Court: Supreme Court of India
Bench: Hon’ble Justices B.R. Gavai and Sandeep Mehta
Supreme Court References:
- Criminal Appeal No. 3851 of 2023
- Judgment and Order dated 14.02.2022 of the High Court of Judicature at Bombay in WP No. 2592 of 2021
Points of Facts:
- M/s. SBM Paper Mills Private Limited (Corporate Debtor) filed a petition under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiation of the Corporate Insolvency Resolution Process (CIRP).
- The National Company Law Tribunal (NCLT), Mumbai Bench, admitted the petition and appointed an Interim Resolution Professional (RP).
- Mr. Satyanarayan Malu, the Respondent/Ex-Director of the Corporate Debtor, filed an application for withdrawal of the petition under Section 12A in light of a One Time Settlement (OTS) with the sole Financial Creditor, Allahabad Bank.
- The NCLT allowed the withdrawal application based on the consent of the Financial Creditor.
- Due to non-compliance with the terms of the OTS by the Respondents, the NCLT found it a fit case to prosecute the Respondents.
- The Appellant-Board (Insolvency and Bankruptcy Board of India) filed a complaint against the Respondents before the Sessions Judge under Sections 73(a) and 235A of the IBC.
- The Sessions Judge directed issuance of process against the Respondents.
- The Respondents filed a writ petition before the High Court challenging the Sessions Judge’s order for want of jurisdiction.
- The High Court allowed the writ petition, leading to the present appeal before the Supreme Court.
Points of Law:
- The issue was whether the Special Court under the IBC would be as provided under Section 435 of the Companies Act, 2013 as it existed when the IBC came into effect, or as provided under Section 435 after the 2018 Amendment.
- The reference to ‘Special Court established under Chapter XXVIII of the Companies Act, 2013’ in Section 236(1) of the IBC is ‘legislation by incorporation’ or ‘legislation by reference’.
- The effect of ‘legislation by incorporation’ is that the provisions are bodily lifted from one enactment and made part of another, such that the repeal of the former does not affect the latter.
- In the case of ‘legislation by reference’, the amendment or repeal of the provisions of the Act referred to in a subsequent Act will bear the effect of the amendment or repeal.
- The distinction between ‘legislation by incorporation’ and ‘legislation by reference’ was discussed in various Supreme Court cases, including Collector of Customs, Madras v. Nathella Sampathu Chetty and Anr., Bolani Ores Ltd. v. State of Orissa, and Mahindra and Mahindra Ltd. v. Union of India and another.
- The principle of ‘legislation by incorporation’ has been applied in cases where a provision of one statute is incorporated in another, and any subsequent amendment in the former statute or even its total repeal would not affect the provision as incorporated in the latter statute.
- The Supreme Court has held in various cases, including Girnar Traders (3) v. State of Maharashtra and others, that if the legislature intended a general reference, it would have said so, but a specific reference indicates ‘legislation by incorporation’.
- The Supreme Court has consistently held that the IBC is a self-contained Code.
Points of Judgment:
- The reference in Section 236(1) of the IBC is specific and not general, indicating a case of ‘legislation by incorporation’ and not ‘legislation by reference’.
- The provision regarding the Special Court has been bodily lifted from Section 435 of the Companies Act, 2013 and incorporated in Section 236(1) of the IBC.
- Any amendment to Section 435 of the Companies Act, 2013, after the IBC came into effect would not have any effect on the provisions of Section 236(1) of the IBC.
- At the time of the IBC’s enactment, the Special Court consisted of a person qualified to be a Sessions Judge or an Additional Sessions Judge.
- The reasoning of the High Court that only offenses under the Companies Act would be tried by a Special Court of Sessions Judge or Additional Sessions Judge, and all other offenses, including under the IBC, shall be tried by a Metropolitan Magistrate or Judicial Magistrate of the First Class, is untenable.
- The High Court erred in quashing the complaint solely on the ground that it was filed before a Special Court presided by a Sessions Judge.
- The Supreme Court held that the Special Court presided by a Sessions Judge or an Additional Sessions Judge would have jurisdiction to try the complaint under the IBC.
- The matter was remitted to the High Court for considering the Respondents’ petition afresh on merits.
Arguments Forwarded by the Parties:
Arguments by the Appellant-Board:
- The reference in Section 236(1) of the IBC is specific, indicating ‘legislation by incorporation’.
- If the legislative intent was ‘legislation by reference’, a general reference would have been made.
- Subsequent amendments to the Companies Act, 2013 would not affect the IBC if it is a case of ‘legislation by incorporation’.
- The Code is a complete Code in itself, and the provisions should be interpreted based on the legislative intent at the time of enactment.
Arguments by the Respondents:
- The point of ‘legislation by incorporation’ was not argued before the High Court and should not be allowed to be raised for the first time in the Supreme Court.
- The judgments cited by the Appellant-Board regarding ‘legislation by incorporation’ are not applicable to the present case.
- Applying the test laid down in Girnar Traders (3) v. State of Maharashtra and others, the present case is one of ‘legislation by reference’.
- The respondents have a good case on merits, and the matter should be remitted to the High Court for deciding it afresh on merits.
Judgments Cited:
- Collector of Customs, Madras v. Nathella Sampathu Chetty and Anr. [1962] 3 SCR 786
- Bolani Ores Ltd. v. State of Orissa [1975] 2 SCR 138
- Mahindra and Mahindra Ltd. v. Union of India and another [1979] 2 SCR 1038
- Girnar Traders (3) v. State of Maharashtra and others [2007] 9 SCR 383
- New Central Jute Mills Co. Ltd. v. Assistant Collector of Central Excise, Allahabad & Ors. [1971] 2 SCR 92
- Ujagar Prints and others v. Union of India and others [1989] 1 SCR 344
- Innoventive Industries Limited v. ICICI Bank and another [2017] 8 SCR 33
- Principal Commissioner of Income Tax v. Monnet Ispat and Energy Limited (2018) 18 SCC 786
- E.S. Krishnamurthy and others v. Bharath Hi-Tech Builders Private Limited [2021] 12 SCR 28
- Pratap Technocrats Private Limited and others v. Monitoring Committee of Reliance Infratel Limited and another [2021] 8 SCR 938
- V. Nagarajan v. SKS Ispat and Power Limited and others [2021] 14 SCR 736
- Embassy Property Developments Private Limited v. State of Karnataka and others [2019] 17 SCR 559
- Bharti Airtel Ltd. and another v. Vijaykumar V. Iyer and others [2024] 1 SCR 140
HELD: The Supreme Court ruled that Section 236(1) of the IBC is ‘legislation by incorporation’, affirming that Special Courts under the IBC are presided over by Sessions Judges, and remanded the case to the High Court for reconsideration on merits.