1958 Act to stall the
F
insolvency resolution process uls 7 - On appeal, held: Maharashtra
Act cannot stand in the way of the corporate insolvency resolution
process under the Code - Non-obstante clause is contained in s.
238, so that any right of the corporate debtor under any other law
cannot come in the way of the Code - Thus, the tribunal was correct G
in appreciating that there would be repugnancy between the
provisions of the two enactments - Judgment of the appellate tribunal
· is not correct on this score - Obligation of the corporate debtor
was, unconditional and did not depend upon infusing of funds by
33
H
34
SUPREME COURT REPORTS
[2017] 8 S.C.R.
A the creditors into the appellant company -- Also, the submission taken
for the first time that no debt was in fact due under the MRA as it
has not fallen due (owing to the default of the secured creditor) is
not something that can be countenanced at this stage of the
proceedings - Jn view thereof. the tribunal and the appellate tribunal
B right in admitting the application _filed by the .financial creditor.
Object and scheme - Object of the Code is speeding up of
the insolvency process - Code has brought paradigm shift in the
law - Entrenched managements not allowed to continue in
management if they cannot pay their debts.
C
Operation and functioning of the Code - Discussed.
D
E
F
Constitution of India - Art. - 254 - Repugnancy between
Central and State laws - Constitutional principles - Discussed.
Insolvency laws - UK Insolvency Laws and USA Insolvency
Laws - Discussed.
Dismissing the appeals, the Court
HELD: 1.1 There is substance in the plea taken by the
respondents-financial creditor that the instant appeal at the behest
of the erstwhile directors of the appellant is not maintainable.
The appellant stated that this is a technical point and he could
move an application to amend the cause title stating that the
erstwhile directors do not represent the company, but are filing
the appeal as persons aggrieved by the impugned order as their
management right of the company has been taken away and as
they are otherwise affected as shareholders of the company. Once
an insolvency professional is appointed to manage the company,
the erstwhile directors who are no longer in management,
obviously cannot maintain an appeal on behalf of the company. In
the instant case, the company is the sole appellant. This being
the case, the appeal is obviously not maintainable. [Para 111 [48G G-H; 49-A-BI
1.2 The Insolvency and Bankruptcy Code of 2016 has
brought paradigm shift in the law. Entrenched managements are
no longer allowed to continue in management if they cannot pay
their debts. (Para 111 (49-B-CI
H
1.3 One of the important objectives of the Code is to bring
MI

## Text

_Characters 0–39,792 of 170,305. This is a partial read: ask again with offset=39792 for what follows._

[2017] 8 S.C.R. 33
MIS. INNOVENTIVE INDUSTRlES LTD.
v.
ICICI BANK & ANR.
(Civil Appeal Nos. 8337-8338 of 2017)
AUGUST 31,2017
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.)
Insolvency and Bankruptcy Code, 2016:
A
B
ss. 7 and 238 - Maharashtra Relief Undertakings (Special
Provisions Act), 1958 - Insolvency resolution process - Default by c
appellant company in payment of amount due under certain credit
facilities obtained from the bank-financial creditor - Insolvency
petition by bank against the appellant-defaulter company, to set
the insolvency resolution process in motion - Appellants interim
application that no debt legally due since its liability stood
temporarily suspended under the 1958 Act, for one year, which
D
was later extended for one more year - Second application that
owing to non-release of funds under the master restructuring
agreement-MRA, the appellant was unable to pay back its debts -
NCLT held that the Code would prevail against the 1958 Act in
view of the non-obstante clause in s. 238; and that the corporate
E
debtor had defaulted in making payments, as per the evidence placed
by the financial creditors, thus, the application was admitted and
moratorium was declared - In appeal, the NCLAT, held that the
Code and the Maharashtra Act operate in different fields and, thus,
not repugnant to each other; defaulter company failed to pay debt
and cannot derive any advantage from the 1958 Act to stall the
F
insolvency resolution process uls 7 - On appeal, held: Maharashtra
Act cannot stand in the way of the corporate insolvency resolution
process under the Code - Non-obstante clause is contained in s.
238, so that any right of the corporate debtor under any other law
cannot come in the way of the Code - Thus, the tribunal was correct G
in appreciating that there would be repugnancy between the
provisions of the two enactments - Judgment of the appellate tribunal
· is not correct on this score - Obligation of the corporate debtor
was, unconditional and did not depend upon infusing of funds by
33
H
34
SUPREME COURT REPORTS
[2017] 8 S.C.R.
