Published on 12th February 2025
Authored By: Ruchira Deb
Techno India University, Kolkata
PARTIES INNBOLVED:
Appellant: M/s Innoventive Industries Limited
Respondent: ICICI Bank of India
Court: Supreme Court of India
Citation: (2018) 1 SCC 407
INTRODUCTION
It’s the first landmark judgment of the Supreme Court that brought in the newly introduced Insolvency and Bankruptcy Case (IBC) 2016, which has a criterion shift in law. It has transformed the Insolvency Jurisdiction in India from Debtor in possession to a sturdy framework of Creditor in possession. The judgment of the Court on maintainability of the adjuration, i.e., former directors’ absence of locus standi to file a pleading on behalf of the company, in a case where an Insolvency Professional is designated, has been subjugated to significant dilution throughout the working of the IBC.
FACT OF THE CASE
On 7th December 2016, ICICI Bank moved before the Mumbai branch of the National Company Law Tribunal (NCLT) to file a suit under Section 7 of the Insolvency and Bankruptcy Code (IBC) to initiate the Corporate Insolvency Regulate Process (CIRP) to recover its due for loan repayment. The NCLT had given a verdict in favour of the ICICI bank. Innoventive’s main contention was that they legally do not own any debt due to suspension notification under Maharashtra Relief Undertaking (Special provision) 1958 where the state law states that if any company is facing financial difficulties, then the State Government overtakes the company for the benefit of the employees and hence section 7 is not applicable. The NCLT gave judgment in favor of ICICI Bank by saying that IBC would override the ruling of MRUA and asked to appoint an Interim Resolution Professional (IPR) and also declared a moratorium under IBC. The Innoventive Ltd challenged the appellate court i.e., the National Company Law Appellate Tribunal (NCLAT) which also gave the same verdict. So Innoventive Ltd went before the Supreme Court for non-satisfaction of the verdict given NCLAT AND NCLT[1].
LEGAL ISSUED AROUSE
The case Innovative Industries Ltd. v. ICICI Bank raised several critical legal issues, which are as follows;
1.Whether the appeal was well maintained as it was brought by the erstwhile directors of Innovative Industries on attaining the appointment of insolvency professional to take its management?
2. Was there any repugnancy between the IBC and the Maharashtra Act?
3. Whether the non-obstante Clause contained in Section 238 of IBC of the Parliamentary enactment under IBC will have preference over the non-obstante Clause contained in Section 4 of the Maharashtra Act?
ARUGUMENTS
APPELLATE’S ARGUMENT (INNOVENTIVE INDUSTRIES LTD.)
1All the arrears of the complainant were temporarily adjourned for a period of two years under Maharashtra Relief Undertakings (special Provisions Act), 1958. There was no liability fairly due.
- There was no quietus of finances under the Master Restructuring Plan (whose agreement was entered into on 9th September, 2014) because of which they could not pay back its debts as envisaged.
- The moratorium imposed by Maharashtra Act continued in force at the applicable point of time when this bankruptcy operation was brought to be made by ICICI, and thus, the Code would not apply.
RESPONDANT’S ARGUMENT (ICICI Bank):
- IBC’s Overriding Effect:
The respondent argued that Section 238 of the IBC gives it overriding effect over other laws, including the State Law (MRUA), and therefore, the NCLT could proceed with the insolvency application.
- Objective of IBC:
ICICI Bank emphasized that the IBC aims to ensure time-bound resolution of insolvency to maximize the value of assets and provide an efficient mechanism for debt recovery, which should not be hindered by the pendency of other proceedings.
- Non-Interference in NCLT Jurisdiction:
It contended that the NCLT has exclusive jurisdiction to handle insolvency matters, and the High Court proceedings should not obstruct the Corporate Insolvency Resolution Process (CIRP).
- Existence of Default:
The respondent maintained that the corporate debtor had defaulted on its debt obligations, making it eligible for insolvency proceedings under Section 7 of the IBC.
SUPREME COURT’S ANALYSIS AND DECISION
Background:
The case revolved around the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC), and the Maharashtra Relief Undertaking Act, specifically concerning the initiation of Corporate Insolvency Resolution Process (CIRP) under the IBC when a winding-up petition was already pending under the Companies Act.
Supreme Court’s Analysis:
1.Jurisdiction of NCLT under IBC:
The Court noted that the IBC is a specialized legislation enacted to resolve insolvency issues in a time-bound manner, which distinguishes it from the Companies Act, where winding-up proceedings could be lengthy.
It held that the NCLT has exclusive jurisdiction to decide on applications filed under Sections 7, 9, and 10 of the IBC.
- Pendency of Winding-Up Proceedings:
The Court held that the pendency of a winding-up petition does not bar the initiation of insolvency proceedings under the IBC.
It emphasized that the IBC operates independently and is designed to provide a fresh framework for addressing corporate insolvency.
- Overriding Effect of IBC (Section 238):
The Court highlighted that Section 238 of the IBC explicitly states that the provisions of the IBC will override other laws, including the Companies Act.
It clarified that this overriding effect applies even if there are conflicting provisions or proceedings under other laws.
- Objective of the IBC:
The Court reaffirmed the IBC’s primary goal of achieving resolution over liquidation to preserve the value of the corporate debtor as a going concern.
