Supreme Court Upholds IBC's Supremacy Over Companies Act, Facilitates Corporate Insolvency Resolution, Supreme Court sets aside Appellate Tribunal's order, allowing CIRP initiation despite pending Scheme of Arrangement under Companies Act.
In a landmark decision, the Supreme Court of India reinforced the overriding power of the Insolvency and Bankruptcy Code (IBC), 2016 over the Companies Act, 1956, particularly in cases where the Scheme of Arrangement (SOA) becomes defunct due to procedural lapses. The judgment came in the case of Omkara Assets Reconstruction Private Limited v. Amit Chaturvedi and others, where the apex court allowed the Corporate Insolvency Resolution Process (CIRP) to proceed despite the existence of an unresolved SOA under the Companies Act.
The bench, comprising Justices Sanjay Kumar and K. Vinod Chandran, overturned the decision of the Appellate Tribunal, which had previously placed the CIRP application in abeyance due to ongoing proceedings related to the SOA. The Supreme Court noted that the statutory timelines for the SOA were not adhered to, rendering it unenforceable. As per the judgment, the IBC's Section 238, which grants it an overriding effect over other laws, was pivotal in the court's decision.
The court emphasized the IBC's role as a special statute aimed at the revival of industries and balancing public and economic interests. The judgment criticized the procedural delays and lapses in the SOA proceedings, pointing out that such inefficiencies cannot derail the IBC process unless the SOA is proven feasible and operational.
The case stemmed from a situation where the Stressed Assets Stabilization Fund, representing the appellant Omkara Assets Reconstruction, sought to initiate CIRP for the recovery of substantial debts. However, the respondent resisted, citing a pending SOA under the Companies Act. The Supreme Court found that the SOA had become redundant due to non-compliance with statutory timelines and deliberate omissions by the respondent company.
The ruling reaffirmed previous decisions that the IBC is a special statute with provisions that take precedence over the Companies Act. The court underscored that efforts should be made to resuscitate corporate debtors in the larger public interest, rather than allowing outdated proceedings under the Companies Act to obstruct the IBC process.
This decision is expected to have significant implications for corporate insolvency proceedings in India, reinforcing the IBC's status as the primary legal framework for addressing insolvency issues and promoting economic stability.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 overrides inconsistent provisions of the Companies Act, 1956, ensuring effective corporate insolvency resolution process (CIRP) even in cases where Scheme of Arrangement (SOA) under the Companies Act is pending or has become defunct due to non-compliance with procedural timelines.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 7, 14, 238; Companies Act, 1956 Sections 391 to 394; Companies (Court) Rules, 1959; Companies (Transfer of Pending Proceedings) Rules, 2016; Companies Act, 2013 Section 434 (1) (c); Recovery of Debts and Bankruptcy Act, 1993; Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
Omkara Assets Reconstruction Private Limited v. Amit Chaturvedi, (SC) : Law Finder Doc id # 2857754