A the creditors into the appellant company -- Also, the submission taken
for the first time that no debt was in fact due under the MRA as it
has not fallen due (owing to the default of the secured creditor) is
not something that can be countenanced at this stage of the
proceedings - Jn view thereof. the tribunal and the appellate tribunal
B right in admitting the application _filed by the .financial creditor.
Object and scheme - Object of the Code is speeding up of
the insolvency process - Code has brought paradigm shift in the
law - Entrenched managements not allowed to continue in
management if they cannot pay their debts.
C
Operation and functioning of the Code - Discussed.
D
E
F
Constitution of India - Art. - 254 - Repugnancy between
Central and State laws - Constitutional principles - Discussed.
Insolvency laws - UK Insolvency Laws and USA Insolvency
Laws - Discussed.
Dismissing the appeals, the Court
HELD: 1.1 There is substance in the plea taken by the
respondents-financial creditor that the instant appeal at the behest
of the erstwhile directors of the appellant is not maintainable.
The appellant stated that this is a technical point and he could
move an application to amend the cause title stating that the
erstwhile directors do not represent the company, but are filing
the appeal as persons aggrieved by the impugned order as their
management right of the company has been taken away and as
they are otherwise affected as shareholders of the company. Once
an insolvency professional is appointed to manage the company,
the erstwhile directors who are no longer in management,
obviously cannot maintain an appeal on behalf of the company. In
the instant case, the company is the sole appellant. This being
the case, the appeal is obviously not maintainable. [Para 111 [48G G-H; 49-A-BI
1.2 The Insolvency and Bankruptcy Code of 2016 has
brought paradigm shift in the law. Entrenched managements are
no longer allowed to continue in management if they cannot pay
their debts. (Para 111 (49-B-CI
H
1.3 One of the important objectives of the Code is to bring
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
35
the insolvency law in India under a single unified umbrella with A
the object of speeding up of the insolvency process. The scheme
of the Code is to ensure that when a default takes place, in the
sense that a debt becomes due and is not paid, the insolvency
resolution process begins. Default is defined in Section 3(12) in
very wide terms as meaning non-payment of a debt once it becomes B
due and payable, which includes non-payment of even part thereof
or an instalment amount. For the meaning of "debt", Section 3(11),
states that a debt means a liability of obligation in respect of a
"claim" and for the meaning of"claim", Section 3(6) which defines
"claim" to mean a right to payment even if it is disputed. The
Code gets triggered the moment default is of rupees one lakh or C
more (Section 4). The corporate insolvency resolution process
may be triggered by the corporate debtor itself or a financial
creditor or operational creditor. A distinction is made by the Code
between debts owed to financial creditors and operational
creditors. A financial creditor has been defined under Section D
5(7) as a person to whom a financial debt is owed and a financial
debt is defined in Section 5(8) to mean a debt which is disbursed
against consideration for the time value of money. As opposed
to this, an operational creditor means a person to whom an
. operational debt is owed and an operational debt under Section 5
(21) means a claim in respect of provision of goods or services.
[Paras 13, 27) [51-A; 71-H; 72-A-Dl
E
1.4 When it comes to a financial creditor triggering the
process, Section 7 becomes relevant. Under the explanation to
Section 7(1), a default is in respect of a financial debt owed to any
financial creditor of the corporate debtor - it need not be a debt
F
owed to the applicant financial creditor. Under Section 7(2), an
application is to be made under sub-section (1) in such form and
manner as is prescribed, which takes us to the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
Under Rule 4, the application is made by a financial creditor in
Form 1 accompanied by documents and records required therein. G
Form 1 is a detailed form in 5 parts, which requires particulars of
the applicant in Part I, particulars of the corporate debtor in Part
II, particulars of the proposed interim resolution professional in
. part HI, particulars of the financial debt in part IV and documents,
records and evidence of default in part V. Under Rule 4(3), the H
36
SUPREME COURT REPORTS
[2017] 8 S.C.R.
A
applicant is to dispatch a copy of the application filed with the
adjudicating authority by registered post or speed post to the
registered office of the corporate debtor. The speed, within which
the adjudicating authority is to ascertain the existence of a default
from the records of the information utility or on the basis of
B evidence furnished by the financial creditor, is important. This it
must do within 14 days of the receipt of the application. It is at
the stage of Section 7(5), where the adjudicating authority is to
be satisfied that a d~fault has occurred, that the corporate debtor
is entitled to point out that a default has not occurred in the sense
that the "debt", which may also include a disputed claim, is not
C due. A debt may not be due if it is not payable in law or in fact.
