2017 (9) TMI 58 - SC - IBC

Maharashtra Relief Undertakings Act 1958 ruled repugnant to Insolvency and Bankruptcy Code 2016 under Section 14

The SC held that the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 is repugnant to the Insolvency and Bankruptcy Code, 2016. The Court ... Applicability and conflict between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 (Maharashtra Act) - Initiation of the Corporate Insolvency Resolution Process under Section 7 of the IBC - effect and enforceability of the Master Restructuring Agreement (MRA) - tests of inconsistency or repugnancy ​​​​​​​- repugnancy between a Central and a State enactment - doctrine of pith and substance - whether State statute prevailing over Parliamentary legislation - restructuring of the corporate debtor - Held that:- the earlier State law is repugnant to the later Parliamentary enactment as under the said State law, the State Government may take over the management of the relief undertaking, after which a temporary moratorium in much the same manner as that contained in Sections 13 and 14 of the Code takes place under Section 4 of the Maharashtra Act. There is no doubt that by giving effect to the State law, the aforesaid plan or scheme which may be adopted under the Parliamentary statute will directly be hindered and/or obstructed to that extent in that the management of the relief undertaking, which, if taken over by the State Government, would directly impede or come in the way of the taking over of the management of the corporate body by the interim resolution professional. It will be noticed that whereas the moratorium imposed under the Maharashtra Act is discretionary and may relate to one or more of the matters contained in Section 4(1), the moratorium imposed under the Code relates to all matters listed in Section 14 and follows as a matter of course. In the present case it is clear, therefore, that unless the Maharashtra Act is out of the way, the Parliamentary enactment will be hindered and obstructed in such a manner that it will not be possible to go ahead with the insolvency resolution process outlined in the Code. The later non-obstante clause of the Parliamentary enactment will also prevail over the limited non-obstante clause contained in Section 4 of the Maharashtra Act. For these reasons, we are of the view that the Maharashtra Act cannot stand in the way of the corporate insolvency resolution process under the Code. Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd. Issues Involved:1. Applicability and conflict between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Maharashtra Relief Undertakings (Special Provisions) Act, 1958 (Maharashtra Act).2. Validity of the initiation of the corporate insolvency resolution process under Section 7 of the IBC.3. The effect and enforceability of the Master Restructuring Agreement (MRA) in the context of the IBC proceedings.Detailed Analysis:1. Applicability and Conflict Between the IBC and the Maharashtra ActThe primary issue was whether the IBC, a later central enactment, would prevail over the Maharashtra Act, an earlier state enactment, under Article 254 of the Constitution. The court held that the IBC, being a consolidating and amending Act, forms a complete code in itself, exhaustive of the matters dealt with therein, specifically insolvency resolution for corporate entities. The court stated that the IBC's non-obstante clause in Section 238 would override any inconsistent provisions in the Maharashtra Act. The court emphasized that the IBC's moratorium provisions under Sections 13 and 14 would directly clash with the moratorium under the Maharashtra Act, thereby hindering the insolvency resolution process. Thus, the Maharashtra Act could not stand in the way of the corporate insolvency resolution process under the IBC.2. Validity of the Initiation of the Corporate Insolvency Resolution Process under Section 7 of the IBCThe court examined the procedural aspects under Section 7 of the IBC, which allows a financial creditor to initiate the insolvency resolution process upon default. The court underscored that the adjudicating authority must ascertain the existence of a default within 14 days of receiving the application. The court noted that the appellant's argument, based on the suspension of debt under the Maharashtra Act, was correctly rejected by the adjudicating authority, which held that the IBC would prevail due to its non-obstante clause. The court also affirmed that the appellant's subsequent application, raising a new plea regarding the MRA, was not maintainable as it was filed beyond the 14-day period and appeared to be an afterthought.3. Effect and Enforceability of the Master Restructuring Agreement (MRA)The appellant argued that due to the non-release of funds under the MRA by the creditors, it was unable to pay its debts, and hence no default was committed. The court, however, found this argument unpersuasive. It highlighted a specific clause in the MRA which stated that the obligations under the agreement were unconditional and did not depend on the infusion of funds by the creditors. The court concluded that the appellant's obligations were clear and unconditional, and the failure to disburse funds by the creditors did not absolve the appellant from its debt obligations. Consequently, the court upheld the decisions of the NCLT and NCLAT, which had admitted the insolvency application filed by ICICI Bank Ltd.ConclusionThe Supreme Court dismissed the appeals, affirming that the IBC would prevail over the Maharashtra Act due to the non-obstante clause in Section 238 of the IBC. The court also validated the initiation of the insolvency resolution process under Section 7 of the IBC and found no merit in the appellant's arguments regarding the MRA. The judgment underscores the comprehensive and overriding nature of the IBC in matters of corporate insolvency.