2026 (3) TMI 1515 - HC - IBC

Interim moratorium does not halt MPID attachment proceedings, and insolvency law does not override the depositor protection statute.

Bombay HC held that interim moratorium under Section 96 of the Insolvency and Bankruptcy Code does not stay MPID Act attachment proceedings, because such ... Interim moratorium under Section 96 - Seeking stay proceedings for making absolute attachment - Attachment under depositors protection law - Repugnancy and overriding effect - Binding precedent - Statutory attachment proceedings under the MPID Act. Interim moratorium under insolvency law - Attachment under depositors protection law - Debtor-creditor relationship - Repugnancy and overriding effect - HELD THAT: - The Court held that the property sought to be made absolute under the MPID Act was not a debt and that no debtor-creditor relationship existed between the appellants and the State. On that basis, the interim moratorium under Section 96 of the IBC was held inapplicable to the attachment proceedings. The Court further held that the MPID Act and the IBC operate in distinct legislative fields, the former under List II and the latter under List III, and therefore the doctrine of repugnancy under Article 254(1) had no application. Consequently, it could not be contended that the IBC would override the MPID Act through Section 238. The Court followed the principle stated in National Spot Exchange Ltd. v/s. Union Of India . [Paras 8, 9] The challenge to rejection of the applications seeking stay of MPID proceedings was rejected and the appeals were dismissed. Final Conclusion: All the appeals were dismissed. The Court held that Section 96 of the IBC did not stay proceedings for making absolute attachment under the MPID Act, and imposed costs on each appeal for pursuing repetitive proceedings contrary to the settled legal position. Issues: (i) Whether the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 applies so as to stay proceedings for making absolute attachment under Sections 4, 7 and 8 of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999. (ii) Whether the Insolvency and Bankruptcy Code, 2016 overrides the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 on the basis of repugnancy and Section 238 of the Insolvency and Bankruptcy Code, 2016.Issue (i): Whether the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 applies so as to stay proceedings for making absolute attachment under Sections 4, 7 and 8 of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999.Analysis: The attachment proceedings under the MPID Act were held not to constitute a 'debt' within the meaning of the insolvency framework. There was no debtor-creditor relationship between the appellants and the State in relation to the attached properties. The moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 operates in respect of proceedings against a debtor for debts, and could not be invoked to stall the statutory attachment process intended to protect depositors' interests.Conclusion: The interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 does not apply to the MPID attachment proceedings.Issue (ii): Whether the Insolvency and Bankruptcy Code, 2016 overrides the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 on the basis of repugnancy and Section 238 of the Insolvency and Bankruptcy Code, 2016.Analysis: Repugnancy under Article 254(1) of the Constitution of India arises only where Parliamentary and State legislation operate in the same legislative field. The MPID Act and the Insolvency and Bankruptcy Code, 2016 were treated as operating in distinct spheres under different Lists of the Seventh Schedule. In that setting, Section 238 of the Insolvency and Bankruptcy Code, 2016 did not displace the MPID Act.Conclusion: The Insolvency and Bankruptcy Code, 2016 does not override the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999 on the ground of repugnancy.Final Conclusion: The appeals failed on merits, and the orders rejecting the applications for stay of the MPID proceedings were sustained with costs.Ratio Decidendi: Statutory attachment proceedings under the MPID Act are not 'debt' proceedings giving rise to a debtor-creditor relationship, and therefore the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 is inapplicable; further, the two enactments operate in different legislative fields, so Section 238 of the Insolvency and Bankruptcy Code, 2016 does not override the MPID Act.