The moment the adjudicating authority is satisfied that a default
has occurred, the application must be admitted unless it is
incomplete, in which case it may give notice to the applicant to
rectify the defect within 7 days of receipt of a notice from the
D adjudicating authority. Under sub-section (7), the adjudicating
authority shall then communicate the order passed to the financial
creditor and corporate debtor within 7 days of admission or
rejection of such application, as the case may be. [Para 281 [72E-H; 73-A-CI
1.5 The scheme of Section 7 stands in contrast with the
E
scheme under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate debtor
can, within a period of 10 days of receipt of the demand notice or
F
copy of the invoice mentioned in sub-section (1), bring to the
notice of the operational creditor the existence of a dispute or
the record of the pendency of a suit or arbitration proceedings,
which is pre-existing - i.e. before such notice or invoice was
received by the corporate debtor. The moment there is existence
of such a dispute, the operational creditor gets out of the clutches
G of the Code. [Para 29) (73-C-E]
1.6 In the case of a corporate debtor who commits a default
of a financial debt, the adjudicating authority has merely to see
the records of the information utility or other evidence produced
by the financial creditor to satisfy itself that a default has occurred.
H It is of no matter that th.e debt is disputed so long as the debt is
M/S. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
37
"due" i.e. payable unless interdicted by some law or has ·not yet A
become due in the sense that it is payable at some future date. _It
is only when this is proved to the satisfaction of the adjudicating
authority that the adjudicating authority may reject an application
and not otherwise. [Para 30) (73-F]
1.7 The rest of the insolvency resolution process is also B
very important. The entire process is to be completed within a
period of 180 days from !he date of admission of the application
under Section 12 and can only be extended beyond 180 days for
a further period of not exceeding 90 days if the committee of
creditors by a voting of 75% of voting shares so decides. It can C
be seen that time is of essence in seeing whether the corporate
body can be put back on its feet, so as to stave off liquidation. As
soon as the application is admitted, a moratorium in terms of
Section 14 of the Code is to be declared by the adjudicating
authority and a public announcement is made stating, inter alill,
the last date for submission of claims and the details of the interim D
resolution professional who shall be vested with the management
of the corporate debtor and be responsible for receiving claims .
. Under Section 17, the erstwhile management of the corporate
debtor is vested in an interim resolution professional who is a
trained person registered under Chapter IV of the Code. This
interim resolution professional is now to manage the operations
E
qf the corporate debtor as a going concern under the directions
of a committee of creditors appointed under Section 21 of the
Act. Decisions by this committee are to be taken by a vote of not
less than 75% of the voting share of the financial creditors. Under
Section 28, a resolution professional, who is none other than an
F
interim resolution professional who is appointed to carry out the
resolution process, is then given wide powers to raise finances,
create security interests, etc. subject to prior approval of the
committee of creditors. [Paras 31, 32) [73-G-H; 74-A-D]
1.8 Under Section 30, any person who is interested in G
putting the corporate body back on its feet may submit a resolution
plan to the resolution professional, which is prepared on the basis
of an information memorandum. This plan must provide for
payment of insolvency resolution process costs, management of
the affairs of the corporate debtor after approval of the plan, and
implementation and supervision of the plan. It is only when such H
38
SUPREME COURT REPORTS
[2017] 8 S.C.R.
A
plan is approved by a vote of not less than 75% of the voting
share of the financial creditors and the adjudicating authority is
satisfied that the plan, as approved, meets the statutory
requirements mentioned in Section 30, that it ultimately approves
such plan, which is then binding on the corporate debtor as well
B
c
as its employees, members, creditors, guarantors and other
stakeholders. Importantly, and this is a major departure from
previous legislation on the subject, the moment the adjudicating
authority approves the resolution plan, the moratorium order
passed by the authority under Section 14 shall cease to have effect.
The scheme of the Code, therefore, is to make an attempt, by
divesting the erstwhile management of its powers and vesting it
in a professional agency, to continue the business of the corporate
body as a going concern until a resolution plan is drawn up, in
which event the management is handed over under the plan so
that the corporate body is able to pay back its debts and get back
D
on its feet. All this is to be done within a period of 6 months with
a maximum extension of another 90 days or else the chopper
comes down and the liquidation process begins. [Para 331 [74-EH; 75-Al
E
F
1.9 On the facts of the instant case, in answer to the
application made under Section 7 of the Code, the appellant only
raised the plea of suspension of its debt under the Maharashtra
Act, which, therefore, was that no debt was due in law. The
adjudicating authority correctly referred to the non-obstante
clause in Section 238 and arrived at a conclusion that a notification
under the Maharashtra Act would not stand in the way of the
corporate insolvency resolution process under the Code.
