
Citation | 2024 SCC OnLine SC 560 |
Date of Judgement | 19 April 2024 |
Court | Supreme Court of India |
Appellant | Insolvency & Bankruptcy Board of India |
Respondent | Satyanarayan Bankatlal Malu |
Bench | B.R. Bhargavi & Sandeep Mehta, JJ. |
INTRODUCTION
The matter at hand includes a complex consideration of legislative requirements governing the trial of offences under the Code of Criminal Procedure and the Companies Act. It largely focuses on the interpretation of Section 236(1) of the Code, which mandates that offences be tried by a Special Court formed under Chapter XXVIII of the Companies Act of 2013. The case also digs into the revisions to Section 435 of the Companies Act, including the 2015 and 2018 revisions, which changed the membership and authority of Special Courts based on the gravity of offences. The legal concepts of ‘legislation by reference’ and ‘legislation by incorporation’ are important to the court’s examination, with the goal of ensuring the harmonious operation of statutes and upholding legislative purpose when interpreting provisions.
FACTS OF THE CASE
- On September 4, 2017, the Corporate Debtor filed a petition under Section 10 of the IBC to initiate its own CIRP (CP/1362/I&BC/NCLT/MB/MAH/2017).On October 17, 2017, the National Company Law Tribunal (NCLT), Mumbai Bench, admitted the petition, beginning the CIRP and imposing the moratorium under Section 14 of the IBC. Mr. Amit Poddar was designated as the Interim Resolution Professional (RP).Mr. Satyanarayan Malu.
- The Respondent and Ex-Director of the Corporate Debtor, submitted an application (M.A. No. 1396/2018) under Section 12A of the IBC to withdraw the CIRP case, alleging a One-Time Settlement (OTS) with Allahabad Bank, the only Financial Creditor. Concurrently, the RP submitted an application (M.A. No. 827/2018) for approval of the Resolution Plan.On December 20, 2018, the NCLT approved the withdrawal application (M.A. No. 1396/2018), taking into account the Financial Creditor’s permission for withdrawal dated November 27, 2018.On March 11, 2019, the NCLT issued a Show-Cause Notice to the Respondents for noncompliance with the OTS provisions. On August 20, 2019,
- The NCLT determined grounds to prosecute the Respondents after the Financial Creditor’s petitions (M.A. 494 and 495 of 2019). On September 22, 2020, the Appellant-Board filed a complaint against the Respondents (Special Case No. 853/2020) for violating Sections 73(a) and 235A of the IBC owing to noncompliance with the OTS and the incorrect filing of M.A. 1396/2018 under Section 12A. On March 17, 2021.
- The Sessions Judge issued a procedure against the Respondents and summoned them for the next hearing. The Respondents, who were dissatisfied with the Sessions Judge’s ruling, filed a Writ Petition (No. 2592 of 2021) to the Bombay High Court, disputing the jurisdiction. The High Court granted the Writ Petition on February 14, 2022, overturning the Sessions Judge’s ruling from March 17, 2021.
ISSUES RAISED
- Whether “legislation by incorporation” or “legislation by reference” is being used to describe the reference to Chapter XXVIII of the Companies Act, 2013 in Section 236(1) of the Insolvency and Bankruptcy Code, 2016?
- Whether, in light of changes to the Companies Act, Special Courts created under the Companies Act, 2013 have the authority to hear cases involving violations of the Insolvency and Bankruptcy Code, 2016?
- Whether the authority of Special Courts to try offences under the Code is affected by the Companies (Amendment) Act, 2017, which went into effect on May 7, 2018?
- Whether it refers to the Companies Act, 2013’s Chapter XXVIII in a way that leaves it open to future revisions, or if it adopts the provisions of the Chapter as they were in effect at the time the Code was passed?
