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:
- 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 ↩
- 2016 SCC 762 ↩
He holds a Bachelor’s and Master’s Degree in Corporate Secretaryship and a Degree in Law. He is a Fellow member of the Institute of Company Secretaries of India and an Associate Member of the Corporate Governance Institute, UK and Ireland. He has also completed a program from ISB on ‘Value Creation through Mergers and Acquisitions.
Mr P Muthusamy is an Indian Revenue Service (IRS) officer with an outstanding career of 30+ years of experience and expertise in all niche areas of Indirect Taxes covering a wide spectrum including GST, Customs, GATT Valuation, Central Excise and Foreign Trade.
During his judicial role, he heard and decided a large number of cases, including some of the most sensitive, complicated, and high-stake matters on insolvency and bankruptcy, including many cases on resolution plans, shareholder disputes and Schemes of Amalgamation, De-mergers, restructuring etc.,
Ms. Sarah Abraham has been enrolled with the Bar Council of Tamil Nadu since 1998. Her areas of practice include Shareholder Disputes, Corporate Compliances, Mergers and Acquisitions, Private Equity/ Venture Capital Agreements and allied disputes, Information Technology Contracts, Intellectual Property, General Commercial Agreements, Litigation, Arbitration and Mediation.
A K Mylsamy is the Founder, Managing Partner and the anchor of the firm. He holds a Degree in law and a Degree in Literature. He is enrolled with the Bar Council of Tamil Nadu.
M Subathra holds a Degree in law and a Master’s Degree in International Business Law from the University of Manchester, United Kingdom. She is enrolled with the Bar Council of Tamil Nadu.
Mr. K Rajendran is a former Indian Revenue Service (IRS) officer with a distinguished service of 35 years in the Indirect Taxation Department with rich experience and expertise in the fields of Customs, Central Excise, Service Tax and GST. He possesses Master’s Degree in English literature. Prior to joining the Department, he served for the All India Radio, Coimbatore for a period of about 4 years.
An MBA from the Indian Institute of Management, Calcutta, and an M.Sc. in Tourism Management from the Scottish Hotel School, UK, Ashok Anantram was one fo the earliest IIM graduates to enter the Indian hospitality industry. He joined India Tourism Development Corporation (ITDC) in 1970 and after a brief stint proceeded to the UK on a scholarship. On his return to India, he joined ITC Hotels Limited in 1975. Over the 30 years in this Organisation, he held senior leadership positions in Sales & Marketing and was its Vice President – Sales & Marketing. He was closely involved in decision making at the corporate level and saw the chain grow from a single hotel in 1975 to a very large multi-brand professional hospitality group.
Mani holds a Bachelor Degree in Science and P.G. Diploma in Journalism and Public Relations. He has a rich and varied experience of over 4 decades in Banking, Finance, Hospitality and freelance Journalism. He began his career with Andhra Bank and had the benefit of several training programs in Banking.
Mr. Kailash Chandra Kala joined the Department of Revenue, Ministry of Finance as ‘Customs Appraiser’ at Mumbai in the year 1993.
S Ramanujam, is a Chartered Accountant with over 40 years of experience and specialization in areas of Corporate Tax, Mergers or Demergers, Restructuring and Acquisitions. He worked as the Executive Vice-President, Group Taxation of the UB Group, Bangalore.
K K Balu holds a degree in B.A and B.L and is a Corporate Lawyer having over 50 years of Legal, Teaching and Judicial experience.
Justice M. Jaichandren hails from an illustrious family of lawyers, academics and politicians. Justice Jaichandren majored in criminology and then qualified as a lawyer by securing a gold medal. He successfully practiced in the Madras High Court and appeared in several civil, criminal, consumer, labour, administrative and debt recovery tribunals. He held office as an Advocate for the Government (Writs Side) in Chennai and was on the panel of several government organizations as senior counsel. His true passion lay in practicing Constitutional laws with focus on writs in the Madras High Court. He was appointed Judge, High Court of Madras in December 2005 and retired in February 2017.
S Balasubramanian is a Commerce and Law Graduate. He is a member of the Delhi Bar Council, an associate Member of the Institute of Chartered Accountants of India, the Institute of Company Secretaries of India and Management Accountants of India.