IBC overrides RBI circular; section 7 insolvency can proceed once financial debt, default, and filing requirements are proved.

A Reserve Bank of India circular dated 12.02.2018, read with sections 35AA and 35AB of the Banking Regulation Act, was treated as a guideline for banks and not as a bar on a financial creditor's statutory right to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016; section 238 was applied to give the Code overriding effect over any inconsistent circular or guideline. The section 7 application was also supported by records of default, acknowledgements of debt, correspondence admitting default, bank statements, and the required professional declaration, so the statutory threshold and filing requirements were satisfied. CIRP was accordingly commenced, moratorium directions followed, and an interim resolution professional was appointed.

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Issues: (i) Whether the Reserve Bank of India circular dated 12.02.2018, read with sections 35AA and 35AB of the Banking Regulation Act, 1949, barred a financial creditor from initiating insolvency proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 before first finalising and implementing a resolution plan under the circular. (ii) Whether the section 7 application disclosed a complete case of financial debt and default warranting admission of the corporate insolvency resolution process.

Issue (i): Whether the Reserve Bank of India circular dated 12.02.2018, read with sections 35AA and 35AB of the Banking Regulation Act, 1949, barred a financial creditor from initiating insolvency proceedings under section 7 of the Insolvency and Bankruptcy Code, 2016 before first finalising and implementing a resolution plan under the circular.

Analysis: The circular was treated as a guideline addressed to banks and not as a restriction on the statutory right to move under the Insolvency and Bankruptcy Code, 2016. The Code was held to be a time-bound framework, and section 238 was applied to hold that the Code would prevail over any inconsistent circular or guideline. The interpretation suggested by the corporate debtor was rejected as defeating the object of the insolvency regime.

Conclusion: The objection based on the Reserve Bank of India circular was rejected.

Issue (ii): Whether the section 7 application disclosed a complete case of financial debt and default warranting admission of the corporate insolvency resolution process.

Analysis: The application was found supported by the record of default, acknowledgements of debt, correspondence admitting default, bank account statements, and the requisite professional declaration regarding the proposed interim resolution professional. The default amount exceeded the statutory threshold, and the requirements of section 7 and the relevant rules were held to be satisfied.

Conclusion: The application was held complete and fit for admission.

Final Conclusion: The corporate insolvency resolution process was commenced, moratorium directions followed, and an interim resolution professional was appointed.

Ratio Decidendi: A Reserve Bank of India circular cannot curtail or postpone the statutory remedy under section 7 of the Insolvency and Bankruptcy Code, 2016, and once default and compliance with the statutory filing requirements are established, the application is liable to be admitted.

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