CONTENTION OF THE APPELLANT
- “Legislation by incorporation” is used to describe the reference to Chapter XXVIII of the Companies Act, 2013 in Section 236(1) of the Insolvency and Bankruptcy Code, 2016. This indicates that the provisions of Section 435 of the Companies Act, 2013 pertaining to Special Courts were integrated into the Code at the time of its adoption and that any changes made to Section 435 afterward would not have an impact on the Code.
- The Companies Act of 2013’s particular provision has been integrated into Section 236(1) of the Code, rather than it being a generic reference, as the legislative intent behind the provision is apparent. A broad reference to Chapter XXVIII of the Companies Act may have been made if “legislation by reference” was the intended outcome.
- The Supreme Court has held in a number of rulings that the Code is a whole Code on its own. A reference to a previous statute’s provisions would have a restricted effect when the act is a whole Code; this is known as “legislation by incorporation.”
- The Companies (Amendment) Act, 2017’s Statement of Objects and Reasons reveals that the amendment’s sole goal was to limit it to the Companies Act. Thus, it was incorrect for the High Court to rule that, as of the 2017 modification, Special Courts may only hear cases involving violations of the Companies Act.
- Rather than annulling the proceedings, the High Court ought to have returned the case for presentation before the appropriate court in the event that it determined the Special Court lacked jurisdiction.
CONTENTION OF THE RESPONDENT
- The respondent files a preliminary objection, contending that since the issue of “legislation by incorporation” was not debated in the High Court, it cannot be brought up in the Supreme Court for the first time. They argue that it is wrong procedurally for the appellant to present this point so late in the process. According to the respondent, the Supreme Court ought to limit its deliberations to the matters that were legitimately brought up before the High Court and reject this further contention.
- In order to differentiate the rulings referenced by the appellant—such as Bolani Ores Ltd. v. State of Orissa and Mahindra and Mahindra Ltd. v. Union of India—the respondent offers case-specific reasoning. They contend that the referenced judgements are irrelevant since the particular facts and legal provisions in those cases are different from the present circumstances. The respondent highlights that, instead of depending solely on the precedents referenced by the appellant, the Supreme Court need to closely review the factual framework and relevant statutes in the current case.
- The respondent contends that the clear language employed by the legislator in the statute that the following statute references should be the basis for interpreting the relevant legislation. They argue that this case should be classified as “legislation by reference” rather than “legislation by incorporation” since the Insolvency and Bankruptcy Code makes a broad reference to Chapter XXVIII of the Companies Act. The respondent argues that the Supreme Court ought to follow the legislature’s clear meaning when interpreting the legislative provisions and should not stray from it.
- The respondent argues that the High Court should have given more weight to the substantive issues of the case when it quashed the proceedings, and that they have a strong case on the merits. They recommend that the matter be returned to the High Court for a further assessment of the merits in the event that the Supreme Court determines that the High Court’s ruling was unwarranted. The respondent contends that the Supreme Court ought to concentrate on the procedural and interpretive problems brought forward in the appeal rather than delving into the case’s merits at this time.
JUDGEMENT
The case’s ruling centres on an appeal that questions the learned Single Judge of Bombay’s High Court of Judicature’s ruling in Writ Petition No. 2592 of 2021. In order to challenge the order of the learned Additional Sessions Judge ordering the issuance of process against Satyanarayan Bankatlal Malu and Ramesh Satyanarayan Malu, the former directors of M/s. SBM Paper Mills Pvt. Ltd., the High Court granted their petition. The order was based on a complaint filed by the Insolvency and Bankruptcy Board of India under the Insolvency and Bankruptcy Code, 2016. The interpretation of Section 236(1) of the Insolvency and Bankruptcy Code, 2016, which relates to the Special Court formed under Chapter XXVIII of the Companies Act, 2013 hearing cases involving Code violations, is the main point of contention in the decision.