However, the appellate tribunal by the impugned judgment held
that the appellant is not entitled to derive any advantage from
MRU Act, 1956 to stall the insolvency resolution process under
Section 7 of the Insolvency & Bankruptcy Code, 2016." This
statement by the AppelJate Tribunal has to be tested with
G reference to the constitutional position on repugnancy. [Para 341
[75-B-C, E-FI
1.10 Repugnancy under Article 254 arises only if both the
Parliamentary (or existing law) and the State law are referable to
List III in the 7'h Schedule to the Constitution of India. In order
H
to determine whether the Parliamentary (or existing law) is
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
39
referable to the Concurrent List and whether the State law is
A
also referable to the Concurrent List, the doctrine of pith and
substance must be applied in order to find out as to where in pith
and substance the competing statutes as a whole fall. It is only if
both fall, as a whole, within the Concurrent List, that repugnancy
can be applied to determine as to whether one particular statute B
or part thereof has to give way to the other. The question is what
is the subject matter of the statutes in question and not as to
·which entry in List III the competing statutes are traceable, as
the entries in List III are only fields of legislation; also, the
language of Article 254 speaks of repugnancy not merely of a
statute as a whole but also "any provision" thereof. Since there C
is a presumption in favour of the validity of statutes generally,
the onus of showing that a statute is repugnant to another has to
be on the party attacking its validity. It must not be forgotten
that that every effort should be made to reconcile the competing
statutes and construe them both so as to avoid repugnancy-care D
should be taken to see whether the two do not really operate in
different fields qua different subject matters. Repugnancy must
exist in fact and not depend upon a mere possibility. Repugnancy
may be direct in the sense that there is inconsistency in the actual
terms of the competing statutes and there is, therefore, a direct
conflict between two or more provisions of the competing statutes.
E
In this sense, the inconsistency must be clear and direct and be
of such a nature as to bring the two Acts or parts thereof into
direct collision with each other, reaching a situation where it is
impossible to obey the one without disobeying the other. This
happens when two enactments produce different legal results
when applied to the same facts. Though there may be no direct
conflict, a State law may be inoperative because the Parliamentary
law is intended to be a complete, exhaustive or exclusive code.
In such a case, the State law is inconsistent and repugnant, even
though obedience to both laws is possible, because so long as
F
the State law is referable to the same subject matter as the G
Parliamentary law to any extent, it must give way. One test of
seeing whether the subject matter of the Parliamentary law is
encroached upon is to find out whether the Parliamentary statute
has adopted a plan or scheme which will be hindered and/or
obstructed by giving effect to the State law. It can then be said
H
40
SUPREME COURT REPORTS
(2017] 8 S.C.R.
A that the State law trenches upon the Parliamentary statute.
Negatively put, where Parliamentary legislation does not purport
to be exhaustive or unqualified, but itself permits or recognises
other laws restricting or qualifying the general provisions made
in it, there can be said to be no repugnancy. A conflict may arise
8
when Parliamentary law and State law seek to exercise their
powers over the same subject matter. This need not be in the
form of a direct conflict, where one says "do" and the other says
"don't". Laws under this head are repugnant even if the rule of
conduct prescribed by both laws is identical. The test that has
been applied in such cases is based on the principle on which the
C rule of implied repeal rests, namely, that if the subject matter of
the State legislation or part thereof is identical with that of the
Parliamentary legislation, so that they cannot both stand together,
then the State legislation will be said to be repugnant to the
Parliamentary legislation. However, if the State legislation or part
D thereof deals not with the matters which formed the subject
matter of Parliamentary legislation but with other and distinct
matters though of a cognate and allied nature, there is no
repugnancy. Repugnant legislation by the State is void only to
the extent of the repugnancy. In other words, only that portion of
the State's statute which is found to be repugnant is to be declared
E void. The only exception to the above is when it is found that a
State legislation is repugnant to Parliamentary legislation or an
existing law if the case falls within Article 254(2), and Presidential
assent is received for State legislation, in which case State
· legislation prevails over Parliamentary legislation or an existing
F
law within that State. Here again, the State law must give way to
any subsequent Parliamentary law which adds to, amends, varies
or repeals the law made by the legislature of the State, by virtue
of the operation of Article 254(2) proviso. [Para 50] (98-B-H; 99A-H; 100-A]
1.11 On reading the provisions of the Insolvency and
G Bankruptcy Code, 2016 the moment initiation of the corporate
insolvency resolution process takes place, a moratorium is
announced by the adjudicating authority vide Sections 13 and 14
of the Code, by which institution of suits and pending proceedings
etc. cannot be proceeded with. This continues until the approval
H of a resolution plan under Section 31 of the said Code. In the
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
41
interim, an interim resolution professional is appointed under . A
Section 16 to manage the affairs of corporate debtors under
Section 17. It is clear, therefore, that the earlier State law is
repugnant to the later Parliamentary enactment as under the said
State law, the State Government may take over the management
of the relief undertaking, after which a temporary moratorium in
B
much the same manner as that contained in Sections 13 and 14 of
the Code takes place under Section 4 of the Maharashtra Act.
