Insolvency moratorium overrides parallel state recovery proceedings, barring continuation once CIRP begins and assets enter the insolvency process.

Proceedings under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 cannot continue once corporate insolvency resolution proceedings have commenced and the moratorium under the Insolvency and Bankruptcy Code, 2016 is in force. The broad overriding effect of section 238 of the Code prevents parallel proceedings that may interfere with the insolvency resolution process, especially where the assets and liabilities of the corporate debtor are already within the insolvency framework. On that basis, the State Act proceedings were held not to survive and were quashed.

---

---

Issues: Whether proceedings initiated under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 could continue after commencement of corporate insolvency resolution proceedings and moratorium under the Insolvency and Bankruptcy Code, 2016, having regard to the overriding effect of section 238 of the Code.

Analysis: The petitioner-company had already been admitted to corporate insolvency resolution proceedings by the National Company Law Tribunal, and a moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 had come into force. The Court noted that the Code contains a broad non-obstante clause in section 238 and that, once insolvency proceedings commence, parallel proceedings that may interfere with the resolution process cannot be permitted to continue. The Court also noted that the competent authority had moved the Special Court under the State Act in respect of the same corporate debtor and that the assets and liabilities of the company were already within the domain of the insolvency process.

Conclusion: The proceedings under the State Act were held not to survive in view of the moratorium and the overriding effect of the Insolvency and Bankruptcy Code, 2016, and they were quashed.

---