INSOLVENCY
AND BANKRUPTCY CODE : THE NEVER ENDING DISPUTE
(BY
SHUBHAM BUDHIRAJA)
Sec.
238 of the Insolvency and Bankruptcy Code (IBC) states as follows:
“The provisions of
this Code shall have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any instrument having
effect by virtue of any such law.”
Section 238 of IBC outlines
the Non-obstante features of the code. The Non-obstante
clause of any act empowers the legislation or a provision in which it contains,
to override the effects of any other legal provisions contrary to this under
the same law or any other laws.
Further, the judiciary has always been the evident of interpreting the
Non-obstante clause of an act and no single test has been evolved yet. However,
Section 238 of the Code is designed in such a way as to attain the ultimate
objective of not to hamper recovery of dues or enhance the value of assets of
Corporate Debtor. Only in the case when because of the provisions of any other
law, particular creditor gets undue advantage over other creditors, then
Section 238 of the Code is to be strictly applied.
It is also important to note
that Section 238 of IBC has been designed in order to support the moratorium
manuals outlined under section 14 of said code.
The Insolvency and Bankruptcy Code, 2016 (IBC) came into force
on December 1, 2016. However, the First rival
story started in matter of M/s Innoventive Industries Ltd. vs.
ICICI Bank.
The Hon’ble
Supreme court of India in matter of M/s Innoventive Industries
Ltd. vs. ICICI Bank via very detailed judgment has mentioned that the:
Non-obstante clause of IBC will prevail over the
non-obstante clause in the (Maharashtra
Relief Undertaking (Special Provisions Act) 1958) MRUA. Further, it was
also held that on account of the non-obstante clause in the IBC, any right of
the corporate debtor under any other law cannot come in the way of the IBC.
IBC v. ARBITRATION PROCEEDINGS
However, Hon’ble Delhi
High Court in matter of Power Grid Corporation of India Ltd. vs Jyoti Structures Ltd while observing taking a
different view for moratorium, has ruled that Section 14(1)(a) of the Insolvency and Bankruptcy Code,
2016, (hereinafter referred to as the ‘IBC’) would not apply to proceedings
which are beneficial to the corporate debtor. Proceedings’ under Section 14 (1) (a) do not
mean ‘all proceedings’ and Continuation of proceedings under Section 34 of the
Arbitration Act which do not result in endangering, diminishing, dissipating or
adversely impacting the assets of the corporate debtor are not prohibited under
Section 14(1)(a) of the code. The continuation of these proceedings shall cause
no harm to the rights of either party to seek determination of issues under
Section 34 of the Act and object of the code shall be preserved rather than
defeated.
IBC v. INCOME TAX ACT
Further, Hon’ble Supreme court of India in matter of,
Pr.
Commissioner Of Income Tax vs Monnet Ispat And Energy Ltd
Given Section 238 of
the Insolvency and Bankruptcy Code, 2016, it is obvious that the Code will override
anything inconsistent contained in any other enactment, including the
Income-Tax Act.
We may also refer in
this Connection to Dena Bank vs. Bhikhabhai Prabhudas Parekh and Co. & Ors. (2000) 5
SCC 694 and its progeny, making it clear that income-tax dues, being in the nature of Crown debts, do not take
precedence even over secured creditors, who are private persons.
IBC v. SEBI ACT
Hon’ble
National Company Law Appellate Tribunal, while rejecting the
appeal brought against NCLT order for CIRP while confirming the view taken by
NCLT has held that the provisions of IBC
would override the provisions of SEBI act, relied upon its own judgment in Anju Agarwal versus Bombay stock exchange and
ors.
IBC
v. RERA v. CONSUMER PROTECTION LAW
RULING IN NIKHIL MEHTA CASE:
The
Hon’ble NCLAT in Nikhil Mehta and Sons (HUF) v. AMR
Infrastructure Ltd., held that amounts raised by developers
under assured return schemes had the “commercial
effect
of a borrowing”, which became clear from the developers annual
returns in which the amount raised was shown as “commitment charges” under the head “financial costs”. As
a result, such allottees were held to be
“financial creditors within the meaning of Section 5(7) of
the Code.
RULING IN CHITRA SHARMA
CASE:
The
Hon’ble Supreme court of India in Chitra
Sharma & Ors. v. Union of India (Writ Petition (Civil)
No.744 of 2017) in the case of Jaypee Infratech Ltd. appointing
a representative of the home buyers, i.e. the allottees to participate in
meetings of the Committee of Creditors in order that their interests be
protected.
RULING IN BIKRAM CHATTERJI
CASE:
Bikram
Chatterji v. Union of India (Writ Petition (Civil)
No.940 of 2017) substantially on the same lines as the order passed in Chitra
Sharma (supra). During proceedings before this Hon’ble Court in Chitra Sharma (supra),
this Court, vide order dated 21st March, 2018, recorded that it
was only concerned with those home buyers who intend to obtain a refund
of amounts advanced by them, being 8%
of the total home buyers/allottees in Jaypee’s case.
INSOLVENCY AND BANKRUPTCY
COMMITTEE & IBC AMENDMENT ACT ,2018:
The Insolvency
Committee Report suggested that amendments be made in the Code seeking to
clarify, as a matter of law, that allottees of real estate projects are
financial creditors.