There is no doubt that by giving effect to the State law, the said
plan or scheme which may be adopted under the Parliamentary
statute will directly be hindered and/or obstruc.ted to that extent
in that the management of the relief undertaking, which, if taken C
over by the State Government, would directly impede or come in
the way of the taking over of the management of the corporate
body by the interim resolution professional. Also, the moratorium
imposed under Section 4 of the Maharashtra Act would directly
clash with the moratorium to be issued under Sections 13 and 14
of the Code. Whereas the moratorium imposed under the
Maharashtra Act is discretionary and may relate to one or more
of the matters contained in Section 4(1), the moratorium imposed
under the Code relates to all matters listed in Section 14 and
follows as a matter of course. In the instant case it is clear,
therefore, that unless the Maharashtra Act is out of the way, the
Parliamentary enactment will be hindered and obstructed in such
a manner that it will not 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 Maharashtra Act cannot
possibly be held to apply to the Central enactment, inasmuch as
a matter of constitutional law, the later Central enactment being
repugnant ~o the earlier State enactment by virtue of Article 254
(1), would operate to render the Maharashtra Act void vis-a-vis
action taken under the later Central enactment. It is clear that
D
E
F
the later non-obstante clause of the Parliamentary enactment will
also prevail over the limited non-obstante clause contained in
G
Section 4 of the Maharashtra Act. For these reasons, the
Maharashtra Act cannot stand in the way of the corporate
insolvency resolution process under the Code. [Paras 54, 55)
[105-C-H; 106-A-B, DJ
1.12 The submission of the appellant that the notification H
42
SUPREME COURT REPORTS
[2017] 8 S.C.R.
A under the Maharashtra Act only kept in temporary abeyance the
debt which would become due the moment the notification under
the said Act ceases to have effect, cannot be accepted. The
notification under the Maharashtra Act continues for one year at
a time and can go upto 15 years. Given the fact that the timeframe
B
c
within which the company is either to be put back on its feet or is
to go into liquidation is only 6 months, it is obvious that the period
of one year or more of suspension of liability would completely
unsettle the scheme of the Code and the object with which it was
enacted, namely, to bring defaulter companies back to the
commercial fold or otherwise face liquidation. lf the moratorium
imposed by the Maharashtra Act were to continue from one year
upto 15 years, the whole scheme and object of the Code would
be set at naught. Undeterred by this, the appellant submitted
that since the suspension of the debt took place from July, 2015
onwards, the appellant had a vested right which could not be
D interfered with by the Code. It is precisely for this reason that
the non-obstante clause, in the widest terms possible, is contained
in Section 238, so that any right of the corporate debtor under
any other law cannot come in the way of the Code. For all these
reasons, the Tribunal was correct in appreciating that there would
be repugnancy between the provisions of the two enactments.
E The judgment of the appellate tribunal is not correct on this score
because repugnancy does exist in fact. (Para 56( (106-E-H; 107Al
1.13 Both the tribunal and the appellate tribunal refused to
go into the other contentions of the appellant viz. that under the
F
MRA, it was because the creditors did not disburse the amounts
thereunder that the appellant was not able to pay its dues. The
tribunal and the appellate tribunal were right in not going into
this submission for the very good reason that the period of 14
days within which the application is to be decided was long over
by the time the second application was made before the tribunal.
G Also, the second application clearly appears to be an after-thought
for the reason that the corporate debtor was fully aware of the
fact that the MRA had failed and could easily 1lave pointed out
these facts in the first application itself. However, for reasons
best known to it, the appellant chose to take up only a law point
H before the tribunal. It is only as an after-thought that the second
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
43
application was then filed to add an additional string to a bow
A
which appeared to the appellants to have already been broken.