The Insolvency and Bankruptcy Board of India, the appellant, contended that this reference amounted to “legislation by incorporation,” which means that the Code will be unaffected by changes made to the Companies Act in the future. The Ex-Directors of the Corporate Debtor, the respondent, on the other hand, argued that it is “legislation by reference,” meaning that changes made to the Companies Act would also affect the Code. The ruling explores the nature of the sections from the Companies Act that were included into the Insolvency and Bankruptcy Code, the legislative intent behind the reference, and the effects of later revisions to the Companies Act on the Code. The court’s ruling will dictate whether the Companies Act’s provisions as they were in effect at the time the Code was enacted should be followed by the Special Court for trying offences under it, or if the Companies Act would be subject to later revisions.
ANALYSIS
The primary question is whether “legislation by incorporation” or “legislation by reference” is being used when Section 236(1) of the Insolvency and Bankruptcy Code, 2016 refers to Chapter XXVIII of the Companies Act, 2013. This difference establishes whether further changes to the Companies Act are applicable to the Code. Since the provisions of Section 435 of the Companies Act respecting Special Courts were integrated into the Code at the time of its implementation, the appellant contends that it is “legislation by incorporation” and that any subsequent revisions to Section 435 would not impact the Code. According to the replies, the Code is “legislation by reference,” which means that any changes made to the Companies Act would also affect the Code.
They contend that under the Companies Act, Special Courts are not supposed to try crimes under the Code. The appellant cites judgments like Bolani Ores and Mahindra and Mahindra to argue that when a statute is a complete Code, a reference to another Act amounts to “incorporation”. The respondent distinguishes these cases. The respondent argues that the legislation is “legislation by reference” since the Code makes a broad reference to Chapter XXVIII of the Companies Act and emphasises interpreting the law based on the simple language employed. The preliminary objection is brought by the respondent, stating that the argument of “legislation by incorporation” was not presented to the High Court and cannot be advanced at this time. According to the appellant, Section 236(1)’s legislative aim is evident. The High Court dismissed the case, ruling that Special Courts may only hear cases involving offences under the Companies Act as a result of the 2018 modification. According to the appellant, this was incorrect. The appellant argues that even though the Code is “legislation by reference,” acts that carry a two-year or longer jail sentence must be tried in a Special Court with a Sessions Judge presiding over the proceedings. According to the respondent, their case has substantial merits and the High Court did not give them enough weight. If the Supreme Court determines that the ruling of the High Court was erroneous, they will request remand. The crucial issue is whether the reference in Section 236(1) of the Code refers to Chapter XXVIII of the Companies Act in a way that leaves it open to future revisions or includes the provisions of the Chapter as they were in place at the time the Code was established.
CONCLUSION
The central question in this appeal is whether Chapter XXVIII of the Companies Act, 2013 is covered by “legislation by reference” or “legislation by incorporation” under Section 236(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). This difference influences whether later changes to the Companies Act have an effect on the IBC. It is “legislation by incorporation,” according to the Insolvency and Bankruptcy Board of India (the “Board”), which means the IBC includes the provisions of the Companies Act as they were in effect at the time the IBC was enacted. Later modifications, such as the 2018 amendment, would thus not impact the IBC. Former corporate debtor directors who are the respondents argue that the IBC is “legislation by reference,” which means it incorporates any upcoming changes to the Companies Act.
The Board contests the High Court’s decision, arguing that Special Courts must address IBC offences in accordance with Section 236(1) of the IBC, and that Special Courts should only consider matters pertaining to the Companies Act after the 2018 revision. The question of whether the IBC’s reference to the Companies Act is limited to its initial provisions or encompasses future modifications that may affect Special Courts’ jurisdiction over IBC proceedings will be decided by the Supreme Court.
REFERENCE
- SCC Online.
- https://www.livelaw.in/round-ups/weekly/weekly-digest-of-ibc-cases-8th-to-21st-april-2024-255933.
This article is written by Shivansh Raj student of Tamil Nadu National Law; Intern at Legal Vidhiya
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