Three amendments to the code
inserted via 2018 Ordinance:
1. Explanation to Section 5(8)(f):
In this part, unless
the context otherwise requires, –
(8) “financial debt” means a debt along with interest, if
any, which is disbursed against the consideration
for the time value of
money and includes- (f) any amount raised under any other transaction,
including any forward sale or purchase agreement, having the commercial effect
of a borrowing;
Explanation.
-
For the purposes of this sub clause,-
(i)
any amount raised from an allottee under a
real estate project shall be deemed to be an amount having the commercial
effect of a borrowing; and
(ii)
the
expressions, “allottee” and “real estate project” shall have the meanings
respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate
(Regulation and Development)
Act, 2016 (16 of 2016);”
2. Section 21(6A)(b)
“Committee of creditors (6A) Where a financial debt- (b) is
owed to a class of creditors exceeding the number as may be specified, other
than the creditors covered under clause (a) or sub-section (6), the interim
resolution professional shall make an application to the Adjudicating Authority
along with the list of all financial creditors, containing the name of an
insolvency professional, other than the interim resolution professional, to act
as their authorised representative who shall be appointed by the Adjudicating Authority
prior to the first
meeting of the committee of creditors; […] and
such authorised representative under clause (a) or clause (b) or clause (c)
shall attend the meetings of the committee of creditors, and vote on behalf of
each financial creditor to the
extent of his voting share.”
3. Section 25A
“Rights and duties of authorized representatives of
financial creditors –
(1) The authorised
representative under sub-section (6) or sub-section (6A) of section 21 or
sub-section (5) of section 24 shall have the right to participate and vote in
meetings of the committee of creditors on behalf of the financial creditor he
represents in accordance with the prior voting instructions of such
creditors obtained
through physical or electronic means. (2) It shall be the duty of the
authorised representative to circulate the agenda and minutes of the meeting of
the committee of creditors to the financial creditor he represents. The
authorised representative shall not act against the interest of the financial
creditor he represents and shall always act in accordance with their prior
instructions:
Provided that if the authorised representative represents several financial
creditors, then he shall cast his vote in respect of each financial creditor in
accordance with instructions received from each financial creditor, to the
extent of his voting share: Provided further that if any financial creditor
does not give prior instructions through physical or electronic means, the
authorised representative shall abstain from voting on behalf of such creditor.
(4) The authorised
representative shall file with the Committee of creditors any instructions
received by way of physical or electronic means, from the financial creditor he
represents, for voting in accordance therewith, to ensure that the appropriate
voting instructions of the financial creditor he represents is correctly
recorded by the interim resolution professional or resolution professional, as
the case may be. Explanation –
For
the purposes of this section, the “electronic
means” shall be such as may be specified.”
The Hon’ble Supreme court of India while
dealing with the challenge to said amendment act of 2018 in matter of Pioneer
Urban Land and Infrastructure Limited & Anr. versus
Union of India & Ors. has held that the:
i.
Amendment Act to the Code does not infringe
Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of
India.
ii.
The RERA is to be read harmoniously with the
Code, as amended by the Amendment Act. It is only in the event of conflict that
the Code will prevail over the RERA. Remedies that are given to allottees of
flats/apartments are therefore concurrent remedies, such allottees of
flats/apartments being in a position to avail of remedies under the Consumer
Protection Act, 1986, RERA as well as the triggering of the Code.
iii.
Section 5(8)(f) as it originally appeared in
the Code being a residuary provision, always subsumed within it allottees of
flats/apartments. The explanation together with the deeming fiction added by
the Amendment Act is only clarificatory of this position in law.
Further, the Court
also observed that there is no provision
similar to that of Section 88 of RERA in the Code, which is meant to be a
complete and exhaustive statement of the law insofar as its subject matter is
concerned. Also, the non-obstante clause of RERA came into force on 1st May,
2016, as opposed to the non-obstante clause of the Code which came into force
on 1st December, 2016. Further, the amendment with which we are
concerned has come into force only on 6th June, 2018. Given these
circumstances, it is a little
difficult to accede to arguments made on behalf of learned senior counsel for
the Petitioners, that RERA is a special enactment which deals with real estate
development projects and must, therefore, be given precedence over the Code,
which is only a general enactment dealing with insolvency generally.
CONCLUSION:
“Swiss
Ribbons vs. Union of India”, the Hon’ble Supreme Court has upheld the
constitutional validity of the Code. We are happy to note that
in the working of the Code, the flow of financial resource to the commercial
sector in India has increased exponentially as a result of financial debts
being repaid. igures show that
the experiment conducted in enacting the Code is proving to be largely
successful. The defaulter‘s paradise is
lost. In its place, the economy‘s rightful position has been regained.
DISCLAIMER:
The
views and opinions expressed in this article are those of the authors and do
not necessarily reflect the official policy or position of any agency of the
Indian government. Examples of analysis performed within this article are only
examples. They should not be utilized in real-world analytic products as they
are based only on very limited and dated open source information. Assumptions
made within the analysis are not reflective of the position of any Indian
government State.
REFERENCES:
Very informative article.
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