[Para 57) [107-B-D)
1.14 The obligation of the corporate debtor was,
unconditional and did not depend upon infusing of funds by the
creditors into the appellant company. Also, the argument taken
B
for the first time that no debt was in fact due under the MRA as it
has not fallen due (owing to the default of the secured creditor) is
not something that can be countenanced at this stage of the
proceedings. In this view of the matter, the tribunal and the
appellate tribunal were right in admitting the application filed by
the financial creditor. [Para 591 [107-H; 108-A-BI
C
Zaverbhai Amaidas v. State of Bombay [19551 1 SCR
799; Tika Ramji v. State of U.P. [1956[ SCR 393; Deep
Chand v. State of U.P. [1959[ Suppl. 2 SCR 8;· Pandit
Ukha Kolhe v. State of Maharashtra [1964[ 1SCR926;
M Karunanidhi v. Union of India [1979] 3 SCR 254;
Hoechst Pharmaceuticals Ltd. v. State of Bihar [19831
3 SCR 130; Vijay Kumar Sharma & Ors. v. State Of
Karnataka (1990) 2 SCC 562 : [1990] 1 SCR 614;
Rajiv Sarin v. State of Uttarakhand (2011) 8 SCC
708:[20111 9 SCR 1012; Girnar Traders v. State of
Maharashtra (2011) 3 SCC 1:[2011] 3 SCRl; Off.~hore
Holdings (P) Limited v. Bangalore Development
Authority (2011) 3 SCC 139:(201111 SCR 453; Ravula
Subba Rao and another v. The Commissioner of Income
Tax, Madras [1956) SCR 577; Union of India v.
Mahindra Supply Company [19621 3 SCR 497; Joseph
Peter v. State of Goa, Daman and Diu (1977) 3 SCC
280 : (1977) 3 SCR 771 - referred to.
State of Rhode Island v. Palmer 253 U.S. 350 - referred ,
to.
Case Law Reference
[1955] 1 SCR 799
referred to
Para 40
[1956) SCR 393
referred to
Para 41
[1959] Suppl. 2 SCR 8
referred to
Para 42
[1964) 1 SCR 926
referred to
Para 43
[1979) 3 SCR 254
referred to
Para 44
D
E
F
, G
H
44
A
B
c
SUPREME COURT REPORTS
[2017] 8 S.C.R.
[1983] 3 SCR 130
referred to
Para 45
[1990] 1 SCR 614
referred to
Para 46
[20111 9 SCR 1012
referred to
Para 48
[2011] 3 SCR 1
referred to
Para 49
[2011] 1 SCR 453
referred to
Para 49
[1956 SCR 577
referred to
Para 53
[19621 3 SCR 497
referred to
Para 53
[19771 3 SCR 771
referred to
Para 53
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 83378338 of 2017.
From the impugned final Judgment and Order dated 15.05.2017
passed by the National Company Law Appellate Tribunal, New Delhi
in Company Appeal (AT) (Insolvency) Nos.1 & 2 of2017.
Dr. A.M. Singhvi, Sr. Adv., Shikhil Suri, Kamal Deep, Ms. Manak
D Joshi, Shiv Kumar Suri, Advs. for the Appellant.
Shyam Divan, Sr. Adv., V. Vishwanthan, Indranil Deshmukh, Kapil
Arora, Animesh Bisht, Karan Khanna, Karan Lehri, Ms. Samiksha Jiodyal
(for M7s CyrilArnarchand Mangaldas), Raj iv S. Roy,Avrojyoti Chatterjee,
Abhijit Roy, Jayasree Saha, Anand Swain, Sebat Deauria, Advs. for the
E Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. I. The present case raises interesting
questions which arise under the Insolvency and Bankruptcy Code of
2016 (hereinafter referred to as the Code), which received the
F
Presidential assent on 28th May, 2016, but which provisions were brought
into force only in November-December, 2016.
2. The appellant before us is a multi-product company catering
to applications in diverse sectors. From August, 2012, owing to labour
problems, the appellant began to suffer losses. Since the appellant was
G not able to service the financial assistance given to it by 19 banking
entities, which had extended credit to the appellant, the appellant itself
proposed corporate debt restructuring. The 19 entities formed a
consortium, led by the Central Bank of India, and by a joint meeting
dated 22"d February, 2014, it was decided that a CDR resolution plan
H
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
45
[R. F. NARIMAN, J.]
would be approved. The details of this plan are not immediately relevant A
· to the issues to be decided in the present case. The lenders, upon perusing
, the terms of the CDR proposal given by the appellant and a techno-
. economic viability study, (which was done at the instance of the lenders),
a CDR empowered group admitted the restrncturing proposal vide
minutes of a meeting dated 23'd May, 2014. The Joint Lenders Forum B
at a meeting of241h June, 2014 finally approved the restructuring plan.
3. In terms of the restrncturing plan, a master restrncturing
agreement was entered into on 91h September, 2014 (hereinafter referred
to as the MRA), by which funds were to be infused by the creditors, and
certain obligations were to be met by the debtors. .The aforesaid
restructuring plan was implementable over a period of2 years.