It noted that insolvency resolution aims to maximize asset value for all stakeholders, unlike the Companies Act’s winding-up provisions, which are focused on liquidation.
- Definition of Default:
The Court analyzed the definition of “default” under the IBC and confirmed that the respondent (ICICI Bank) had proven the existence of a default, which is a prerequisite for initiating CIRP under Section 7.
The court stated that once Interim Resolution Professional is appointed to take care of the management and at
- Role of NCLT in CIRP:
The Supreme Court clarified that the NCLT’s role under Section 7 is limited to ascertaining the existence of default based on the financial creditor’s application.
Once default is established, the NCLT is obligated to admit the application and commence the CIRP.
Decision of the Supreme Court:
Appeal Dismissed:
The Supreme Court dismissed the appeal filed by Innovative Industries Ltd. and upheld the decision of the NCLT and the National Company Law Appellate Tribunal (NCLAT) to admit the insolvency application filed by ICICI Bank[2].
LEGAL PRINCIPLES
It was a decision of the Supreme Court, which held that for triggering Section 7( 1) of the IBC, the dereliction could be in respect of dereliction of monetary debt owed to any financial creditor of the commercial debtor it did not have to be a debt owed to the applicant financial creditor.
The Supreme Court differed the IBC provisions relating to operations by financial and functional creditors. It held that under Section 8 (1), a functional creditor is needed to deliver a demand notice on the circumstance of a dereliction and under Section 8(2), the commercial debtor can bring to the notice of the creditor, actuality of a disagreement or the record of pendency of a suit or arbitration proceedings which ispre-existing. Actuality of such a disagreement will make the operation of functional creditor inadmissible. The commercial debtor may point out that a dereliction has not occurred in the sense that the” debt”, which may also include a disputed claim, is not due. A debt is not due if it does not exist in law or in fact. Supreme Court held that it’s immaterial that the debt is disputed so long as the debt is” due” i.e. outstanding unless interdicted by some law or has not yet come due in the sense that it’s outstanding at some future date.
The Supreme Court mooted case law and indigenous principles related to repugnancy between Central and State laws in the ambient of Article 254 of the Constitution. It clenched that the MRUA is repugnant to IBC as under the MRUA, the State Government may take over the operation of the undertaking and put moratorium in important the same form as that held in the IBC. It held that by giving effect to the MRUA, the plan/ scheme which may be took up under the IBC will straightway be hindered and or dammed and that there would be immediate clash between moratoriums under the two bills.
The Supreme Court further clenched that the non-obstante clause of IBC will prevail over the non-obstante clause in the MRUA. On the issue of suspense of liability on account of the relief order under the MRUA, it held that on account of the non-obstante clause in the IBC, any right of the corporate debtor under any other law ca not come in the way of the IBC[3].
SUPREME COURT’S JUDMENT
The Supreme Court dismissed the appeal filed by Innovative Industries Ltd. and upheld the orders of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) to admit the insolvency application filed by ICICI Bank. The court applied Doctrine of Repugnancy under Constitution of India Article 254. It stated that same subject matter where both State law and Central law has given verdict in that case the central will prevail and the state law will be void.
The Supreme Court upheld the initiation of Corporate Insolvency Resolution Process (CIRP) against Innovative Industries Ltd. It ruled that the NCLT was correct in admitting the application filed by ICICI Bank under Section 7 of the IBC. The pendency of a winding-up petition did not impact the validity or admissibility of the insolvency proceedings under the IBC. This judgment firmly established the primacy of the IBC as the governing framework for insolvency and bankruptcy in India, ensuring swift and efficient resolution for financial creditors and stakeholders[4].
CONCLUSION
The Supreme Court’s decision in this case is a landmark in the evolution of India’s insolvency law framework. It firmly established the primacy of the Insolvency and Bankruptcy Code, 2016 (IBC) as the primary mechanism for resolving corporate insolvency. This judgment reinforced the speed and efficiency of insolvency resolution under the IBC, ensuring that creditors’ rights are not hindered by delays associated with older legislative frameworks. It clarified that the existence of a default is sufficient for initiating the Corporate Insolvency Resolution Process (CIRP), enabling financial creditors to seek effective remedies. Ultimately, the decision paved the way for the IBC to function as the central statute for addressing corporate insolvency, enhancing investor confidence, and promoting economic stability.
REFERENCES
[1] Bench B&, ‘Finally, Supreme Court on IBC – Innoventive V. ICICI’ (Bar and Bench – Indian Legal news) < https://www.barandbench.com/columns/supreme-court-ibc-innoventive-vs-icici > accessed 27 December 2024
[2] Guest and Guest, ‘Re-Inventing the Supreme Court’s Ruling in Innoventive Industries’ (IndiaCorpLaw, 30 September 2020) < https://indiacorplaw.in/2020/09/re-inventing-the-supreme-courts-ruling-in-innoventive-industries.html > accessed 27 December 2024
[3] (M/s. innoventive industries ltd vs ICICI Bank & ANR on 15 May 2017) < https://indiankanoon.org/doc/112578469/ > accessed 27 December 2024
[4] (Innoventive vs. ICICI Bank: SC Rules Insolvency Code …)< http://almtlegal.com/articles-pdf/Innoventive vs ICICI Bank- SC rules Insolvency Code prevails over state law.pdf > accessed 27 December 2024
