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The insolvency and bankruptcy code, 2016

The insolvency and bankruptcy code, 2016

ICICI Bank Ltd moved the NCLT against steel manufacturer Innoventive Industries Limited for default in repayment. This is the first case filed under the Insolvency and Bankruptcy Code, 2016 and lays down objective guidelines on admitting the application with the NCLT.

Facts of the case:

ICICI Bank Limited (“Bank”) filed a petition before the NCLT against Innoventive Industries Limited (“Company”) for recovery of Rs. 100.19 crores together with interest, expenses and other moneys. The Bank sought realization of this money by initially seeking an order for moratorium under the IBC code. The Company stated that the application by the Bank could not be admitted before the NCLT. The Tribunal had to decide whether an order could be passed u/s 7 of the IBC.

Grounds:

The Company stated the application by the Bank was inadmissible before the NCLT on the following grounds:

  • the amount sought to be recovered by the Bank was suspended under the Maharashtra Relief Undertaking (Special Provisions) Act,1958 (“MRU”).
  • the Company was declared a “relief undertaking” and financial assistance was provided to prevent unemployment.
  • for a period of one year commencing July, 2016, all rights, privileges, obligations or liability accrued before July 2016 shall be suspended and all proceedings before any Court, Tribunal or authority shall be stayed.
  • there was non-obstante clause 1 in both the Acts and such clauses operated in different fields. It was aimed at realisation of credit facility under IBC, and sought to prevent unemployment under MRU. Since the latter led to social welfare, the same should not be disturbed by invoking the non-obstante clause under the IBC. The decision of the SC in Vishal N Kalsa Vs Bank of India & Ors 2 was relied upon to propel this argument.

The Bank sought the admissibility of the application before the NCLT on the following grounds:

  • a plain reading of section 4 of the MRU Act makes it clear that only the right, privilege, obligation or liability accrued till before the company was declared as “relief undertaking” only remained suspended and not the existence / continuation of debt or default itself. Therefore, suspension of debt or default has not been provided under the MRU Act.
  • As per section 7 of the IBC, only the fact of event of default must be ascertained. There are no other criteria for admission of application u/s 7 of the IBC.

Order:

The Tribunal noted that the IBC had come into existence much after the MRU Act. Therefore the “notwithstanding” clause under the IBC prevails upon any other law for the time being in force. This means that the non-obstante clause under IBC prevails over the MRU Act also.  Therefore, any notification under the MRU Act cannot restrict the passing of order u/s 7 of the IBC. The objective of both MRU Act and IBC are different – protecting employee interest in the former and protecting Bank interest in the latter. The Tribunal held that by passing an order admitting the application u/s 7 of the IBC, there was no obstruction to employment even during the moratorium period of 180 days. Even if the company went into liquidation, the interests of the employees would be protected to the extent mentioned in the IBC. The Tribunal held that the Company defaulted in making payments as was evident form the record of default with the information utility. Holding that the liability suspended under the MRU Act, had nothing to do with the continuing default, the Tribunal admitted the application u/s 7 of the IBC declaring moratorium and appointing an insolvency professional.

 


Notes:

  1. A non-obstante clause is usually to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in such non-obstante clause. In case there is any inconsistency between the non-obstante clause and another provision, the non-obstante clause indicates that it is the non-obstante clause which would prevail over the other clause. Parasuramaiah vs. Lakshamma AIR 1965 AP 220
  2. 2016 SCC 762

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