·
C
4. Suffice it to say that both sides have copiously referred to
various letters which passed between the parties and various minutes of
meetings. Ultimately, an application was made on 7'h December, 2016
by ICICI Bank Ltd., in which it was stated that the appellant being a
defaulter within the meaning of the Code, the insolvency resolution D
process ought to be set in motion. To this application, a reply was filed
. by means of an interim application on behalf of the appellant dated 17'h
December, 2016, in which the appellant claimed that there was no debt
legally due inasmuch as vide two notifications dated22
11d July, 2015 and
18th July, 2016, both under the Maharashtra Relief Undertakings (Special
Provisions Act), 1958 (hereinafter referred to as the Maharashtra Act),
all liabilities of the appellant, except certain liabilities with which we are.
not concerned, and remedies for enforcement thereof were temporarily
suspended for a period of one year in the first instance under the first
notification of22
11d July, 2015 and another period of one year under the
second notification of18'h July, 2016. It maybe added that this was the
only point raised on behalf of the appellant in order to stave off the
admission of the ICICI Bank application made before the NCLT. We
E.
are informed that hearings took place in the matter on 22
11d and 23n1
December, 2016, after which the NCLT adjourned the case to l61h
January, 2017.
5. On this date, a second application was filed by the appellant in
. which a different plea was taken. This time, the appellant pleaded that
owing to non-release of funds under the MRA, the appellant was unable _
to pay back its debts as envisaged. Further, it repaid only some amounts
F
G
to five lenders, who, according to the appellant, complied with their H
46
SUPREME COURT REPORTS
(2017] 8 S.C.R.
A obligations under the MRA. In the aforesaid circumstances, it was
pleaded that no default was committed by it.
6. By an order dated 17th January, 2017, the NCLT held that the
Code would prevail against the Maharashtra Act in view of the nonobstante clause in Section 238 of the Code. It, therefore, held that the
B Parliamentary statute would prevail over the State statute and this being
so, it is obvious that the corporate debtor had defaulted in making
payments, as per the evidence placed by the financial creditors. Hence,
the application was admitted and a moratorium was declared.
7. By a separate order dated 23'd January, 2017 passed by the
c NCLT, in which a clarification application was dismissed, it was held
that the second application of l 6
1h January, 2017 was raised belatedly
and would not be maintainable for two reasons-( I) because no audience
has been given to the corporate debtor in the Tribunal by the Code; and
(2) the corporate debtor has not taken the plea contained in the second
application in the earlier application. This was because a limited
D timeframe of only 14 days was available under the Code from the date
of filing of the creditors' petition, to decide the application.
E
F
G
H
8. From the aforesaid order, an appeal was carried to the NC LAT,
which met with the same fate. The NCLAT, however, held that the
Code and the Maharashtra Act operate in different fields and, therefore,
are not repugnant to each other. Having recorded this, however, the
NCLAT went on to hold that the appellant.cannot derive any advantage
from the Maharashtra Act to stall the insolvency resolution process under
Section 7 of the Code. It was further held as under:
"80. Insofar as Master Restructuring Agreement dated 8th
September 2014 is concerned; the appellant cannot take
advantage of the same. Even if it is presumed that fresh
agreement came into existence, it does not absolve the Appellant
from paying the previous debts which are due to the financial
creditor.
81. The Tribunal has noticed that there is a failure on the part of
appellant to pay debts. The Financial Creditor has attached
different records in support of default of payment. Apart from
that it is not supposed to go beyond the question to see whether
there is a failure on fulfilment of obligation by the financial creditor
under one or other agreement, including the Master Restructuring
M/S. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
47
[R. F. NARIMAN, J.]
Agreement. In that view of the matter, the Appellant cannot A
derive any advantage of the Master Restructuring Agreement
dated 8th September, 2014."
9. Dr. A.M. Singhvi, learned Senior Advocate, who appeared on
behalf of the appellants, has argued before us that the Appellate Tribunal,
in fact, decided in his favour by holding the two Acts to be not repugnant
B
· to each other, but then went on to say that the Maharashtra Act will not
apply.
According to him, the Maharashtra Act would apply for the
reason that the moratorium imposed by the two notifications under the
Maharashtra Act continued in force at the time when the insolvency
application was made by ICICI and that, therefore, the Code would not
apply. According to him, the debt was kept in temporary abeyance,
C
after which the Code would apply. He argued that he had a vested right
under the Maharashtra Act and that the debt was only suspended
temporarily. According to him, no repugnancy exists between the two
statutes under Article 254 of the Constitution and each operates in its
own field. The Maharashtra Act provides for relief against D
unemployment, whereas the Code is a liquidation process. Further, the
Code is made under Entry 9, List III of the Seventh Schedule to the
Constitution, whereas the Maharashtra Act, which is a measure for
unemployment relief, is made under Entry 23, List Ill of the Seventh
Schedule. This being so, as correctly held by the Appellate Tribunal, the
two Acts operated in different spheres and, therefore, do not clash. Dr.
Singhvi mounted a severe attack on the Appellate Tribunal by stating
that the Tribunal ought to have gone into the MRA, in which case it
would have discovered that there was no debt due by the appellant,
inasmuch as the funds that were to be disbursed by the creditors to the
appellant were never disbursed, as a result of which the corporate
restructuring package never took off from the ground. He further argued
that amounts due under the MRA had not yet frnctified and for that
reason also the application was premature.
E
F
I 0. Shri H.N. Salve, learned Senior Advocate, appearing on behalf
of the respondents, took us through the Code in some detail and argu\:d
G
before us that the object of this Code is that the interests of all stakeholders,·
namely shareholders, creditors and workmen, are to be balanced and
the old notion ofa sick management which cannot pay its financial debts
continuing nevertheless in the management seat has been debunked by
the Code. The entire object of the Code would be stultified if we were
H
48
SUPREME COURT REPORTS
[2017] 8 S.C.R.
A to heed Dr. Singhvi's submission, as according to Shri Salve, when an
application is made under Section 7 of the Code, the only limited scope
of argument before the NCLT by a corporate debtor is that the debt is
not due for any reason. According to Shri Salve, the first application in
reply to the corporate debtor was, in fact, the only arguable point in the
B
c
case which has been concurrently turned down. According to Shri Salve,
after an interim resolution professional has been appointed and a
moratorium declared, the directors of the company are no longer in
management and could not, therefore, maintain the appeal before us.
Also, according to Shri Salve, the NCLT and NCLAT were both right in
refusing to go into the plea that, since the financial creditors had not
pumped in funds, the corporate debtor could not pay back its debts in
accordance with the MRA, as this plea was an after-thought which
could easily have been taken in the first reply. Further, in order to satisfy
our conscience, he has taken us through the MRA to some detail to
show us that the appellant would emerge as a defaulter under the MRA
D in any case. He has also argued that it is obvious that the two Acts are
repugnant to each other, inasmuch as they cannot stand together. Under
the Maharashtra Act, a limited moratorium is imposed after which the
State Government may take over management of the company. Under
the Code, however, a full moratorium is to automatically attach the moment
an application is admitted by the NCLT, and management of the company
E is then taken over by an interim resolution professional. Obviously, the
moratorium under the Maharashtra Act and the management taken over
by the State Government cannot stand together with the moratorium
imposed under the Central Act and takeover of the management by the
interim resolution professional. According to him, therefore, no case
F whatsoever is made out and the appeal should be dismissed, both on
grounds of maintainability and on merits.
11. Having heard learned counsel for both the parties, we find
substance in the plea taken by Shri Salve that the present appeal at the
behest of the erstwhile directors of the appellant is not maintainable.
Dr. Singhvi stated that this is a technical point and he could move an
G application to amend the cause title stating that the erstwhile directors
do not represent the company, but are filing the appeal as persons
aggrieved by the impugned order as their management right of the
company has been taken away and as they are otherwise affected as
shareholders of the company. According to us, once an insolvency
H professional is appointed to manage the company, the erstwhile directors
MIS. INNOVENTIVE INDUSTRIES LTD. v. ICICI BANK
49
[R. F. NARIMAN, J.]
who are no longer in management, obviously cannot maintain an appeal A
on behalf of the company. In the present case, the company is the sole
appellant. This being the case, the present appeal is obviously not
maintainable. However, we are not inclined to dismiss the appeal on this
score alone. Having heard both the learned counsel at some length, and
because this is the very first application that has been moved under the
B
Code, we thought it necessary to deliver a detailed judgment so that all
Courts and Tribunals may take notice of a paradigm shift in the law.
Entrenched managements are no longer allowed to continue in
management if they cannot pay their debts.
12. The Insolvency and Bankruptcy Code, 2016 has been passed
after great deliberation and pursuant to various committee reports, the
C
most important of which is the report of the Bankruptcy Law Reforms
Committee ofNovember, 2015. The Statement of Objects and Reasons
of the Code reads as under:
"STATEMENT OF OBJECTS AND REASONS
D
There is no single law in India that deals with insolvency and
bankruptcy.